01—Abstract
Summary
Summary of the 10-K filed February 19, 2015. Cited figures are marked; the original filing is the authoritative source.
Amgen's 2014 10-K shows a company with solid top-line growth and a sharply rising profit base, but with rising costs and a sizable pipeline and patent-expiry overhang.
Total revenues rose 7% to $20.1 billiona, product sales grew 6% to $19.3 billion (U.S. +5%, ROW +11%), and net income rose 2% to $5.2 billion, or $6.70 diluted EPS. Operating income increased 6% to $6.2 billion. Growth was driven by price increases in the U.S., Kyprolis (added via the Onyx acquisition in October 2013), Prolia and XGEVA, and international unit growth.
Offsetting this were a 32% jump in cost of sales (largely non-cash amortization from Onyx) and $558 millionb of restructuring charges under a plan to cut 3,500 to 4,000 jobs and close facilities in Colorado and Washington, with total charges expected at $935 million to $1,035 million. The effective tax rate rose to 7.6% from 3.5%, which compressed the net income gain relative to operating income. The key investor considerations are the upcoming loss of exclusivity and biosimilar competition.
Neulasta and NEUPOGEN face filgrastim and pegfilgrastim biosimilar filings (including Sandoz's ZARXIO, which has an FDA advisory committee recommendation and is in litigation with Amgen), U.S. Neulasta's main patent expires in October 2015, and the remaining EPOGEN patent expires in May 2015. NEUPOGEN sales fell 17%c in 2014. Management is pinning long-term growth on a pipeline that includes Repatha (evolocumab), Corlanor, brodalumab, BLINCYTO (accelerated approval December 2014), and the biosimilar program.
Cash and marketable securities reached $27.0 billiond, against $30.7 billion of debt. Shareholder returns were raised, with the quarterly dividend increased 30% to $0.79 and $3.8 billion remaining on the buyback authorization. Roughly 94% of U.S. gross product sales go through three wholesalers, which concentrates both credit and pricing risk.
02—Key points
Key Highlights
- Total revenues rose 7% to $20.06 billion; product sales rose 6% to $19.33 billion, with U.S. product sales up 5% and rest-of-world up 11%.
- Net income rose 2% to $5.16 billion; diluted EPS was $6.70, up 1%, and the effective tax rate increased to 7.6% from 3.5%.
- Cost of sales rose 32% to 22.0% of revenue, mainly from roughly $642 million of additional non-cash amortization tied to the Onyx acquisition.
- A restructuring plan will cut 3,500 to 4,000 positions and close facilities, with $558 million of charges booked in 2014 out of an expected $935 million to $1,035 million total.
- Neulasta/NEUPOGEN sales were flat to down (-1%), with NEUPOGEN down 17% amid filgrastim biosimilar competition; the U.S. pegfilgrastim patent expires in 2015 and the U.S. EPOGEN patent in May 2015.
- Cash and marketable securities of $27.0 billion against $30.7 billion of debt; operating cash flow rose to $8.6 billion, and the quarterly dividend was raised 30% to $0.79.
- FDA accepted the Repatha BLA and BLINCYTO received accelerated approval; the Kyprolis sNDA and several biosimilar programs are advancing, while the Sandoz filgrastim biosimilar may launch if approved.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Amgen Inc kept $0.26.
- Revenue$20.06B100.0%
- Cost of revenue−$4.42B22.0%
- Gross profit$15.64B78.0%
- Operating costs−$9.45B47.1%
- Operating income$6.19B30.9%
- Interest, other & tax−$1.03B5.1%
- Net income$5.16B25.7%
Where FY2014 revenue went
$20.06B- Net income: $5.16B, 26% of revenue
- Other operating costs: $4.75B, 24% of revenue
- SG&A: $4.70B, 23% of revenue
- Cost of revenue: $4.42B, 22% of revenue
- Interest, other & tax: $1.03B, 5.1% of revenue
Kept 26% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 19, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $20.06B$18.68B | +7.4% |
| Cost of Revenue | $4.42B$3.35B | +32.2% |
| Gross Profit | $15.64B$15.33B | +2.0% |
| SG&A Expenses | $4.70B$5.18B | −9.4% |
| Operating Expenses | $13.87B$12.81B | +8.3% |
| Operating Income | $6.19B$5.87B | +5.5% |
| Interest Expense | $1.07B$1.02B | +4.8% |
| Net Income | $5.16B$5.08B | +1.5% |
| EPS (Basic) | $6.80$6.75 | +0.7% |
| EPS (Diluted) | $6.70$6.64 | +0.9% |
| Shares Outstanding (Basic) | 759.00M753.00M | +0.8% |
| Shares Outstanding (Diluted) | 770.00M765.00M | +0.7% |
05—Questions
Frequently Asked Questions
How exposed is Amgen to biosimilar and patent-expiration risk in the near term?
Materially. Neulasta's U.S. patent expires in October 2015 and the EPOGEN patent in May 2015. Apotex and Sandoz have pending filgrastim and pegfilgrastim biosimilar applications, and Hospira has filed for an EPOGEN biosimilar (Retacrit). NEUPOGEN sales already fell 17% in 2014, and management expects further competition from biosimilars, including in the U.S., as patents lapse.
Why did operating income grow only 6% while revenue rose 7%, and what drove the cost increases?
Cost of sales rose 32% to $4.4 billion, mostly from non-cash amortization of intangibles acquired with Onyx ($642 million higher) plus $104 million of restructuring-related impairments and a $99 million charge tied to ending the Roche supply contract. Restructuring charges and a $129 million increase in the BPD fee also affected SG&A and other operating expenses. These were partly offset by the end of the ENBREL profit share in October 2013, which lowered SG&A by $818 million.
What is the pipeline catalyst path for the next 12 to 18 months?
Key items include the FDA review of Corlanor (its PDUFA date was extended three months, to roughly mid-2015), the FDA review of talimogene laherparepvec (also extended three months), and the Repatha FDA and EMA reviews. The Kyprolis sNDA and MAA were filed in January 2015. Phase 3 data for brodalumab in psoriasis (AMAGINE) and the AMG 416 phase 3 program are already positive, and the biosimilar ABP 501 program met its Phase 3 endpoints in psoriasis and rheumatoid arthritis. A competing PCSK9 inhibitor could reach market before Repatha, which the company flags as a risk.
How much cash and capital return does Amgen have, and how is leverage trending?
Cash, equivalents and marketable securities were $27.0 billion at year-end 2014, up from $19.4 billion. Total debt was $30.7 billion, down from $32.1 billion, after $5.6 billion of repayments in 2014 and $4.5 billion of new issuance. Dividends paid were $1.9 billion, and buybacks were minimal at $138 million (the program was paused from Q1 2013 until November 2014), leaving $3.8 billion of authorization. Management noted that about $25.7 billion of cash is held in foreign jurisdictions, which would be taxed if repatriated.
06—Continue