01—Abstract
Summary
Summary of the 10-K filed February 16, 2016. Cited figures are marked; the original filing is the authoritative source.
Amgen's fiscal 2015 10-K shows a company with strong top-line and profit growth, but facing a major shift in its competitive position.
Total revenues rose 8% to $21.7 billiona, driven by U.S. product sales growth of 12% to $16.5 billion, largely from price increases and strong demand for ENBREL, Prolia, XGEVA, Sensipar, and Kyprolis. Operating income rose 37% to $8.5 billion, and net income increased 35% to $6.9 billion, or $9.06 per diluted share. Operating cash flow grew 6% to $9.1 billion.
Results were helped by lower operating expenses from a restructuring program, which carries an estimated $800 to $900 millionb in total pre-tax charges and a reduction of 3,500 to 4,000 staff. The key investor concern is patent expiration and biosimilar erosion. 2016 is the first full year Amgen competes without patent protection on several principal U.S. products.
Zarxio, a biosimilar to NEUPOGEN, launched in September 2015, and NEUPOGEN and EPOGEN sales declined 9%c in 2015, with EPOGEN's U.S. decline accelerating to 37% in the fourth quarter. The final U.S. patents for Neulasta and EPOGEN expired in October 2015 and May 2015, respectively, and additional biosimilars are in development. Rest-of-world product sales fell 4%, partly due to unfavorable foreign exchange.
Management is leaning on new launches, including Repatha, Kyprolis, and Blincyto, along with a pipeline that includes several near-term regulatory decisions. Balance sheet and capital return remain strong.
Amgen held $31.4 billiond in cash and marketable securities against $31.6 billion of total debt, and about $29.0 billion of cash is held outside the U.S. Amgen paid $2.4 billion in dividends, repurchased $1.9 billion of stock, and raised its quarterly dividend 27% to $1.00 for the first quarter of 2016. Investors should weigh the strong 2015 earnings against concentration risk (three wholesalers represent about 97% of U.S. gross sales), pricing and reimbursement pressure, and the Puerto Rico fiscal crisis, which affects a key manufacturing site.
02—Key points
Key Highlights
- Revenue and profit growth: Total revenues rose 8% to $21.66 billion, operating income rose 37% to $8.47 billion, and diluted EPS increased 35% to $9.06, aided by higher net selling prices and lower operating expenses.
- U.S. vs. international mix: U.S. product sales grew 12% to $16.52 billion, while rest-of-world sales fell 4% to $4.42 billion, reflecting currency headwinds and net price declines abroad.
- Biosimilar and patent cliff: Zarxio launched in the U.S. in September 2015 against NEUPOGEN, and final U.S. patents for Neulasta and EPOGEN have expired. EPOGEN sales fell 9% and NEUPOGEN fell 9% in 2015, and 2016 is the first full year without patent protection on several principal products.
- Growth products: ENBREL (+14%), Sensipar/Mimpara (+22%), XGEVA (+15%), Prolia (+27%), and Other products including Kyprolis (+24% overall), Repatha, and Blincyto contributed to growth.
- Pipeline catalysts in 2016: FDA PDUFA dates include Repatha single-dose monthly option (July 10, 2016), Parsabiv for secondary hyperparathyroidism on dialysis (August 24, 2016), and biosimilar ABP 501 (adalimumab) (September 25, 2016). Repatha's FDA approval was limited to a subset of patients pending outcomes data.
- Capital returns and balance sheet: Amgen paid $2.4 billion in dividends and repurchased $1.9 billion of stock in 2015, with $4.9 billion remaining on its authorization. It held $31.4 billion in cash and securities versus $31.6 billion of debt, and generated $9.1 billion of operating cash flow.
- Key risks: Concentration among three wholesalers (about 97% of U.S. gross sales), pricing pressure from PBMs and government payers, a Puerto Rico government debt crisis affecting a key manufacturing site, and ongoing patent and biosimilar litigation with Sandoz, Apotex, Hospira, and Sanofi/Regeneron.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Amgen Inc kept $0.32.
- Revenue$21.66B100.0%
- Cost of revenue−$4.23B19.5%
- Gross profit$17.43B80.5%
- Operating costs−$8.96B41.4%
- Operating income$8.47B39.1%
- Interest, other & tax−$1.53B7.1%
- Net income$6.94B32.0%
Where FY2015 revenue went
$21.66B- Net income: $6.94B, 32% of revenue
- SG&A: $4.85B, 22% of revenue
- Cost of revenue: $4.23B, 20% of revenue
- Other operating costs: $4.12B, 19% of revenue
- Interest, other & tax: $1.53B, 7.1% of revenue
Kept 32% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 16, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $21.66B$20.06B | +8.0% |
| Cost of Revenue | $4.23B$4.42B | −4.4% |
| Gross Profit | $17.43B$15.64B | +11.5% |
| SG&A Expenses | $4.85B$4.70B | +3.1% |
| Operating Expenses | $13.19B$13.87B | −4.9% |
| Operating Income | $8.47B$6.19B | +36.8% |
| Interest Expense | $1.09B$1.07B | +2.2% |
| Net Income | $6.94B$5.16B | +34.5% |
| EPS (Basic) | $9.15$6.80 | +34.6% |
| EPS (Diluted) | $9.06$6.70 | +35.2% |
| Shares Outstanding (Basic) | 758.00M759.00M | −0.1% |
| Shares Outstanding (Diluted) | 766.00M770.00M | −0.5% |
05—Questions
Frequently Asked Questions
How much of Amgen's 2015 growth came from pricing versus unit demand?
The filing attributes much of the U.S. growth to higher net selling prices. For example, ENBREL's U.S. increase was driven mainly by net price increases, and Neulasta's growth was primarily from U.S. pricing. Unit demand growth was a larger driver for XGEVA, Prolia, and Sensipar/Mimpara. Unit demand fell for EPOGEN and NEUPOGEN because of competition, which signals the direction biosimilar pressure is taking.
What is the biggest near-term risk from biosimilars?
Amgen expects biosimilars to exert a more branded-like pressure than generic small molecules, meaning sales erosion depends on payer and prescriber adoption. NEUPOGEN already faces Zarxio, and EPOGEN and Neulasta face expected biosimilar entrants. The company also notes that some biosimilar developers may seek interchangeable designation, which could make substitution easier. Amgen is litigating against several biosimilar makers, but it cannot predict the precise financial impact.
Is Amgen's dividend secure after the recent increase?
The board declared a $1.00 quarterly dividend for Q1 2016, up 27% from $0.79 in 2015. Amgen has a long history of quarterly payments and expects to continue, but dividend amounts and timing remain subject to board approval. Dividends paid rose from $1.9 billion in 2014 to $2.4 billion in 2015, and the company's $31.4 billion in cash and securities provides capacity, though much of the cash is held offshore and repatriating it would trigger additional taxes.
What does the Puerto Rico situation mean for Amgen?
Amgen performs most of its bulk manufacturing and formulation, fill and finish operations at its Juncos, Puerto Rico facility, which is central to global supply for products including ENBREL, Neulasta, and EPOGEN. The Puerto Rico government has defaulted on some debt and is negotiating restructuring. Potential impacts include disruption of utilities or government services, increased taxes or fees, and workforce migration. Amgen states that its facilities are adequate, but it flags this as a material supply-chain risk.
06—Continue