01—Abstract
Summary
Summary of the 10-K filed February 13, 2018. Cited figures are marked; the original filing is the authoritative source.
Amgen's 2017 Form 10-K (filed February 13, 2018) shows a year of stable top-line results but sharply lower GAAP earnings, driven by a one-time tax charge.
Total revenues were $22.85 billiona, down 1% from $22.99 billion, with product sales flat at $21.8 billion. U.S. product sales fell 1% on lower unit demand from competition, partly offset by higher net prices, while rest-of-world sales grew 2%. Operating income rose 2% to $9.97 billion, helped by a 2% decline in operating expenses from transformation savings.
Net income, however, collapsed 74% to $1.98 billionb ($2.69 diluted EPS) because of a $6.1 billion net charge from the 2017 Tax Act, which included a $7.3 billion repatriation tax payable over eight years. The effective tax rate was 79.4%. Excluding the tax charge, the underlying business looks considerably more stable than headline EPS suggests.
Key product trends are mixed. ENBREL sales fell 9% to $5.4 billionc on lower unit demand and net price, and management expects those trends to continue in 2018. EPOGEN fell 15% after a DaVita contract reset.
Growth came from Prolia (+20%), Sensipar/Mimpara (+9%), XGEVA (+3%), and newer launches such as Repatha, which more than doubled to $319 milliond. Several patent-protected franchises face erosion, including Neulasta (no material U.S. patent after October 2015), EPOGEN, and Sensipar's composition-of-matter patent expiring March 2018, plus growing biosimilar competition. Pipeline and regulatory news was active, including the Repatha cardiovascular outcomes label, a May 2018 PDUFA date for Prolia in glucocorticoid-induced osteoporosis, and a May 2018 PDUFA for Aimovig in migraine prevention.
Capital return was also substantial: a 15% dividend increase, $3.1 billion of 2017 buybacks, and a new $10 billion authorization with a $10 billion tender offer announced February 5, 2018. Cash, cash equivalents and marketable securities were $41.7 billion, against total debt of $35.3 billion.
02—Key points
Key Highlights
- Total revenues fell 1% to $22.85B; product sales were flat at $21.8B, with U.S. sales down 1% and rest-of-world up 2%.
- Net income fell 74% to $1.98B (diluted EPS $2.69) because of a $6.1B net one-time charge from the 2017 Tax Act, including a $7.3B repatriation tax payable over eight years.
- ENBREL, the largest product, declined 9% to $5.43B on lower unit demand and net price, and management expects those trends to continue in 2018.
- Prolia (+20% to $1.97B), Sensipar/Mimpara (+9%), and XGEVA (+3%) drove growth, while EPOGEN fell 15% and NEUPOGEN fell 31% in the U.S.
- Operating expenses fell 2% from transformation savings, and operating income rose 2% to $9.97B.
- Shareholder returns increased: the quarterly dividend rose 15% to $1.15 for 2017 and $1.32 for Q1 2018, $3.1B of stock was repurchased in 2017, and a $10B tender offer and additional $10B buyback authorization were announced in early 2018.
- Cash and marketable securities of $41.7B, with a repatriated-cash unlock from the tax reform, versus $35.3B of total debt and investment-grade ratings (A / Baa1 / BBB).
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Amgen Inc kept $0.09.
- Revenue$22.85B100.0%
- Cost of revenue−$4.07B17.8%
- Gross profit$18.78B82.2%
- Operating costs−$8.81B38.5%
- Operating income$9.97B43.6%
- Interest, other & tax−$7.99B35.0%
- Net income$1.98B8.7%
Where FY2017 revenue went
$22.85B- Interest, other & tax: $7.99B, 35% of revenue
- SG&A: $4.87B, 21% of revenue
- Cost of revenue: $4.07B, 18% of revenue
- Other operating costs: $3.94B, 17% of revenue
- Net income: $1.98B, 8.7% of revenue
Kept 8.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 13, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $22.85B$22.99B | −0.6% |
| Cost of Revenue | $4.07B$4.16B | −2.2% |
| Gross Profit | $18.78B$18.83B | −0.3% |
| SG&A Expenses | $4.87B$5.06B | −3.8% |
| Operating Expenses | $12.88B$13.20B | −2.4% |
| Operating Income | $9.97B$9.79B | +1.8% |
| Interest Expense | $1.30B$1.26B | +3.5% |
| Net Income | $1.98B$7.72B | −74.4% |
| EPS (Basic) | $2.71$10.32 | −73.7% |
| EPS (Diluted) | $2.69$10.24 | −73.7% |
| Shares Outstanding (Basic) | 731.00M748.00M | −2.3% |
| Shares Outstanding (Diluted) | 735.00M754.00M | −2.5% |
05—Questions
Frequently Asked Questions
Why did Amgen's reported net income drop so sharply in 2017?
Net income fell to $1.98B from $7.72B mainly because of the 2017 Tax Act. Amgen recorded a net $6.1B charge, including a $7.3B repatriation tax on previously deferred foreign earnings, partly offset by a $1.2B benefit from remeasuring deferred tax liabilities. The effective tax rate was 79.4%. Management has said the charge is provisional and may change as analysis is completed within one year of enactment.
Which products are driving growth, and which are under pressure?
Prolia (+20%), Sensipar/Mimpara (+9%), XGEVA (+3%), and newer products such as Repatha (up to $319M) and KYPROLIS (up to $835M) grew. ENBREL (-9%), EPOGEN (-15%), NEUPOGEN (-17% globally, with U.S. down 31%), and Neulasta (-2%) declined on competition, lower net prices, and biosimilar pressure. Management expects ENBREL trends to persist in 2018.
What are the main risks to future revenue?
The filing highlights biosimilar and generic competition (Zarxio already launched, with pending EPOGEN and Neulasta biosimilars), expiring patents (Neulasta's final U.S. patent expired in 2015; Sensipar's composition-of-matter patent expires March 2018), pricing and reimbursement pressure from PBMs and payers, concentration among three wholesalers (about 96% of U.S. gross sales), and the Puerto Rico manufacturing exposure after Hurricane Maria. It also notes an open IRS dispute over profit allocation with Puerto Rico that could have a material impact if not resolved favorably.
What catalysts should investors watch in 2018?
Key dates include the PDUFA dates for Prolia in glucocorticoid-induced osteoporosis (May 28, 2018), Aimovig for migraine prevention (May 17, 2018), BLINCYTO for minimal residual disease in ALL (March 29, 2018), and ABP 980 (biosimilar Herceptin, May 28, 2018). Other items include the EVENITY resubmission following the 2017 Complete Response Letter, the Kirin-Amgen acquisition that closed in Q1 2018, and the outcome of the $10B tender offer that expired March 5, 2018.
How strong is Amgen's balance sheet and capital allocation?
Amgen had $41.7B in cash and marketable securities against $35.3B of total debt, with the investment-grade ratings A (S&P), Baa1 (Moody's), and BBB (Fitch) and a stable outlook from each. Operating cash flow rose 8% to $11.2B. Capital returns included $3.4B of dividends and $3.2B of buybacks in 2017, and the company plans further returns through a $10B tender offer and an additional $10B buyback authorization. The repatriation tax of $7.3B will be paid in eight annual installments starting April 2018.
06—Continue