01—Abstract
Summary
Summary of the 10-K filed February 12, 2020. Cited figures are marked; the original filing is the authoritative source.
Amgen's FY2019 10-K (filed February 12, 2020) shows a company in transition.
Total revenues fell 2% to $23.4 billiona, with total product sales down 1% to $22.2 billion. U.S. product sales declined 5%, while rest-of-world sales rose 11%. The decline reflects lower net selling prices and growing biosimilar and generic competition, most visibly for Neulasta (down 28%), Sensipar (down 69%, after generic entry) and EPOGEN (down 14%).
Growth came from Prolia (up 17%), XGEVA (up 8%), KYPROLIS (up 8%) and a broad 'other products' category that rose 49%, driven largely by newer launches such as Otezla, which Amgen acquired from Celgene for $13.4 billionb in November 2019. Management expects net selling prices to keep declining in 2020 and expects lower unit demand for ENBREL and Aranesp. Profitability softened but remained strong.
Operating income fell 6% to $9.7 billionc and net income declined 7% to $7.8 billion. Diluted EPS nevertheless rose 2% to $12.88, helped by a 8% reduction in diluted shares to 609 million after $7.6 billion of buybacks. R&D spending rose 10% to $4.1 billion to support oncology, and SG&A fell 3%.
Operating cash flow was $9.2 billiond, down from $11.3 billion, and the dividend was raised 10% to $1.45 per quarter for 2019 and to $1.60 for the first quarter of 2020. The balance sheet became more leveraged. Cash and marketable securities fell to $8.9 billion from $29.3 billion, mainly to fund the Otezla acquisition and the $2.8 billion BeiGene stake.
Total debt declined to $29.9 billion, but stockholders' equity shrank to $9.7 billion from $12.5 billion, leaving an accumulated deficit. Key risks include the unresolved IRS dispute over Puerto Rico profit allocation, biosimilar litigation on ENBREL, KYPROLIS and MVASITM, U.S. drug-pricing legislation (H.R. 3), and dependence on the Puerto Rico and Thousand Oaks manufacturing sites.
02—Key points
Key Highlights
- Total revenues declined 2% to $23.4B in 2019; product sales fell 1% to $22.2B, with U.S. sales down 5% and rest-of-world sales up 11%.
- Net income fell 7% to $7.8B, but diluted EPS rose 2% to $12.88 as diluted share count dropped 8% to 609M after $7.6B of buybacks.
- Growth drivers included Prolia (+17%), XGEVA (+8%), KYPROLIS (+8%) and 'other products' (+49%), led by the newly acquired Otezla and launches such as Repatha, Parsabiv and Aimovig.
- Biosimilar and generic erosion hit Neulasta (-28%), Sensipar (-69%) and EPOGEN (-14%); management expects net selling prices to keep falling in 2020.
- Amgen spent $13.4B on Otezla from Celgene and $2.8B for a 20.5% BeiGene stake, reducing cash and marketable securities to $8.9B from $29.3B.
- Stockholders' equity fell to $9.7B from $12.5B and the company carries an accumulated deficit, though it remains investment-grade rated (A-/Baa1/BBB+) with $29.9B of total debt.
- Operating cash flow fell to $9.2B from $11.3B; the quarterly dividend was raised 10% to $1.60 for Q1 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Amgen Inc kept $0.34.
- Revenue$23.36B100.0%
- Cost of revenue−$4.36B18.6%
- Gross profit$19.01B81.4%
- Operating costs−$9.33B39.9%
- Operating income$9.67B41.4%
- Interest, other & tax−$1.83B7.8%
- Net income$7.84B33.6%
Where FY2019 revenue went
$23.36B- Net income: $7.84B, 34% of revenue
- SG&A: $5.15B, 22% of revenue
- Cost of revenue: $4.36B, 19% of revenue
- Other operating costs: $4.18B, 18% of revenue
- Interest, other & tax: $1.83B, 7.8% of revenue
Kept 34% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 12, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $23.36B$23.75B | −1.6% |
| Cost of Revenue | $4.36B$4.10B | +6.2% |
| Gross Profit | $19.01B$19.65B | −3.3% |
| SG&A Expenses | $5.15B$5.33B | −3.4% |
| Operating Expenses | $13.69B$13.48B | +1.5% |
| Operating Income | $9.67B$10.26B | −5.7% |
| Interest Expense | $1.29B$1.39B | −7.4% |
| Net Income | $7.84B$8.39B | −6.6% |
| EPS (Basic) | $12.96$12.70 | +2.0% |
| EPS (Diluted) | $12.88$12.62 | +2.1% |
| Shares Outstanding (Basic) | 605.00M661.00M | −8.5% |
| Shares Outstanding (Diluted) | 609.00M665.00M | −8.4% |
05—Questions
Frequently Asked Questions
Why did Amgen's revenue and net income decline in 2019?
Revenue fell 2% to $23.4B because lower net selling prices and rising biosimilar and generic competition, especially for Neulasta, Sensipar and EPOGEN, offset volume growth and new products. Net income fell 7% to $7.8B, mainly from lower operating income, which declined 6%, while operating expenses grew 2% on higher R&D spending for oncology.
How did the Otezla acquisition affect Amgen's financials?
Amgen acquired worldwide rights to Otezla from Celgene for $13.4B in cash in November 2019. The purchase was recorded as an asset acquisition, with $13.0B allocated to developed-product-technology rights amortized over about 8.5 years. This added amortization to cost of sales, which rose to 18.6% of revenue, and it contributed to the 49% growth in other products sales.
Is Amgen's balance sheet and debt position a concern for investors?
Amgen's debt fell to $29.9B from $33.9B, and the company remains investment-grade rated. However, cash and marketable securities dropped sharply to $8.9B, and stockholders' equity fell to $9.7B with an accumulated deficit, largely from buybacks and dividends. Management says existing cash, operating cash flow and credit access are adequate, but leverage is higher than a year earlier.
What are the main risks flagged in the 10-K?
Key risks include U.S. and foreign drug-pricing reform (including H.R. 3 and international reference pricing), biosimilar and generic competition across ENBREL, Neulasta, EPOGEN and KYPROLIS, and patent litigation. An unresolved IRS dispute over profit allocation with Puerto Rico could have a material impact, and concentration in Puerto Rico and Thousand Oaks manufacturing and in three U.S. wholesalers adds operational risk.
What does Amgen's capital return program look like?
In 2019 Amgen repurchased 40.2 million shares for $7.6B and paid $3.5B in dividends, with $6.5B of buyback authority remaining at year-end. The quarterly dividend rose 10% to $1.45 during 2019 and to $1.60 for Q1 2020. Management says it will keep returning capital while investing in the business, though the BeiGene and Otezla commitments reduced near-term financial flexibility.
06—Continue