10-QPeriod: Q1 FY2014

AMGEN INC Quarterly Report for Q1 Ended Mar 31, 2014

Filed April 30, 2014For Securities:AMGN

Summary

Amgen Inc.'s first quarter 2014 report shows a mixed financial performance. Total revenues increased by 7% year-over-year to $4.52 billion, driven by a 5% rise in product sales and a significant 90% surge in other revenues, largely due to the Onyx Pharmaceuticals acquisition. However, net income saw a substantial decrease of 25% to $1.07 billion, and diluted Earnings Per Share (EPS) fell by 26% to $1.40. This decline in profitability is primarily attributed to favorable tax items in the prior year's quarter and increased operating expenses, particularly in Cost of Sales, which rose significantly due to amortization of acquired intangible assets from the Onyx acquisition and a charge related to the termination of a supply contract. The company's balance sheet remains robust, with total assets growing to $67.0 billion. While cash and cash equivalents decreased slightly, marketable securities increased, contributing to a rise in total cash, cash equivalents, and marketable securities. Long-term debt remained largely stable. The company continues its commitment to returning capital to shareholders through dividends, declaring a quarterly dividend of $0.61 per share. While stock repurchases were minimal in the period, a substantial $1.6 billion remains authorized under the company's repurchase program.

Financial Highlights

53 data points
Beta

Revenue

$4.52B

72.2% Gross Margin

Net Income

$1.07B

23.7% Net Margin

EPS (Diluted)

$1.40

Total Assets

$67.00B

Cash & Equivalents

$3.69B

Free Cash Flow

$970.00M

Financial Statements
Beta
Revenue$4.52B
Cost of Revenue$1.09B
Gross Profit$3.27B
SG&A Expenses$1.02B
Operating Expenses$3.16B
Operating Income$1.36B
Interest Expense$259.00M
Net Income$1.07B
EPS (Basic)$1.42
EPS (Diluted)$1.40
Shares Outstanding (Basic)757.00M
Shares Outstanding (Diluted)768.00M

Key Highlights

  • 1Total revenues grew 7% to $4.52 billion, fueled by a 5% increase in product sales and a substantial 90% rise in other revenues, largely attributed to the Onyx Pharmaceuticals acquisition.
  • 2Net income decreased by 25% to $1.07 billion, and diluted EPS declined by 26% to $1.40, primarily due to the absence of favorable tax items seen in the prior year's quarter.
  • 3Cost of Sales increased significantly to 25.0% of product sales, impacted by acquisition-related expenses including amortization of intangible assets from the Onyx acquisition and a supply contract termination charge.
  • 4Research and Development (R&D) expenses increased by 17% year-over-year, driven by investments in later-stage clinical programs, including those inherited from Onyx.
  • 5Selling, General, and Administrative (SG&A) expenses decreased by 12%, largely due to the expiration of the Enbrel profit share arrangement.
  • 6The company maintained a strong liquidity position with $19.8 billion in cash, cash equivalents, and marketable securities as of March 31, 2014.
  • 7Amgen declared a quarterly cash dividend of $0.61 per share, demonstrating continued commitment to returning capital to shareholders.

Frequently Asked Questions

The significant increase in Cost of Sales (to 25.0% from 17.9% of product sales) was primarily driven by acquisition-related expenses. This includes $219 million in non-cash amortization of intangible assets acquired from Onyx Pharmaceuticals and a $99 million charge related to the termination of a supply contract with Roche following the acquisition of rights to filgrastim and pegfilgrastim. Excluding these specific items and the Puerto Rico excise tax, the cost of sales as a percentage of product sales would have been 22.9% in Q1 2014.

The decrease in Net Income (down 25%) and Diluted EPS (down 26%) was primarily due to the absence of significant favorable tax items that benefited the first quarter of 2013. These included a tax benefit of $185 million from settling a federal income tax examination and a $60 million benefit from the retroactive reinstatement of the federal R&D tax credit. While revenues grew, the higher operating expenses and the lack of these one-time tax benefits led to the year-over-year decline in profitability.

The acquisition of Onyx Pharmaceuticals, completed in October 2013, significantly impacted the first quarter of 2014. It contributed to a substantial increase in 'Other revenues' and an increase in 'Total product sales' due to the inclusion of Kyprolis®. However, it also led to higher operating expenses, particularly in Cost of Sales due to the amortization of acquired intangible assets ($219 million reported) and the assumption of contingent consideration obligations. The acquisition also resulted in the recognition of goodwill and other intangible assets on the balance sheet.

Amgen maintained a strong liquidity position with approximately $19.8 billion in cash, cash equivalents, and marketable securities as of March 31, 2014. Total debt remained relatively stable at around $32 billion. The company repaid $125 million of long-term debt during the quarter and continues to pay a quarterly dividend of $0.61 per share. While stock repurchases were minimal, $1.6 billion remains authorized under the repurchase program. Amgen believes its current resources and cash flow generation are adequate to meet its obligations and strategic initiatives.