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| AMGN > SEC Filings for AMGN > Form 10-Q on 8-Aug-2012 | All Recent SEC Filings |
8-Aug-2012
Quarterly Report
Forward-looking statements
This report and other documents we file with the U.S. Securities and Exchange Commission (SEC) contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management's assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such words as "expect," "anticipate," "outlook," "could," "target," "project," "intend," "plan," "believe," "seek," "estimate," "should," "may," "assume," and "continue," as well as variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Item 1A. Risk Factors in Part II herein. We have based our forward-looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements. Reference is made in particular to forward-looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources, trends and planned dividends and stock repurchases. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.
Overview
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding Amgen's business. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2011, and our Quarterly Report on Form 10-Q for the period ended March 31, 2012. Our results of operations discussed in MD&A are presented in conformity with GAAP.
Amgen Inc. (including its subsidiaries, referred to as "Amgen," "the Company," "we," "our" or "us") is the world's largest independent biotechnology medicines company. We discover, develop, manufacture and market medicines for grievous illnesses. We focus solely on human therapeutics and concentrate on innovative novel medicines based on advances in cellular and molecular biology. Our mission is to serve patients. We operate in one business segment - human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.
Currently, we market primarily recombinant protein therapeutics in supportive cancer care, nephrology and inflammation. Our principal products are Neulasta® (pegfilgrastim), NEUPOGEN ® (Filgrastim), ENBREL (etanercept) and our erythropoiesis-stimulating agents (ESAs): Aranesp ® (darbepoetin alfa) and EPOGEN® (epoetin alfa). Our product sales outside of the United States consist principally of sales in Europe. For both the three and six months ended June 30, 2012, our principal products represented 83% of worldwide product sales; and for both the three and six months ended June 30, 2011, our principal products represented 88% of worldwide product sales. Our other marketed products include principally Sensipar®/Mimpara® (cinacalcet), Vectibix®(panitumumab), Nplate® (romiplostim), XGEVA® (denosumab) and Prolia®(denosumab).
Significant developments
Following is a summary of selected significant developments affecting our business that have occurred to date since March 31, 2012. For additional developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2011, and our Quarterly Report on Form 10-Q for the period ended March 31, 2012.
Chief Executive Officer Succession
• On May 23, 2012, the Board of the Company appointed Mr. Robert A.
Bradway, 49, to serve as the Company's President and Chief Executive
Officer, replacing Mr. Kevin W. Sharer. Previously, Mr. Bradway served
as the Company's President and Chief Operating Officer since May 2010.
Products/Pipeline
AMG 145
• On July 26, 2012, we announced that in four phase 2 studies (evaluating AMG 145 as monotherapy, in combination with statin therapy, in heterozygous familial hypercholesterolemia, and in statin-intolerant subjects), treatment with AMG 145 resulted in a statistically significant reduction in low-density lipoprotein cholesterol. Based on the phase 2 efficacy and safety data, we plan to initiate phase 3 development in early 2013.
Ganitumab (AMG 479)
• On August 8, 2012, we announced a decision to stop the ganitumab phase 3 GAMMA (Gemcitabine and AMG 479 in Metastatic Adenocarcinoma of the Pancreas) trial in patients with metastatic pancreatic cancer following the recommendation of an independent Data Monitoring Committee (DMC). Based on the review of a pre-planned interim analysis, the DMC concluded that the addition of ganitumab to gemcitabine is unlikely to demonstrate a statistically significant improvement in the primary endpoint of overall survival compared to gemcitabine alone. There were no safety concerns raised in the DMC review of the study.
XGEVA®
• On June 15, 2012, we filed a Type II variation with the European Medicines Agency for the treatment of men with castration-resistant prostate cancer at high risk of developing bone metastases as determined by prostate specific antigen levels, based on data from the '147 study.
Sensipar®
• On June 8, 2012, we announced top-line results of the phase 3 EValuation Of Cinacalcet HCl Therapy to Lower CardioVascular Events (E.V.O.L.V.E™) trial, which evaluated Sensipar®/Mimpara® (cinacalcet) for the reduction of the risk of mortality and cardiovascular events among 3,883 patients with secondary hyperparathyroidism and CKD receiving dialysis. The primary endpoint of the study was time to the composite event comprising all-cause mortality or first non-fatal cardiovascular event, including myocardial infarction, hospitalization for unstable angina, heart failure or peripheral vascular event. Although patients in the Sensipar®/Mimpara® arm experienced numerically fewer composite primary events, the results were not statistically significant, and the trial did not meet its primary endpoint in the intent-to-treat analysis.
Acquisition
• On June 12, 2012, we acquired 99.4% of the outstanding stock of Mustafa Nevzat Pharmaceuticals, a privately held company that is a leading supplier of pharmaceuticals to the hospital sector and a major supplier of injectable medicines in Turkey. The acquisition provides us with the opportunity to expand our presence in Turkey and the surrounding region.
Selected financial information
Following is an overview of our results of operations for the three and six months ended June 30, 2012, as well as our financial condition as of June 30, 2012 (amounts in millions, except percentages and per-share data):
Three months ended Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
Product sales:
U.S. $ 3,255 $ 2,975 9 % $ 6,252 $ 5,753 9 %
ROW 945 918 3 % 1,849 1,758 5 %
Total product sales 4,200 3,893 8 % 8,101 7,511 8 %
Other revenues 277 66 - 424 154 -
Total revenues $ 4,477 $ 3,959 13 % $ 8,525 $ 7,665 11 %
Operating expenses $ 2,888 $ 2,627 10 % $ 5,459 $ 5,040 8 %
Operating income $ 1,589 $ 1,332 19 % $ 3,066 $ 2,625 17 %
Net income $ 1,266 $ 1,170 8 % $ 2,450 $ 2,295 7 %
Diluted EPS $ 1.61 $ 1.25 29 % $ 3.09 $ 2.45 26 %
Diluted shares 785 935 (16)% 792 938 (16)%
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The increases in U.S. product sales for the three and six months ended June 30, 2012, reflect growth for all of our marketed products except ESAs, which declined 6% and 12%, respectively. Excluding ESAs, U.S. product sales increased 15% and 16%, respectively.
The increases in rest-of-the-world (ROW) product sales for the three and six months ended June 30, 2012, reflect growth for all of our marketed products except Aranesp®, which declined 7% and 5%, and combined Neulasta®/NEUPOGEN® sales, which declined 13% and 8%, respectively.
The increases in other revenues for the three and six months ended June 30, 2012, were due primarily to revenue recognized during the three months ended June 30, 2012, related to changes in our motesanib collaboration with Takeda. As part of efforts to focus R&D activities, we replaced the global co-development and profit share agreement for motesanib with an exclusive license for Takeda to develop, manufacture and commercialize motesanib. This resulted in revenue recognition of $206 million from upfront payments received from Takeda and deferred when the collaboration was originally formed in 2008. In addition, during the three months ended March 31, 2012, we received milestone payments in connection with entering into a collaboration with AstraZeneca and with receipt of marketing approval of AMG 223 in Japan by Astellas Pharma Inc.
The increases in net income for the three and six months ended June 30, 2012, were due primarily to higher operating income, offset partially by higher interest expense, net, due primarily to a higher average debt balance.
The increases in diluted EPS for the three and six months ended June 30, 2012, were driven primarily by the favorable impacts of our stock repurchase program, which reduced the number of shares used to compute diluted EPS, and, to a lesser degree, by increases in net income.
Commencing January 1, 2011, Puerto Rico imposes a temporary excise tax on the purchase of goods and services from a related manufacturer in Puerto Rico. The excise tax is imposed on the gross intercompany purchase price of the goods and services and is effective for a six-year period beginning in 2011, with the excise tax rate declining in each year (4% in 2011, 3.75% in 2012, 2.75% in 2013, 2.5% in 2014, 2.25% in 2015 and 1% in 2016). We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred. This excise tax has had and will continue to have a significant adverse impact on our cost of sales and a significant favorable impact on our provision for income taxes. In addition, the overall impact of the excise tax will vary from period to period as a result of the timing difference between recognizing the expense and the applicable tax credit. For the three and six months ended June 30, 2012, cost of
sales increased by $85 million and $166 million, respectively, compared with $45 million and $58 million for the corresponding periods of the prior year. The provision for income taxes decreased by $95 million and $182 million, for the three and six months ended June 30, 2012, respectively, as a result of this excise tax compared with $86 million and $153 million for the corresponding periods of the prior year.
As of June 30, 2012, our cash, cash equivalents and marketable securities totaled $22.5 billion and total debt outstanding was $24.4 billion. Of our total cash, cash equivalents and marketable securities balances as of June 30, 2012, approximately $17.7 billion was generated from operations in foreign tax jurisdictions and is intended to be invested indefinitely outside of the United States. Under current tax laws, if these funds were repatriated for use in our U.S. operations, we would be required to pay additional U.S. federal and state income taxes at the applicable marginal tax rates.
Results of operations
Product sales
Worldwide product sales were as follows (dollar amounts in millions):
Three months ended Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
Neulasta®/NEUPOGEN ® $ 1,347 $ 1,326 2 % $ 2,691 $ 2,558 5 %
ENBREL 1,058 956 11 % 1,996 1,831 9 %
Aranesp® 536 585 (8)% 1,054 1,165 (10)%
EPOGEN® 525 543 (3)% 971 1,078 (10)%
Other products 734 483 52 % 1,389 879 58 %
Total product sales $ 4,200 $ 3,893 8 % $ 8,101 $ 7,511 8 %
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Product sales are influenced by a number of factors, some of which may impact sales of certain of our products more significantly than others do. For a list of certain of those factors and their potential impact on sales, see Item 7 - Product Sales in our Annual Report on Form 10-K for the year ended December 31, 2011, and Item 2 - Product Sales in our Quarterly Report on Form 10-Q for the period ended March 31, 2012.
Neulasta®/NEUPOGEN ®
Total Neulasta®/NEUPOGEN ® sales by geographic region were as follows (dollar
amounts in millions):
Three months ended Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
Neulasta®-U.S. $ 794 $ 769 3 % $ 1,608 $ 1,479 9 %
NEUPOGEN®-U.S. 268 230 17 % 507 450 13 %
U.S. Neulasta®/NEUPOGEN®-Total 1,062 999 6 % 2,115 1,929 10 %
Neulasta®-ROW 221 246 (10) % 446 472 (6)%
NEUPOGEN®-ROW 64 81 (21) % 130 157 (17)%
ROW Neulasta®/NEUPOGEN®-Total 285 327 (13)% 576 629 (8)%
Total Neulasta®/NEUPOGEN® $ 1,347 $ 1,326 2 % $ 2,691 $ 2,558 5 %
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The increases in combined U.S. sales of Neulasta ®/NEUPOGEN® for the three and six months ended June 30, 2012, were driven primarily by increases in the average net sales price and, to a lesser extent, increases in unit demand, offset partially by decreases in wholesaler inventories.
The decreases in combined ROW Neulasta®/NEUPOGEN® sales for the three and six months ended June 30, 2012, were due primarily to decreases in NEUPOGEN® unit demand from loss of share to biosimilars and to decreases in the average net sales price of Neulasta® and NEUPOGEN®.
Future Neulasta®/NEUPOGEN® sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011.
ENBREL
Total ENBREL sales by geographic region were as follows (dollar amounts in
millions):
Three months ended Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
ENBREL - U.S. $ 991 $ 894 11 % $ 1,869 $ 1,715 9 %
ENBREL - Canada 67 62 8 % 127 116 9 %
Total ENBREL $ 1,058 $ 956 11 % $ 1,996 $ 1,831 9 %
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The increases in total ENBREL sales for the three and six months ended June 30, 2012, were driven primarily by increases in the average net sales price and, to a lesser extent, increases in unit demand and wholesaler inventories.
Future ENBREL sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011.
Aranesp®
Total Aranesp ® sales by geographic region were as follows (dollar amounts in
millions):
Three months ended Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
Aranesp®- U.S. $ 215 $ 241 (11)% $ 417 $ 491 (15)%
Aranesp®- ROW 321 344 (7)% 637 674 (5)%
Total Aranesp® $ 536 $ 585 (8)% $ 1,054 $ 1,165 (10)%
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The decrease in U.S. Aranesp ® sales for the three months ended June 30, 2012, was driven primarily by a decline in unit demand, offset partially by a year-over-year change in accounting estimates of $24 million and, to a lesser extent, an increase in the average net sales price. The decrease in U.S. Aranesp® sales for the six months ended June 30, 2012, was driven primarily by a decline in unit demand, offset partially by an increase in the average net sales price and by a year-over-year change in accounting estimates. The unit declines reflect segment contraction resulting from changes to the label and to the reimbursement environment that occurred during 2011.
The decreases in ROW Aranesp® sales for the three and six months ended June 30, 2012, were due primarily to decreases in the average net sales price.
Future Aranesp® sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011. Certain of those factors may have a material adverse impact on future sales of Aranesp®.
EPOGEN®
Total EPOGEN ® sales were as follows (dollar amounts in millions):
Three months ended Six months ended June 30, June 30, 2012 2011 Change 2012 2011 Change EPOGEN®- U.S. $ 525 $ 543 (3)% $ 971 $ 1,078 (10)%
The decreases in EPOGEN ® sales for the three and six months ended June 30, 2012, were due primarily to the impact of changes to the label and to the reimbursement environment that occurred in 2011. The declines comprised 26% and 28% decreases in unit demand for the three and six months ended June 30, 2012, respectively, driven by reductions in dose utilization. These decreases
were offset partially by reductions in customer discounts, as part of new provider contracts that became effective January 1, 2012, and by a year-over-year change in accounting estimates of $43 million during the three months ended June 30, 2012.
EPOGEN ® sales increased 18% in the quarter ended June 30, 2012, as compared with the quarter ended March 31, 2012, driven by customer and wholesaler buying patterns and a low-single-digit-percentage-point growth in underlying unit demand.
Future EPOGEN® sales will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011, and in our Quarterly Report on Form 10-Q for the period ended March 31, 2012. Certain of those factors may have a material adverse impact on future sales of EPOGEN ®.
Other products
Other product sales by geographic region were as follows (dollar amounts in millions):
Three months ended Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
Sensipar®- U.S. $ 150 $ 124 21% $ 290 $ 240 21 %
Sensipar®(Mimpara®) - ROW 82 75 9% 161 146 10 %
Vectibix®- U.S. 31 31 - 62 61 2 %
Vectibix®- ROW 59 50 18% 118 95 24 %
Nplate®- U.S. 50 40 25% 104 77 35 %
Nplate®- ROW 36 35 3% 72 63 14 %
XGEVA®- U.S. 156 73 - 295 115 -
XGEVA®- ROW 23 - - 37 - -
Prolia®- U.S. 75 30 - 129 47 -
Prolia®- ROW 45 14 - 79 24 -
Other - ROW 27 11 - 42 11 -
Total other products $ 734 $ 483 52% $ 1,389 $ 879 58%
Total U.S. $ 462 $ 298 55% $ 880 $ 540 63%
Total ROW 272 185 47% 509 339 50%
Total other products $ 734 $ 483 52% $ 1,389 $ 879 58%
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Future sales of our other products will depend in part on factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011.
Selected operating expenses
Selected operating expenses were as follows (dollar amounts in millions):
Three months ended Six months ended
June 30, June 30,
2012 2011 Change 2012 2011 Change
Cost of sales (excludes
amortization of certain acquired
intangible assets) $ 682 $ 602 13 % $ 1,361 $ 1,166 17 %
% of product sales 16.2% 15.5% 16.8% 15.5%
Research and development $ 826 $ 819 1 % $ 1,562 $ 1,555 0 %
% of product sales 19.7% 21.0% 19.3% 20.7%
Selling, general and administrative $ 1,228 $ 1,130 9 % $ 2,304 $ 2,153 7 %
% of product sales 29.2% 29.0% 28.4% 28.7%
Other $ 79 $ 3 - $ 85 $ 19 -
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Cost of sales
Cost of sales increased to 16.2% and 16.8% of product sales for the three and six months ended June 30, 2012, respectively, driven primarily by the Puerto Rico excise tax. Excluding the impacts of the Puerto Rico excise tax, cost of sales would have been 14.2% and 14.3% of product sales for the three months ended June 30, 2012 and 2011, respectively, and 14.8% of product sales for both the six months ended June 30, 2012 and 2011.
Research and development
R&D expenses for the three and six months ended June 30, 2012, were flat versus the same periods in 2011. Expenses in support of our later-stage clinical programs, including AMG 145 and AMG 785, increased $72 million and $118 million, respectively. These increases were offset by reductions in expenses associated with marketed product support of $53 million and $62 million and expenses in support of Discovery Research and Translational Sciences of $12 million and $49 million, respectively. R&D expenses are expected to increase in the second half of 2012 relative to the first half.
Selling, general and administrative
The increases in selling, general and administrative expenses for the three and six months ended June 30, 2012, were driven primarily by higher ENBREL profit . . .
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