On July 27, 2016 Amgen (NASDAQ:AMGN) reported financial results for the second quarter of 2016 (Press release, Amgen, JUL 27, 2016, View Source [SID:1234514077]).

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Key results include:

Revenues increased 6 percent versus the second quarter of 2015 to $5.7 billion.

Product sales grew 5 percent driven by Enbrel (etanercept), Prolia (denosumab), KYPROLIS (carfilzomib) and XGEVA (denosumab).

GAAP earnings per share (EPS) increased 15 percent to $2.47 driven by higher revenues and higher operating margins.

GAAP operating income increased 15 percent to $2,380 million and GAAP operating margin improved by 3.8 percentage points to 43.5 percent.

Non-GAAP EPS increased 11 percent to $2.84 driven by higher revenues and higher operating margins.

Non-GAAP operating income increased 10 percent to $2,812 million and non-GAAP operating margin improved by 2.6 percentage points to 51.4 percent.

2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis.

The Company generated $2.5 billion of free cash flow.

"We delivered another strong quarter and are on track to meet or exceed our long-term objectives," said Robert A. Bradway, chairman and chief executive officer. "We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones."


$Millions, except EPS and percentages

Q2’16

Q2’15

YOY Δ


Total Revenues

$ 5,688

$ 5,370

6%


GAAP Operating Income

$ 2,380

$ 2,076

15%


GAAP Net Income

$ 1,870

$ 1,653

13%


GAAP EPS

$ 2.47

$ 2.15

15%


Non-GAAP Operating Income

$ 2,812

$ 2,551

10%


Non-GAAP Net Income

$ 2,146

$ 1,977

9%


Non-GAAP EPS

$ 2.84

$ 2.57

11%


References in this release to "non-GAAP" measures, measures presented "on a non-GAAP basis" and to "free cash flow" (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.


Product Sales Performance

Total product sales increased 5 percent for the second quarter of 2016 versus the second quarter of 2015. The increase was driven by ENBREL, Prolia, KYPROLIS and XGEVA.

ENBREL sales increased 10 percent driven by net selling price, offset partially by the impact of competition.

Neulasta (pegfilgrastim) sales decreased 1 percent driven by lower unit demand, offset partially by net selling price in the United States (U.S.).

Aranesp (darbepoetin alfa) sales increased 5 percent. Unit demand grew due to a shift by some U.S. dialysis customers from

EPOGEN (epoetin alfa) to Aranesp. Unit demand growth was offset partially by unfavorable changes in inventory and net selling price.

Prolia sales increased 30 percent driven by higher unit demand.

Sensipar/Mimpara (cinacalcet) sales increased 13 percent driven by net selling price and higher unit demand.

XGEVA sales increased 15 percent driven mainly by higher unit demand and, to a lesser extent, net selling price.

EPOGEN sales decreased 33 percent driven by the impact of competition and, to a lesser extent, a shift by some U.S. dialysis customers to Aranesp.

NEUPOGEN (filgrastim) sales decreased 23 percent driven by the impact of competition in the U.S.

KYPROLIS sales increased 45 percent driven by higher unit demand.

Vectibix (panitumumab) sales were flat.

Nplate (romiplostim) sales increased 14 percent driven by higher unit demand.

BLINCYTO (blinatumomab) sales increased 76 percent driven by higher unit demand.


PRODUCT SALES DETAIL BY PRODUCT AND GEOGRAPHIC REGION

$Millions, except percentages

Q2’16
Q2’15
YOY Δ

US
ROW
TOTAL

TOTAL

TOTAL


Enbrel

$1,423
$61
$1,484

$1,348

10%


Neulasta

962
187
1,149

1,158

(1%)


Aranesp

260
244
504

479

5%


Prolia

286
155
441

340

30%


Sensipar / Mimpara

303
86
389

344

13%


XGEVA

275
106
381

331

15%


EPOGEN

331
0
331

491

(33%)


NEUPOGEN

141
55
196

256

(23%)


KYPROLIS

142
30
172

119

45%


Vectibix

52
108
160

160

0%


Nplate

84
58
142

125

14%


BLINCYTO
21
9
30

17

76%


Repatha
20
7
27

0

*

Other**

17
51
68

57

19%


Total product sales

$4,317
$1,157
$5,474

$5,225

5%

* Not meaningful

** Other includes MN Pharma, Bergamo, IMLYGICand Corlanor

Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. Research & Development (R&D) expenses decreased 7 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses increased 11 percent driven primarily by investments in new product launches. Total Operating Expenses were flat year-over-year, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 3.8 percentage points to 43.5 percent.

Tax Rate decreased by 2.0 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), offset partially by unfavorable changes in the geographic mix of earnings.
On a non-GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. R&D expenses decreased 4 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. SG&A expenses increased 13 percent driven primarily by investments in new product launches. Total Operating Expenses increased 2 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 2.6 percentage points to 51.4 percent.

Tax Rate decreased by 1.4 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of ASU 2016-09, offset partially by unfavorable changes in the geographic mix of earnings.


$Millions, except percentages

GAAP


Non-GAAP


Q2’16
Q2’15
YOY Δ

Q2’16
Q2’15
YOY Δ


Cost of Sales
$1,050
$1,089
(4%)


$738
$789
(6%)


% of product sales
19.2%
20.8%
(1.6) pts


13.5%
15.1%
(1.6) pts

Research & Development
$900
$964
(7%)

$878
$918
(4%)


% of product sales
16.4%
18.4%
(2.0) pts


16.0%
17.6%
(1.6) pts


Selling, General & Administrative
$1,292
$1,160
11%

$1,260
$1,112
13%


% of product sales
23.6%
22.2%
1.4 pts


23.0%
21.3%
1.7 pts


Other
$66
$81
(19%)


$0
$0
0%

TOTAL Operating Expenses
$3,308
$3,294
0%


$2,876
$2,819
2%


Operating Margin

operating income as a % of product sales
43.5%
39.7%
3.8 pts


51.4%
48.8%
2.6 pts


Tax Rate
15.2%
17.2%
(2.0) pts


18.6%
20.0%
(1.4) pts


pts: percentage points


Cash Flow and Balance Sheet

The Company generated $2.5 billion of free cash flow in the second quarter of 2016 versus $3.2 billion in the second quarter of 2015. The decrease was driven by the timing of tax payments and the termination of foreign exchange forward contracts in the second quarter of 2015.

The Company’s third quarter 2016 dividend of $1.00 per share declared on July 22, 2016, will be paid on Sept. 8, 2016, to all stockholders of record as of Aug. 17, 2016.
During the second quarter, the Company repurchased 3.9 million shares of common stock at a total cost of $591 million. At the end of the second quarter, the Company had $3.6 billion remaining under its stock repurchase authorization.


$Billions, except shares

Q2’16
Q2’15
YOY Δ


Operating Cash Flow
$2.7
$3.3
($0.6)


Capital Expenditures
0.2
0.1
0.1


Free Cash Flow
2.5
3.2
(0.7)


Dividends Paid
0.8
0.6
0.2


Share Repurchase
0.6
0.5
0.1


Avg. Diluted Shares (millions)
756
768
(12)


Cash and Investments
35.0
30.0
5.0


Debt Outstanding
33.2
32.0
1.2


Stockholders’ Equity
30.1
27.5
2.6


Note: Numbers may not add due to rounding



2016 Guidance

For the full year 2016, the Company now expects:

Total revenues in the range of $22.5 billion to $22.8 billion.
Previously, the Company expected total revenues in the range of $22.2 billion to $22.6 billion.

On a GAAP basis, EPS in the range of $9.55 to $9.90 and a tax rate in the range of 16.5 percent to 17.5 percent.

Previously, the Company expected GAAP EPS in the range of $9.34 to $9.74. Tax rate guidance is unchanged.

On a non-GAAP basis, EPS in the range of $11.10 to $11.40 and a tax rate in the range of 19.0 percent to 20.0 percent.

Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20. Tax rate guidance is unchanged.

Capital expenditures to be approximately $700 million.


SECOND QUARTER PRODUCT AND PIPELINE UPDATE
Key development milestones:

Clinical Program
Indication
Milestone

Repatha (evolocumab)
Hyperlipidemia
Phase 3 coronary imaging data expected H2 2016
Phase 3 CV outcomes data expected Q1 2017*

KYPROLIS
Newly diagnosed multiple myeloma
Phase 3 data expected H2 2016*

BLINCYTO
Pediatric Ph- R/R
B-cell precursor ALL
FDA priority review

Parsabiv (etelcalcetide)†
Secondary hyperparathyroidism
Global regulatory reviews

XGEVA
Prevention of SREs in multiple myeloma
Phase 3 data expected H2 2016*

Romosozumab
Postmenopausal osteoporosis
US regulatory review
Global regulatory submissions

Erenumab (AMG 334)
Migraine Prophylaxis
Phase 3 episodic migraine data expected H2 2016
ABP 215

(biosimilar bevacizumab)
Oncology
Global regulatory submissions
ABP 501

(biosimilar adalimumab)
Inflammatory diseases
Global regulatory reviews
ABP 980

(biosimilar trastuzumab)
Breast Cancer
Global regulatory submissions

*Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular; ALL = acute lymphoblastic leukemia


The Company provided the following updates on selected product and pipeline programs:


Repatha

In July, the U.S. Food and Drug Administration (FDA) approved the Repatha Pushtronex system (on-body infusor with prefilled cartridge) for monthly single-dose administration.

Data from a Phase 3 study evaluating the effects of Repatha on atherosclerotic disease as measured by intravascular ultrasound are expected in H2 2016.

Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017.


KYPROLIS

In June, the European Commission approved an expanded indication for KYPROLIS, to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy, based on the ENDEAVOR data.

Data from the event driven Phase 3 CLARION study of KYPROLIS versus bortezomib in newly diagnosed, transplant ineligible multiple myeloma patients is expected in H2 2016.


BLINCYTO

In May, FDA accepted for priority review the supplemental Biologics License Application for BLINCYTO to include new data supporting the treatment of pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia. The Prescription Drug User Fee Act target action date is Sept. 1, 2016.


Romosozumab

In July, a Biologics License Application for romosozumab for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was submitted to FDA.


Erenumab

In June, a global Phase 2 study evaluating the efficacy and safety of erenumab in chronic migraine prevention met its primary endpoint.


ABP 980

In July, the primary analysis was completed for a Phase 3 study evaluating the efficacy and safety of ABP 980 compared with trastuzumab in patients with human epidermal growth factor receptor 2-positive early breast cancer.


Erenumab is developed in collaboration with Novartis
Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan

Non-GAAP Financial Measures

In this news release, management has presented its operating results for the second quarters of 2016 and 2015 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2016 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the second quarters of 2016 and 2015. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.

The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.

The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

On July 27, 2016 Amgen (NASDAQ:AMGN) reported financial results for the second quarter of 2016 (Press release, Amgen, JUL 27, 2016, View Source [SID:1234514077]).

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

Key results include:

Revenues increased 6 percent versus the second quarter of 2015 to $5.7 billion.

Product sales grew 5 percent driven by Enbrel (etanercept), Prolia (denosumab), KYPROLIS (carfilzomib) and XGEVA (denosumab).

GAAP earnings per share (EPS) increased 15 percent to $2.47 driven by higher revenues and higher operating margins.

GAAP operating income increased 15 percent to $2,380 million and GAAP operating margin improved by 3.8 percentage points to 43.5 percent.

Non-GAAP EPS increased 11 percent to $2.84 driven by higher revenues and higher operating margins.

Non-GAAP operating income increased 10 percent to $2,812 million and non-GAAP operating margin improved by 2.6 percentage points to 51.4 percent.

2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis.

The Company generated $2.5 billion of free cash flow.

“We delivered another strong quarter and are on track to meet or exceed our long-term objectives,” said Robert A. Bradway, chairman and chief executive officer. “We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones.”

$Millions, except EPS and percentages

Q2’16

Q2’15

YOY Δ

Total Revenues

$ 5,688

$ 5,370

6%

GAAP Operating Income

$ 2,380

$ 2,076

15%

GAAP Net Income

$ 1,870

$ 1,653

13%

GAAP EPS

$ 2.47

$ 2.15

15%

Non-GAAP Operating Income

$ 2,812

$ 2,551

10%

Non-GAAP Net Income

$ 2,146

$ 1,977

9%

Non-GAAP EPS

$ 2.84

$ 2.57

11%

References in this release to “non-GAAP” measures, measures presented “on a non-GAAP basis” and to “free cash flow” (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.

Product Sales Performance

Total product sales increased 5 percent for the second quarter of 2016 versus the second quarter of 2015. The increase was driven by ENBREL, Prolia, KYPROLIS and XGEVA.

ENBREL sales increased 10 percent driven by net selling price, offset partially by the impact of competition.

Neulasta (pegfilgrastim) sales decreased 1 percent driven by lower unit demand, offset partially by net selling price in the United States (U.S.).

Aranesp (darbepoetin alfa) sales increased 5 percent. Unit demand grew due to a shift by some U.S. dialysis customers from

EPOGEN (epoetin alfa) to Aranesp. Unit demand growth was offset partially by unfavorable changes in inventory and net selling price.

Prolia sales increased 30 percent driven by higher unit demand.

Sensipar/Mimpara (cinacalcet) sales increased 13 percent driven by net selling price and higher unit demand.

XGEVA sales increased 15 percent driven mainly by higher unit demand and, to a lesser extent, net selling price.

EPOGEN sales decreased 33 percent driven by the impact of competition and, to a lesser extent, a shift by some U.S. dialysis customers to Aranesp.

NEUPOGEN (filgrastim) sales decreased 23 percent driven by the impact of competition in the U.S.

KYPROLIS sales increased 45 percent driven by higher unit demand.

Vectibix (panitumumab) sales were flat.

Nplate (romiplostim) sales increased 14 percent driven by higher unit demand.

BLINCYTO (blinatumomab) sales increased 76 percent driven by higher unit demand.

PRODUCT SALES DETAIL BY PRODUCT AND GEOGRAPHIC REGION

$Millions, except percentages

Q2’16
Q2’15
YOY Δ

US
ROW
TOTAL

TOTAL

TOTAL

Enbrel

$1,423
$61
$1,484

$1,348

10%

Neulasta

962
187
1,149

1,158

(1%)

Aranesp

260
244
504

479

5%

Prolia

286
155
441

340

30%

Sensipar / Mimpara

303
86
389

344

13%

XGEVA

275
106
381

331

15%

EPOGEN

331
0
331

491

(33%)

NEUPOGEN

141
55
196

256

(23%)

KYPROLIS

142
30
172

119

45%

Vectibix

52
108
160

160

0%

Nplate

84
58
142

125

14%

BLINCYTO
21
9
30

17

76%

Repatha
20
7
27

0

*

Other**

17
51
68

57

19%

Total product sales

$4,317
$1,157
$5,474

$5,225

5%

* Not meaningful

** Other includes MN Pharma, Bergamo, IMLYGICand Corlanor

Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. Research & Development (R&D) expenses decreased 7 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses increased 11 percent driven primarily by investments in new product launches. Total Operating Expenses were flat year-over-year, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 3.8 percentage points to 43.5 percent.

Tax Rate decreased by 2.0 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), offset partially by unfavorable changes in the geographic mix of earnings.
On a non-GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. R&D expenses decreased 4 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. SG&A expenses increased 13 percent driven primarily by investments in new product launches. Total Operating Expenses increased 2 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 2.6 percentage points to 51.4 percent.

Tax Rate decreased by 1.4 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of ASU 2016-09, offset partially by unfavorable changes in the geographic mix of earnings.

$Millions, except percentages

GAAP

Non-GAAP

Q2’16
Q2’15
YOY Δ

Q2’16
Q2’15
YOY Δ

Cost of Sales
$1,050
$1,089
(4%)

$738
$789
(6%)

% of product sales
19.2%
20.8%
(1.6) pts

13.5%
15.1%
(1.6) pts

Research & Development
$900
$964
(7%)

$878
$918
(4%)

% of product sales
16.4%
18.4%
(2.0) pts

16.0%
17.6%
(1.6) pts

Selling, General & Administrative
$1,292
$1,160
11%

$1,260
$1,112
13%

% of product sales
23.6%
22.2%
1.4 pts

23.0%
21.3%
1.7 pts

Other
$66
$81
(19%)

$0
$0
0%

TOTAL Operating Expenses
$3,308
$3,294
0%

$2,876
$2,819
2%

Operating Margin

operating income as a % of product sales
43.5%
39.7%
3.8 pts

51.4%
48.8%
2.6 pts

Tax Rate
15.2%
17.2%
(2.0) pts

18.6%
20.0%
(1.4) pts

pts: percentage points

Cash Flow and Balance Sheet

The Company generated $2.5 billion of free cash flow in the second quarter of 2016 versus $3.2 billion in the second quarter of 2015. The decrease was driven by the timing of tax payments and the termination of foreign exchange forward contracts in the second quarter of 2015.

The Company’s third quarter 2016 dividend of $1.00 per share declared on July 22, 2016, will be paid on Sept. 8, 2016, to all stockholders of record as of Aug. 17, 2016.
During the second quarter, the Company repurchased 3.9 million shares of common stock at a total cost of $591 million. At the end of the second quarter, the Company had $3.6 billion remaining under its stock repurchase authorization.

$Billions, except shares

Q2’16
Q2’15
YOY Δ

Operating Cash Flow
$2.7
$3.3
($0.6)

Capital Expenditures
0.2
0.1
0.1

Free Cash Flow
2.5
3.2
(0.7)

Dividends Paid
0.8
0.6
0.2

Share Repurchase
0.6
0.5
0.1

Avg. Diluted Shares (millions)
756
768
(12)

Cash and Investments
35.0
30.0
5.0

Debt Outstanding
33.2
32.0
1.2

Stockholders’ Equity
30.1
27.5
2.6

Note: Numbers may not add due to rounding

2016 Guidance

For the full year 2016, the Company now expects:

Total revenues in the range of $22.5 billion to $22.8 billion.
Previously, the Company expected total revenues in the range of $22.2 billion to $22.6 billion.

On a GAAP basis, EPS in the range of $9.55 to $9.90 and a tax rate in the range of 16.5 percent to 17.5 percent.

Previously, the Company expected GAAP EPS in the range of $9.34 to $9.74. Tax rate guidance is unchanged.

On a non-GAAP basis, EPS in the range of $11.10 to $11.40 and a tax rate in the range of 19.0 percent to 20.0 percent.

Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20. Tax rate guidance is unchanged.

Capital expenditures to be approximately $700 million.

SECOND QUARTER PRODUCT AND PIPELINE UPDATE
Key development milestones:

Clinical Program
Indication
Milestone

Repatha (evolocumab)
Hyperlipidemia
Phase 3 coronary imaging data expected H2 2016
Phase 3 CV outcomes data expected Q1 2017*

KYPROLIS
Newly diagnosed multiple myeloma
Phase 3 data expected H2 2016*

BLINCYTO
Pediatric Ph- R/R
B-cell precursor ALL
FDA priority review

Parsabiv (etelcalcetide)†
Secondary hyperparathyroidism
Global regulatory reviews

XGEVA
Prevention of SREs in multiple myeloma
Phase 3 data expected H2 2016*

Romosozumab
Postmenopausal osteoporosis
US regulatory review
Global regulatory submissions

Erenumab (AMG 334)
Migraine Prophylaxis
Phase 3 episodic migraine data expected H2 2016
ABP 215

(biosimilar bevacizumab)
Oncology
Global regulatory submissions
ABP 501

(biosimilar adalimumab)
Inflammatory diseases
Global regulatory reviews
ABP 980

(biosimilar trastuzumab)
Breast Cancer
Global regulatory submissions

*Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular; ALL = acute lymphoblastic leukemia

The Company provided the following updates on selected product and pipeline programs:

Repatha

In July, the U.S. Food and Drug Administration (FDA) approved the Repatha Pushtronex system (on-body infusor with prefilled cartridge) for monthly single-dose administration.

Data from a Phase 3 study evaluating the effects of Repatha on atherosclerotic disease as measured by intravascular ultrasound are expected in H2 2016.

Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017.

KYPROLIS

In June, the European Commission approved an expanded indication for KYPROLIS, to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy, based on the ENDEAVOR data.

Data from the event driven Phase 3 CLARION study of KYPROLIS versus bortezomib in newly diagnosed, transplant ineligible multiple myeloma patients is expected in H2 2016.

BLINCYTO

In May, FDA accepted for priority review the supplemental Biologics License Application for BLINCYTO to include new data supporting the treatment of pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia. The Prescription Drug User Fee Act target action date is Sept. 1, 2016.

Romosozumab

In July, a Biologics License Application for romosozumab for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was submitted to FDA.

Erenumab

In June, a global Phase 2 study evaluating the efficacy and safety of erenumab in chronic migraine prevention met its primary endpoint.

ABP 980

In July, the primary analysis was completed for a Phase 3 study evaluating the efficacy and safety of ABP 980 compared with trastuzumab in patients with human epidermal growth factor receptor 2-positive early breast cancer.

Erenumab is developed in collaboration with Novartis
Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan

Non-GAAP Financial Measures

In this news release, management has presented its operating results for the second quarters of 2016 and 2015 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2016 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the second quarters of 2016 and 2015. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.

The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.

The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

On July 27, 2016 Amgen (NASDAQ:AMGN) reported financial results for the second quarter of 2016 (Press release, Amgen, JUL 27, 2016, View Source [SID:1234514077]).

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Key results include:

Revenues increased 6 percent versus the second quarter of 2015 to $5.7 billion.

Product sales grew 5 percent driven by Enbrel (etanercept), Prolia (denosumab), KYPROLIS (carfilzomib) and XGEVA (denosumab).

GAAP earnings per share (EPS) increased 15 percent to $2.47 driven by higher revenues and higher operating margins.

GAAP operating income increased 15 percent to $2,380 million and GAAP operating margin improved by 3.8 percentage points to 43.5 percent.

Non-GAAP EPS increased 11 percent to $2.84 driven by higher revenues and higher operating margins.

Non-GAAP operating income increased 10 percent to $2,812 million and non-GAAP operating margin improved by 2.6 percentage points to 51.4 percent.

2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis.

The Company generated $2.5 billion of free cash flow.

“We delivered another strong quarter and are on track to meet or exceed our long-term objectives,” said Robert A. Bradway, chairman and chief executive officer. “We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones.”

$Millions, except EPS and percentages

Q2’16

Q2’15

YOY Δ

Total Revenues

$ 5,688

$ 5,370

6%

GAAP Operating Income

$ 2,380

$ 2,076

15%

GAAP Net Income

$ 1,870

$ 1,653

13%

GAAP EPS

$ 2.47

$ 2.15

15%

Non-GAAP Operating Income

$ 2,812

$ 2,551

10%

Non-GAAP Net Income

$ 2,146

$ 1,977

9%

Non-GAAP EPS

$ 2.84

$ 2.57

11%

References in this release to “non-GAAP” measures, measures presented “on a non-GAAP basis” and to “free cash flow” (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.

Product Sales Performance

Total product sales increased 5 percent for the second quarter of 2016 versus the second quarter of 2015. The increase was driven by ENBREL, Prolia, KYPROLIS and XGEVA.

ENBREL sales increased 10 percent driven by net selling price, offset partially by the impact of competition.

Neulasta (pegfilgrastim) sales decreased 1 percent driven by lower unit demand, offset partially by net selling price in the United States (U.S.).

Aranesp (darbepoetin alfa) sales increased 5 percent. Unit demand grew due to a shift by some U.S. dialysis customers from

EPOGEN (epoetin alfa) to Aranesp. Unit demand growth was offset partially by unfavorable changes in inventory and net selling price.

Prolia sales increased 30 percent driven by higher unit demand.

Sensipar/Mimpara (cinacalcet) sales increased 13 percent driven by net selling price and higher unit demand.

XGEVA sales increased 15 percent driven mainly by higher unit demand and, to a lesser extent, net selling price.

EPOGEN sales decreased 33 percent driven by the impact of competition and, to a lesser extent, a shift by some U.S. dialysis customers to Aranesp.

NEUPOGEN (filgrastim) sales decreased 23 percent driven by the impact of competition in the U.S.

KYPROLIS sales increased 45 percent driven by higher unit demand.

Vectibix (panitumumab) sales were flat.

Nplate (romiplostim) sales increased 14 percent driven by higher unit demand.

BLINCYTO (blinatumomab) sales increased 76 percent driven by higher unit demand.

PRODUCT SALES DETAIL BY PRODUCT AND GEOGRAPHIC REGION

$Millions, except percentages

Q2’16
Q2’15
YOY Δ

US
ROW
TOTAL

TOTAL

TOTAL

Enbrel

$1,423
$61
$1,484

$1,348

10%

Neulasta

962
187
1,149

1,158

(1%)

Aranesp

260
244
504

479

5%

Prolia

286
155
441

340

30%

Sensipar / Mimpara

303
86
389

344

13%

XGEVA

275
106
381

331

15%

EPOGEN

331
0
331

491

(33%)

NEUPOGEN

141
55
196

256

(23%)

KYPROLIS

142
30
172

119

45%

Vectibix

52
108
160

160

0%

Nplate

84
58
142

125

14%

BLINCYTO
21
9
30

17

76%

Repatha
20
7
27

0

*

Other**

17
51
68

57

19%

Total product sales

$4,317
$1,157
$5,474

$5,225

5%

* Not meaningful

** Other includes MN Pharma, Bergamo, IMLYGICand Corlanor

Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. Research & Development (R&D) expenses decreased 7 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses increased 11 percent driven primarily by investments in new product launches. Total Operating Expenses were flat year-over-year, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 3.8 percentage points to 43.5 percent.

Tax Rate decreased by 2.0 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), offset partially by unfavorable changes in the geographic mix of earnings.
On a non-GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. R&D expenses decreased 4 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. SG&A expenses increased 13 percent driven primarily by investments in new product launches. Total Operating Expenses increased 2 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 2.6 percentage points to 51.4 percent.

Tax Rate decreased by 1.4 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of ASU 2016-09, offset partially by unfavorable changes in the geographic mix of earnings.

$Millions, except percentages

GAAP

Non-GAAP

Q2’16
Q2’15
YOY Δ

Q2’16
Q2’15
YOY Δ

Cost of Sales
$1,050
$1,089
(4%)

$738
$789
(6%)

% of product sales
19.2%
20.8%
(1.6) pts

13.5%
15.1%
(1.6) pts

Research & Development
$900
$964
(7%)

$878
$918
(4%)

% of product sales
16.4%
18.4%
(2.0) pts

16.0%
17.6%
(1.6) pts

Selling, General & Administrative
$1,292
$1,160
11%

$1,260
$1,112
13%

% of product sales
23.6%
22.2%
1.4 pts

23.0%
21.3%
1.7 pts

Other
$66
$81
(19%)

$0
$0
0%

TOTAL Operating Expenses
$3,308
$3,294
0%

$2,876
$2,819
2%

Operating Margin

operating income as a % of product sales
43.5%
39.7%
3.8 pts

51.4%
48.8%
2.6 pts

Tax Rate
15.2%
17.2%
(2.0) pts

18.6%
20.0%
(1.4) pts

pts: percentage points

Cash Flow and Balance Sheet

The Company generated $2.5 billion of free cash flow in the second quarter of 2016 versus $3.2 billion in the second quarter of 2015. The decrease was driven by the timing of tax payments and the termination of foreign exchange forward contracts in the second quarter of 2015.

The Company’s third quarter 2016 dividend of $1.00 per share declared on July 22, 2016, will be paid on Sept. 8, 2016, to all stockholders of record as of Aug. 17, 2016.
During the second quarter, the Company repurchased 3.9 million shares of common stock at a total cost of $591 million. At the end of the second quarter, the Company had $3.6 billion remaining under its stock repurchase authorization.

$Billions, except shares

Q2’16
Q2’15
YOY Δ

Operating Cash Flow
$2.7
$3.3
($0.6)

Capital Expenditures
0.2
0.1
0.1

Free Cash Flow
2.5
3.2
(0.7)

Dividends Paid
0.8
0.6
0.2

Share Repurchase
0.6
0.5
0.1

Avg. Diluted Shares (millions)
756
768
(12)

Cash and Investments
35.0
30.0
5.0

Debt Outstanding
33.2
32.0
1.2

Stockholders’ Equity
30.1
27.5
2.6

Note: Numbers may not add due to rounding

2016 Guidance

For the full year 2016, the Company now expects:

Total revenues in the range of $22.5 billion to $22.8 billion.
Previously, the Company expected total revenues in the range of $22.2 billion to $22.6 billion.

On a GAAP basis, EPS in the range of $9.55 to $9.90 and a tax rate in the range of 16.5 percent to 17.5 percent.

Previously, the Company expected GAAP EPS in the range of $9.34 to $9.74. Tax rate guidance is unchanged.

On a non-GAAP basis, EPS in the range of $11.10 to $11.40 and a tax rate in the range of 19.0 percent to 20.0 percent.

Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20. Tax rate guidance is unchanged.

Capital expenditures to be approximately $700 million.

SECOND QUARTER PRODUCT AND PIPELINE UPDATE
Key development milestones:

Clinical Program
Indication
Milestone

Repatha (evolocumab)
Hyperlipidemia
Phase 3 coronary imaging data expected H2 2016
Phase 3 CV outcomes data expected Q1 2017*

KYPROLIS
Newly diagnosed multiple myeloma
Phase 3 data expected H2 2016*

BLINCYTO
Pediatric Ph- R/R
B-cell precursor ALL
FDA priority review

Parsabiv (etelcalcetide)†
Secondary hyperparathyroidism
Global regulatory reviews

XGEVA
Prevention of SREs in multiple myeloma
Phase 3 data expected H2 2016*

Romosozumab
Postmenopausal osteoporosis
US regulatory review
Global regulatory submissions

Erenumab (AMG 334)
Migraine Prophylaxis
Phase 3 episodic migraine data expected H2 2016
ABP 215

(biosimilar bevacizumab)
Oncology
Global regulatory submissions
ABP 501

(biosimilar adalimumab)
Inflammatory diseases
Global regulatory reviews
ABP 980

(biosimilar trastuzumab)
Breast Cancer
Global regulatory submissions

*Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular; ALL = acute lymphoblastic leukemia

The Company provided the following updates on selected product and pipeline programs:

Repatha

In July, the U.S. Food and Drug Administration (FDA) approved the Repatha Pushtronex system (on-body infusor with prefilled cartridge) for monthly single-dose administration.

Data from a Phase 3 study evaluating the effects of Repatha on atherosclerotic disease as measured by intravascular ultrasound are expected in H2 2016.

Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017.

KYPROLIS

In June, the European Commission approved an expanded indication for KYPROLIS, to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy, based on the ENDEAVOR data.

Data from the event driven Phase 3 CLARION study of KYPROLIS versus bortezomib in newly diagnosed, transplant ineligible multiple myeloma patients is expected in H2 2016.

BLINCYTO

In May, FDA accepted for priority review the supplemental Biologics License Application for BLINCYTO to include new data supporting the treatment of pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia. The Prescription Drug User Fee Act target action date is Sept. 1, 2016.

Romosozumab

In July, a Biologics License Application for romosozumab for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was submitted to FDA.

Erenumab

In June, a global Phase 2 study evaluating the efficacy and safety of erenumab in chronic migraine prevention met its primary endpoint.

ABP 980

In July, the primary analysis was completed for a Phase 3 study evaluating the efficacy and safety of ABP 980 compared with trastuzumab in patients with human epidermal growth factor receptor 2-positive early breast cancer.

Erenumab is developed in collaboration with Novartis
Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan

Non-GAAP Financial Measures

In this news release, management has presented its operating results for the second quarters of 2016 and 2015 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2016 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the second quarters of 2016 and 2015. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.

The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.

The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

On July 27, 2016 Amgen (NASDAQ:AMGN) reported financial results for the second quarter of 2016 (Press release, Amgen, JUL 27, 2016, View Source [SID:1234514077]).

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                  Schedule Your 30 min Free Demo!

Key results include:

Revenues increased 6 percent versus the second quarter of 2015 to $5.7 billion.

Product sales grew 5 percent driven by Enbrel (etanercept), Prolia (denosumab), KYPROLIS (carfilzomib) and XGEVA (denosumab).

GAAP earnings per share (EPS) increased 15 percent to $2.47 driven by higher revenues and higher operating margins.

GAAP operating income increased 15 percent to $2,380 million and GAAP operating margin improved by 3.8 percentage points to 43.5 percent.

Non-GAAP EPS increased 11 percent to $2.84 driven by higher revenues and higher operating margins.

Non-GAAP operating income increased 10 percent to $2,812 million and non-GAAP operating margin improved by 2.6 percentage points to 51.4 percent.

2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis.

The Company generated $2.5 billion of free cash flow.

“We delivered another strong quarter and are on track to meet or exceed our long-term objectives,” said Robert A. Bradway, chairman and chief executive officer. “We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones.”

$Millions, except EPS and percentages

Q2’16

Q2’15

YOY Δ

Total Revenues

$ 5,688

$ 5,370

6%

GAAP Operating Income

$ 2,380

$ 2,076

15%

GAAP Net Income

$ 1,870

$ 1,653

13%

GAAP EPS

$ 2.47

$ 2.15

15%

Non-GAAP Operating Income

$ 2,812

$ 2,551

10%

Non-GAAP Net Income

$ 2,146

$ 1,977

9%

Non-GAAP EPS

$ 2.84

$ 2.57

11%

References in this release to “non-GAAP” measures, measures presented “on a non-GAAP basis” and to “free cash flow” (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.

Product Sales Performance

Total product sales increased 5 percent for the second quarter of 2016 versus the second quarter of 2015. The increase was driven by ENBREL, Prolia, KYPROLIS and XGEVA.

ENBREL sales increased 10 percent driven by net selling price, offset partially by the impact of competition.

Neulasta (pegfilgrastim) sales decreased 1 percent driven by lower unit demand, offset partially by net selling price in the United States (U.S.).

Aranesp (darbepoetin alfa) sales increased 5 percent. Unit demand grew due to a shift by some U.S. dialysis customers from

EPOGEN (epoetin alfa) to Aranesp. Unit demand growth was offset partially by unfavorable changes in inventory and net selling price.

Prolia sales increased 30 percent driven by higher unit demand.

Sensipar/Mimpara (cinacalcet) sales increased 13 percent driven by net selling price and higher unit demand.

XGEVA sales increased 15 percent driven mainly by higher unit demand and, to a lesser extent, net selling price.

EPOGEN sales decreased 33 percent driven by the impact of competition and, to a lesser extent, a shift by some U.S. dialysis customers to Aranesp.

NEUPOGEN (filgrastim) sales decreased 23 percent driven by the impact of competition in the U.S.

KYPROLIS sales increased 45 percent driven by higher unit demand.

Vectibix (panitumumab) sales were flat.

Nplate (romiplostim) sales increased 14 percent driven by higher unit demand.

BLINCYTO (blinatumomab) sales increased 76 percent driven by higher unit demand.

PRODUCT SALES DETAIL BY PRODUCT AND GEOGRAPHIC REGION

$Millions, except percentages

Q2’16
Q2’15
YOY Δ

US
ROW
TOTAL

TOTAL

TOTAL

Enbrel

$1,423
$61
$1,484

$1,348

10%

Neulasta

962
187
1,149

1,158

(1%)

Aranesp

260
244
504

479

5%

Prolia

286
155
441

340

30%

Sensipar / Mimpara

303
86
389

344

13%

XGEVA

275
106
381

331

15%

EPOGEN

331
0
331

491

(33%)

NEUPOGEN

141
55
196

256

(23%)

KYPROLIS

142
30
172

119

45%

Vectibix

52
108
160

160

0%

Nplate

84
58
142

125

14%

BLINCYTO
21
9
30

17

76%

Repatha
20
7
27

0

*

Other**

17
51
68

57

19%

Total product sales

$4,317
$1,157
$5,474

$5,225

5%

* Not meaningful

** Other includes MN Pharma, Bergamo, IMLYGICand Corlanor

Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. Research & Development (R&D) expenses decreased 7 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses increased 11 percent driven primarily by investments in new product launches. Total Operating Expenses were flat year-over-year, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 3.8 percentage points to 43.5 percent.

Tax Rate decreased by 2.0 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), offset partially by unfavorable changes in the geographic mix of earnings.
On a non-GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. R&D expenses decreased 4 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. SG&A expenses increased 13 percent driven primarily by investments in new product launches. Total Operating Expenses increased 2 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 2.6 percentage points to 51.4 percent.

Tax Rate decreased by 1.4 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of ASU 2016-09, offset partially by unfavorable changes in the geographic mix of earnings.

$Millions, except percentages

GAAP

Non-GAAP

Q2’16
Q2’15
YOY Δ

Q2’16
Q2’15
YOY Δ

Cost of Sales
$1,050
$1,089
(4%)

$738
$789
(6%)

% of product sales
19.2%
20.8%
(1.6) pts

13.5%
15.1%
(1.6) pts

Research & Development
$900
$964
(7%)

$878
$918
(4%)

% of product sales
16.4%
18.4%
(2.0) pts

16.0%
17.6%
(1.6) pts

Selling, General & Administrative
$1,292
$1,160
11%

$1,260
$1,112
13%

% of product sales
23.6%
22.2%
1.4 pts

23.0%
21.3%
1.7 pts

Other
$66
$81
(19%)

$0
$0
0%

TOTAL Operating Expenses
$3,308
$3,294
0%

$2,876
$2,819
2%

Operating Margin

operating income as a % of product sales
43.5%
39.7%
3.8 pts

51.4%
48.8%
2.6 pts

Tax Rate
15.2%
17.2%
(2.0) pts

18.6%
20.0%
(1.4) pts

pts: percentage points

Cash Flow and Balance Sheet

The Company generated $2.5 billion of free cash flow in the second quarter of 2016 versus $3.2 billion in the second quarter of 2015. The decrease was driven by the timing of tax payments and the termination of foreign exchange forward contracts in the second quarter of 2015.

The Company’s third quarter 2016 dividend of $1.00 per share declared on July 22, 2016, will be paid on Sept. 8, 2016, to all stockholders of record as of Aug. 17, 2016.
During the second quarter, the Company repurchased 3.9 million shares of common stock at a total cost of $591 million. At the end of the second quarter, the Company had $3.6 billion remaining under its stock repurchase authorization.

$Billions, except shares

Q2’16
Q2’15
YOY Δ

Operating Cash Flow
$2.7
$3.3
($0.6)

Capital Expenditures
0.2
0.1
0.1

Free Cash Flow
2.5
3.2
(0.7)

Dividends Paid
0.8
0.6
0.2

Share Repurchase
0.6
0.5
0.1

Avg. Diluted Shares (millions)
756
768
(12)

Cash and Investments
35.0
30.0
5.0

Debt Outstanding
33.2
32.0
1.2

Stockholders’ Equity
30.1
27.5
2.6

Note: Numbers may not add due to rounding

2016 Guidance

For the full year 2016, the Company now expects:

Total revenues in the range of $22.5 billion to $22.8 billion.
Previously, the Company expected total revenues in the range of $22.2 billion to $22.6 billion.

On a GAAP basis, EPS in the range of $9.55 to $9.90 and a tax rate in the range of 16.5 percent to 17.5 percent.

Previously, the Company expected GAAP EPS in the range of $9.34 to $9.74. Tax rate guidance is unchanged.

On a non-GAAP basis, EPS in the range of $11.10 to $11.40 and a tax rate in the range of 19.0 percent to 20.0 percent.

Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20. Tax rate guidance is unchanged.

Capital expenditures to be approximately $700 million.

SECOND QUARTER PRODUCT AND PIPELINE UPDATE
Key development milestones:

Clinical Program
Indication
Milestone

Repatha (evolocumab)
Hyperlipidemia
Phase 3 coronary imaging data expected H2 2016
Phase 3 CV outcomes data expected Q1 2017*

KYPROLIS
Newly diagnosed multiple myeloma
Phase 3 data expected H2 2016*

BLINCYTO
Pediatric Ph- R/R
B-cell precursor ALL
FDA priority review

Parsabiv (etelcalcetide)†
Secondary hyperparathyroidism
Global regulatory reviews

XGEVA
Prevention of SREs in multiple myeloma
Phase 3 data expected H2 2016*

Romosozumab
Postmenopausal osteoporosis
US regulatory review
Global regulatory submissions

Erenumab (AMG 334)
Migraine Prophylaxis
Phase 3 episodic migraine data expected H2 2016
ABP 215

(biosimilar bevacizumab)
Oncology
Global regulatory submissions
ABP 501

(biosimilar adalimumab)
Inflammatory diseases
Global regulatory reviews
ABP 980

(biosimilar trastuzumab)
Breast Cancer
Global regulatory submissions

*Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular; ALL = acute lymphoblastic leukemia

The Company provided the following updates on selected product and pipeline programs:

Repatha

In July, the U.S. Food and Drug Administration (FDA) approved the Repatha Pushtronex system (on-body infusor with prefilled cartridge) for monthly single-dose administration.

Data from a Phase 3 study evaluating the effects of Repatha on atherosclerotic disease as measured by intravascular ultrasound are expected in H2 2016.

Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017.

KYPROLIS

In June, the European Commission approved an expanded indication for KYPROLIS, to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy, based on the ENDEAVOR data.

Data from the event driven Phase 3 CLARION study of KYPROLIS versus bortezomib in newly diagnosed, transplant ineligible multiple myeloma patients is expected in H2 2016.

BLINCYTO

In May, FDA accepted for priority review the supplemental Biologics License Application for BLINCYTO to include new data supporting the treatment of pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia. The Prescription Drug User Fee Act target action date is Sept. 1, 2016.

Romosozumab

In July, a Biologics License Application for romosozumab for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was submitted to FDA.

Erenumab

In June, a global Phase 2 study evaluating the efficacy and safety of erenumab in chronic migraine prevention met its primary endpoint.

ABP 980

In July, the primary analysis was completed for a Phase 3 study evaluating the efficacy and safety of ABP 980 compared with trastuzumab in patients with human epidermal growth factor receptor 2-positive early breast cancer.

Erenumab is developed in collaboration with Novartis
Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan

Non-GAAP Financial Measures

In this news release, management has presented its operating results for the second quarters of 2016 and 2015 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2016 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the second quarters of 2016 and 2015. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.

The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.

The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

On July 27, 2016 Amgen (NASDAQ:AMGN) reported financial results for the second quarter of 2016 (Press release, Amgen, JUL 27, 2016, View Source [SID:1234514077]).

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Key results include:

Revenues increased 6 percent versus the second quarter of 2015 to $5.7 billion.

Product sales grew 5 percent driven by Enbrel (etanercept), Prolia (denosumab), KYPROLIS (carfilzomib) and XGEVA (denosumab).

GAAP earnings per share (EPS) increased 15 percent to $2.47 driven by higher revenues and higher operating margins.

GAAP operating income increased 15 percent to $2,380 million and GAAP operating margin improved by 3.8 percentage points to 43.5 percent.

Non-GAAP EPS increased 11 percent to $2.84 driven by higher revenues and higher operating margins.

Non-GAAP operating income increased 10 percent to $2,812 million and non-GAAP operating margin improved by 2.6 percentage points to 51.4 percent.

2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis.

The Company generated $2.5 billion of free cash flow.

“We delivered another strong quarter and are on track to meet or exceed our long-term objectives,” said Robert A. Bradway, chairman and chief executive officer. “We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones.”

$Millions, except EPS and percentages

Q2’16

Q2’15

YOY Δ

Total Revenues

$ 5,688

$ 5,370

6%

GAAP Operating Income

$ 2,380

$ 2,076

15%

GAAP Net Income

$ 1,870

$ 1,653

13%

GAAP EPS

$ 2.47

$ 2.15

15%

Non-GAAP Operating Income

$ 2,812

$ 2,551

10%

Non-GAAP Net Income

$ 2,146

$ 1,977

9%

Non-GAAP EPS

$ 2.84

$ 2.57

11%

References in this release to “non-GAAP” measures, measures presented “on a non-GAAP basis” and to “free cash flow” (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.

Product Sales Performance

Total product sales increased 5 percent for the second quarter of 2016 versus the second quarter of 2015. The increase was driven by ENBREL, Prolia, KYPROLIS and XGEVA.

ENBREL sales increased 10 percent driven by net selling price, offset partially by the impact of competition.

Neulasta (pegfilgrastim) sales decreased 1 percent driven by lower unit demand, offset partially by net selling price in the United States (U.S.).

Aranesp (darbepoetin alfa) sales increased 5 percent. Unit demand grew due to a shift by some U.S. dialysis customers from

EPOGEN (epoetin alfa) to Aranesp. Unit demand growth was offset partially by unfavorable changes in inventory and net selling price.

Prolia sales increased 30 percent driven by higher unit demand.

Sensipar/Mimpara (cinacalcet) sales increased 13 percent driven by net selling price and higher unit demand.

XGEVA sales increased 15 percent driven mainly by higher unit demand and, to a lesser extent, net selling price.

EPOGEN sales decreased 33 percent driven by the impact of competition and, to a lesser extent, a shift by some U.S. dialysis customers to Aranesp.

NEUPOGEN (filgrastim) sales decreased 23 percent driven by the impact of competition in the U.S.

KYPROLIS sales increased 45 percent driven by higher unit demand.

Vectibix (panitumumab) sales were flat.

Nplate (romiplostim) sales increased 14 percent driven by higher unit demand.

BLINCYTO (blinatumomab) sales increased 76 percent driven by higher unit demand.

PRODUCT SALES DETAIL BY PRODUCT AND GEOGRAPHIC REGION

$Millions, except percentages

Q2’16
Q2’15
YOY Δ

US
ROW
TOTAL

TOTAL

TOTAL

Enbrel

$1,423
$61
$1,484

$1,348

10%

Neulasta

962
187
1,149

1,158

(1%)

Aranesp

260
244
504

479

5%

Prolia

286
155
441

340

30%

Sensipar / Mimpara

303
86
389

344

13%

XGEVA

275
106
381

331

15%

EPOGEN

331
0
331

491

(33%)

NEUPOGEN

141
55
196

256

(23%)

KYPROLIS

142
30
172

119

45%

Vectibix

52
108
160

160

0%

Nplate

84
58
142

125

14%

BLINCYTO
21
9
30

17

76%

Repatha
20
7
27

0

*

Other**

17
51
68

57

19%

Total product sales

$4,317
$1,157
$5,474

$5,225

5%

* Not meaningful

** Other includes MN Pharma, Bergamo, IMLYGICand Corlanor

Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. Research & Development (R&D) expenses decreased 7 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses increased 11 percent driven primarily by investments in new product launches. Total Operating Expenses were flat year-over-year, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 3.8 percentage points to 43.5 percent.

Tax Rate decreased by 2.0 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), offset partially by unfavorable changes in the geographic mix of earnings.
On a non-GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. R&D expenses decreased 4 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. SG&A expenses increased 13 percent driven primarily by investments in new product launches. Total Operating Expenses increased 2 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 2.6 percentage points to 51.4 percent.

Tax Rate decreased by 1.4 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of ASU 2016-09, offset partially by unfavorable changes in the geographic mix of earnings.

$Millions, except percentages

GAAP

Non-GAAP

Q2’16
Q2’15
YOY Δ

Q2’16
Q2’15
YOY Δ

Cost of Sales
$1,050
$1,089
(4%)

$738
$789
(6%)

% of product sales
19.2%
20.8%
(1.6) pts

13.5%
15.1%
(1.6) pts

Research & Development
$900
$964
(7%)

$878
$918
(4%)

% of product sales
16.4%
18.4%
(2.0) pts

16.0%
17.6%
(1.6) pts

Selling, General & Administrative
$1,292
$1,160
11%

$1,260
$1,112
13%

% of product sales
23.6%
22.2%
1.4 pts

23.0%
21.3%
1.7 pts

Other
$66
$81
(19%)

$0
$0
0%

TOTAL Operating Expenses
$3,308
$3,294
0%

$2,876
$2,819
2%

Operating Margin

operating income as a % of product sales
43.5%
39.7%
3.8 pts

51.4%
48.8%
2.6 pts

Tax Rate
15.2%
17.2%
(2.0) pts

18.6%
20.0%
(1.4) pts

pts: percentage points

Cash Flow and Balance Sheet

The Company generated $2.5 billion of free cash flow in the second quarter of 2016 versus $3.2 billion in the second quarter of 2015. The decrease was driven by the timing of tax payments and the termination of foreign exchange forward contracts in the second quarter of 2015.

The Company’s third quarter 2016 dividend of $1.00 per share declared on July 22, 2016, will be paid on Sept. 8, 2016, to all stockholders of record as of Aug. 17, 2016.
During the second quarter, the Company repurchased 3.9 million shares of common stock at a total cost of $591 million. At the end of the second quarter, the Company had $3.6 billion remaining under its stock repurchase authorization.

$Billions, except shares

Q2’16
Q2’15
YOY Δ

Operating Cash Flow
$2.7
$3.3
($0.6)

Capital Expenditures
0.2
0.1
0.1

Free Cash Flow
2.5
3.2
(0.7)

Dividends Paid
0.8
0.6
0.2

Share Repurchase
0.6
0.5
0.1

Avg. Diluted Shares (millions)
756
768
(12)

Cash and Investments
35.0
30.0
5.0

Debt Outstanding
33.2
32.0
1.2

Stockholders’ Equity
30.1
27.5
2.6

Note: Numbers may not add due to rounding

2016 Guidance

For the full year 2016, the Company now expects:

Total revenues in the range of $22.5 billion to $22.8 billion.
Previously, the Company expected total revenues in the range of $22.2 billion to $22.6 billion.

On a GAAP basis, EPS in the range of $9.55 to $9.90 and a tax rate in the range of 16.5 percent to 17.5 percent.

Previously, the Company expected GAAP EPS in the range of $9.34 to $9.74. Tax rate guidance is unchanged.

On a non-GAAP basis, EPS in the range of $11.10 to $11.40 and a tax rate in the range of 19.0 percent to 20.0 percent.

Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20. Tax rate guidance is unchanged.

Capital expenditures to be approximately $700 million.

SECOND QUARTER PRODUCT AND PIPELINE UPDATE
Key development milestones:

Clinical Program
Indication
Milestone

Repatha (evolocumab)
Hyperlipidemia
Phase 3 coronary imaging data expected H2 2016
Phase 3 CV outcomes data expected Q1 2017*

KYPROLIS
Newly diagnosed multiple myeloma
Phase 3 data expected H2 2016*

BLINCYTO
Pediatric Ph- R/R
B-cell precursor ALL
FDA priority review

Parsabiv (etelcalcetide)†
Secondary hyperparathyroidism
Global regulatory reviews

XGEVA
Prevention of SREs in multiple myeloma
Phase 3 data expected H2 2016*

Romosozumab
Postmenopausal osteoporosis
US regulatory review
Global regulatory submissions

Erenumab (AMG 334)
Migraine Prophylaxis
Phase 3 episodic migraine data expected H2 2016
ABP 215

(biosimilar bevacizumab)
Oncology
Global regulatory submissions
ABP 501

(biosimilar adalimumab)
Inflammatory diseases
Global regulatory reviews
ABP 980

(biosimilar trastuzumab)
Breast Cancer
Global regulatory submissions

*Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular; ALL = acute lymphoblastic leukemia

The Company provided the following updates on selected product and pipeline programs:

Repatha

In July, the U.S. Food and Drug Administration (FDA) approved the Repatha Pushtronex system (on-body infusor with prefilled cartridge) for monthly single-dose administration.

Data from a Phase 3 study evaluating the effects of Repatha on atherosclerotic disease as measured by intravascular ultrasound are expected in H2 2016.

Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017.

KYPROLIS

In June, the European Commission approved an expanded indication for KYPROLIS, to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy, based on the ENDEAVOR data.

Data from the event driven Phase 3 CLARION study of KYPROLIS versus bortezomib in newly diagnosed, transplant ineligible multiple myeloma patients is expected in H2 2016.

BLINCYTO

In May, FDA accepted for priority review the supplemental Biologics License Application for BLINCYTO to include new data supporting the treatment of pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia. The Prescription Drug User Fee Act target action date is Sept. 1, 2016.

Romosozumab

In July, a Biologics License Application for romosozumab for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was submitted to FDA.

Erenumab

In June, a global Phase 2 study evaluating the efficacy and safety of erenumab in chronic migraine prevention met its primary endpoint.

ABP 980

In July, the primary analysis was completed for a Phase 3 study evaluating the efficacy and safety of ABP 980 compared with trastuzumab in patients with human epidermal growth factor receptor 2-positive early breast cancer.

Erenumab is developed in collaboration with Novartis
Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan

Non-GAAP Financial Measures

In this news release, management has presented its operating results for the second quarters of 2016 and 2015 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2016 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the second quarters of 2016 and 2015. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.

The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.

The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

On July 27, 2016 Amgen (NASDAQ:AMGN) reported financial results for the second quarter of 2016 (Press release, Amgen, JUL 27, 2016, View Source [SID:1234514077]).

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Key results include:

Revenues increased 6 percent versus the second quarter of 2015 to $5.7 billion.

Product sales grew 5 percent driven by Enbrel (etanercept), Prolia (denosumab), KYPROLIS (carfilzomib) and XGEVA (denosumab).

GAAP earnings per share (EPS) increased 15 percent to $2.47 driven by higher revenues and higher operating margins.

GAAP operating income increased 15 percent to $2,380 million and GAAP operating margin improved by 3.8 percentage points to 43.5 percent.

Non-GAAP EPS increased 11 percent to $2.84 driven by higher revenues and higher operating margins.

Non-GAAP operating income increased 10 percent to $2,812 million and non-GAAP operating margin improved by 2.6 percentage points to 51.4 percent.

2016 total revenues guidance increased to $22.5-$22.8 billion; EPS guidance increased to $9.55-$9.90 on a GAAP basis and $11.10-$11.40 on a non-GAAP basis.

The Company generated $2.5 billion of free cash flow.

“We delivered another strong quarter and are on track to meet or exceed our long-term objectives,” said Robert A. Bradway, chairman and chief executive officer. “We are in the early stages of a new product launch cycle and have several additional pipeline opportunities rapidly nearing regulatory milestones.”

$Millions, except EPS and percentages

Q2’16

Q2’15

YOY Δ

Total Revenues

$ 5,688

$ 5,370

6%

GAAP Operating Income

$ 2,380

$ 2,076

15%

GAAP Net Income

$ 1,870

$ 1,653

13%

GAAP EPS

$ 2.47

$ 2.15

15%

Non-GAAP Operating Income

$ 2,812

$ 2,551

10%

Non-GAAP Net Income

$ 2,146

$ 1,977

9%

Non-GAAP EPS

$ 2.84

$ 2.57

11%

References in this release to “non-GAAP” measures, measures presented “on a non-GAAP basis” and to “free cash flow” (computed by subtracting capital expenditures from operating cash flow) refer to non-GAAP financial measures. Adjustments to the most directly comparable GAAP financial measures and other items are presented on the attached reconciliations.

Product Sales Performance

Total product sales increased 5 percent for the second quarter of 2016 versus the second quarter of 2015. The increase was driven by ENBREL, Prolia, KYPROLIS and XGEVA.

ENBREL sales increased 10 percent driven by net selling price, offset partially by the impact of competition.

Neulasta (pegfilgrastim) sales decreased 1 percent driven by lower unit demand, offset partially by net selling price in the United States (U.S.).

Aranesp (darbepoetin alfa) sales increased 5 percent. Unit demand grew due to a shift by some U.S. dialysis customers from

EPOGEN (epoetin alfa) to Aranesp. Unit demand growth was offset partially by unfavorable changes in inventory and net selling price.

Prolia sales increased 30 percent driven by higher unit demand.

Sensipar/Mimpara (cinacalcet) sales increased 13 percent driven by net selling price and higher unit demand.

XGEVA sales increased 15 percent driven mainly by higher unit demand and, to a lesser extent, net selling price.

EPOGEN sales decreased 33 percent driven by the impact of competition and, to a lesser extent, a shift by some U.S. dialysis customers to Aranesp.

NEUPOGEN (filgrastim) sales decreased 23 percent driven by the impact of competition in the U.S.

KYPROLIS sales increased 45 percent driven by higher unit demand.

Vectibix (panitumumab) sales were flat.

Nplate (romiplostim) sales increased 14 percent driven by higher unit demand.

BLINCYTO (blinatumomab) sales increased 76 percent driven by higher unit demand.

PRODUCT SALES DETAIL BY PRODUCT AND GEOGRAPHIC REGION

$Millions, except percentages

Q2’16
Q2’15
YOY Δ

US
ROW
TOTAL

TOTAL

TOTAL

Enbrel

$1,423
$61
$1,484

$1,348

10%

Neulasta

962
187
1,149

1,158

(1%)

Aranesp

260
244
504

479

5%

Prolia

286
155
441

340

30%

Sensipar / Mimpara

303
86
389

344

13%

XGEVA

275
106
381

331

15%

EPOGEN

331
0
331

491

(33%)

NEUPOGEN

141
55
196

256

(23%)

KYPROLIS

142
30
172

119

45%

Vectibix

52
108
160

160

0%

Nplate

84
58
142

125

14%

BLINCYTO
21
9
30

17

76%

Repatha
20
7
27

0

*

Other**

17
51
68

57

19%

Total product sales

$4,317
$1,157
$5,474

$5,225

5%

* Not meaningful

** Other includes MN Pharma, Bergamo, IMLYGICand Corlanor

Operating Expense, Operating Margin and Tax Rate Analysis

On a GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. Research & Development (R&D) expenses decreased 7 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses increased 11 percent driven primarily by investments in new product launches. Total Operating Expenses were flat year-over-year, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 3.8 percentage points to 43.5 percent.

Tax Rate decreased by 2.0 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), offset partially by unfavorable changes in the geographic mix of earnings.
On a non-GAAP basis:

Cost of Sales margin improved by 1.6 percentage points driven primarily by manufacturing efficiencies and higher net selling price. R&D expenses decreased 4 percent driven primarily by transformation and process improvement efforts and lower spending required to support certain later-stage clinical programs. SG&A expenses increased 13 percent driven primarily by investments in new product launches. Total Operating Expenses increased 2 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.

Operating Margin improved by 2.6 percentage points to 51.4 percent.

Tax Rate decreased by 1.4 percentage points, reflecting discrete benefits associated with tax incentives and the adoption of ASU 2016-09, offset partially by unfavorable changes in the geographic mix of earnings.

$Millions, except percentages

GAAP

Non-GAAP

Q2’16
Q2’15
YOY Δ

Q2’16
Q2’15
YOY Δ

Cost of Sales
$1,050
$1,089
(4%)

$738
$789
(6%)

% of product sales
19.2%
20.8%
(1.6) pts

13.5%
15.1%
(1.6) pts

Research & Development
$900
$964
(7%)

$878
$918
(4%)

% of product sales
16.4%
18.4%
(2.0) pts

16.0%
17.6%
(1.6) pts

Selling, General & Administrative
$1,292
$1,160
11%

$1,260
$1,112
13%

% of product sales
23.6%
22.2%
1.4 pts

23.0%
21.3%
1.7 pts

Other
$66
$81
(19%)

$0
$0
0%

TOTAL Operating Expenses
$3,308
$3,294
0%

$2,876
$2,819
2%

Operating Margin

operating income as a % of product sales
43.5%
39.7%
3.8 pts

51.4%
48.8%
2.6 pts

Tax Rate
15.2%
17.2%
(2.0) pts

18.6%
20.0%
(1.4) pts

pts: percentage points

Cash Flow and Balance Sheet

The Company generated $2.5 billion of free cash flow in the second quarter of 2016 versus $3.2 billion in the second quarter of 2015. The decrease was driven by the timing of tax payments and the termination of foreign exchange forward contracts in the second quarter of 2015.

The Company’s third quarter 2016 dividend of $1.00 per share declared on July 22, 2016, will be paid on Sept. 8, 2016, to all stockholders of record as of Aug. 17, 2016.
During the second quarter, the Company repurchased 3.9 million shares of common stock at a total cost of $591 million. At the end of the second quarter, the Company had $3.6 billion remaining under its stock repurchase authorization.

$Billions, except shares

Q2’16
Q2’15
YOY Δ

Operating Cash Flow
$2.7
$3.3
($0.6)

Capital Expenditures
0.2
0.1
0.1

Free Cash Flow
2.5
3.2
(0.7)

Dividends Paid
0.8
0.6
0.2

Share Repurchase
0.6
0.5
0.1

Avg. Diluted Shares (millions)
756
768
(12)

Cash and Investments
35.0
30.0
5.0

Debt Outstanding
33.2
32.0
1.2

Stockholders’ Equity
30.1
27.5
2.6

Note: Numbers may not add due to rounding

2016 Guidance

For the full year 2016, the Company now expects:

Total revenues in the range of $22.5 billion to $22.8 billion.
Previously, the Company expected total revenues in the range of $22.2 billion to $22.6 billion.

On a GAAP basis, EPS in the range of $9.55 to $9.90 and a tax rate in the range of 16.5 percent to 17.5 percent.

Previously, the Company expected GAAP EPS in the range of $9.34 to $9.74. Tax rate guidance is unchanged.

On a non-GAAP basis, EPS in the range of $11.10 to $11.40 and a tax rate in the range of 19.0 percent to 20.0 percent.

Previously, the Company expected non-GAAP EPS in the range of $10.85 to $11.20. Tax rate guidance is unchanged.

Capital expenditures to be approximately $700 million.

SECOND QUARTER PRODUCT AND PIPELINE UPDATE
Key development milestones:

Clinical Program
Indication
Milestone

Repatha (evolocumab)
Hyperlipidemia
Phase 3 coronary imaging data expected H2 2016
Phase 3 CV outcomes data expected Q1 2017*

KYPROLIS
Newly diagnosed multiple myeloma
Phase 3 data expected H2 2016*

BLINCYTO
Pediatric Ph- R/R
B-cell precursor ALL
FDA priority review

Parsabiv (etelcalcetide)†
Secondary hyperparathyroidism
Global regulatory reviews

XGEVA
Prevention of SREs in multiple myeloma
Phase 3 data expected H2 2016*

Romosozumab
Postmenopausal osteoporosis
US regulatory review
Global regulatory submissions

Erenumab (AMG 334)
Migraine Prophylaxis
Phase 3 episodic migraine data expected H2 2016
ABP 215

(biosimilar bevacizumab)
Oncology
Global regulatory submissions
ABP 501

(biosimilar adalimumab)
Inflammatory diseases
Global regulatory reviews
ABP 980

(biosimilar trastuzumab)
Breast Cancer
Global regulatory submissions

*Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular; ALL = acute lymphoblastic leukemia

The Company provided the following updates on selected product and pipeline programs:

Repatha

In July, the U.S. Food and Drug Administration (FDA) approved the Repatha Pushtronex system (on-body infusor with prefilled cartridge) for monthly single-dose administration.

Data from a Phase 3 study evaluating the effects of Repatha on atherosclerotic disease as measured by intravascular ultrasound are expected in H2 2016.

Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017.

KYPROLIS

In June, the European Commission approved an expanded indication for KYPROLIS, to be used in combination with dexamethasone alone, for adult patients with multiple myeloma who have received at least one prior therapy, based on the ENDEAVOR data.

Data from the event driven Phase 3 CLARION study of KYPROLIS versus bortezomib in newly diagnosed, transplant ineligible multiple myeloma patients is expected in H2 2016.

BLINCYTO

In May, FDA accepted for priority review the supplemental Biologics License Application for BLINCYTO to include new data supporting the treatment of pediatric and adolescent patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia. The Prescription Drug User Fee Act target action date is Sept. 1, 2016.

Romosozumab

In July, a Biologics License Application for romosozumab for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was submitted to FDA.

Erenumab

In June, a global Phase 2 study evaluating the efficacy and safety of erenumab in chronic migraine prevention met its primary endpoint.

ABP 980

In July, the primary analysis was completed for a Phase 3 study evaluating the efficacy and safety of ABP 980 compared with trastuzumab in patients with human epidermal growth factor receptor 2-positive early breast cancer.

Erenumab is developed in collaboration with Novartis
Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan

Non-GAAP Financial Measures

In this news release, management has presented its operating results for the second quarters of 2016 and 2015 in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2016 EPS and tax rate guidance in accordance with GAAP and on a non-GAAP basis. These non-GAAP financial measures are computed by excluding certain items related to acquisitions, restructuring and certain other items from the related GAAP financial measures. Reconciliations for these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release. Management has also presented Free Cash Flow (FCF), which is a non-GAAP financial measure, for the second quarters of 2016 and 2015. FCF is computed by subtracting capital expenditures from operating cash flow, each as determined in accordance with GAAP.

The Company believes that its presentation of non-GAAP financial measures provides useful supplementary information to and facilitates additional analysis by investors. The Company uses certain non-GAAP financial measures to enhance an investor’s overall understanding of the financial performance and prospects for the future of the Company’s ongoing business activities by facilitating comparisons of results of ongoing business operations among current, past and future periods. The Company believes that FCF provides a further measure of the Company’s liquidity.

The Company uses the non-GAAP financial measures set forth in the news release in connection with its own budgeting and financial planning internally to evaluate the performance of the business, including to allocate resources and to evaluate results relative to incentive compensation targets. The non-GAAP financial measures are in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.