On July 25, 2017 Amgen (NASDAQ:AMGN) reported financial results for the second quarter of 2017 (Press release, Amgen, JUL 25, 2017, View Source [SID1234519879
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Key results include:
Total revenues increased 2 percent versus the second quarter of 2016 to $5.8 billion.
Product sales grew 2 percent driven by Prolia (denosumab), Repatha (evolocumab) and KYPROLIS (carfilzomib).
GAAP earnings per share (EPS) increased 18 percent to $2.91 driven by higher operating margins.
GAAP operating income increased 13 percent to $2.7 billion and GAAP operating margin increased 4.9 percentage points to 48.4 percent.
Non-GAAP EPS increased 15 percent to $3.27 driven by higher operating margins.
Non-GAAP operating income increased 9 percent to $3.1 billion and non-GAAP operating margin increased 3.8 percentage points to 55.2 percent.
2017 EPS guidance increased to $10.79-$11.37 on a GAAP basis and $12.15-$12.65 on a non-GAAP basis; total revenues guidance revised to $22.5-$23.0 billion.
The Company generated $2.1 billion of free cash flow.
“Our continued solid performance this quarter is yet another indication that we are on track to deliver on our long-term growth objectives,” said Robert A. Bradway, chairman and chief executive officer. “Our newer products are registering strong volume-driven growth globally and we expect their contribution to continue to increase over time, offsetting declines in mature products.”
$Millions, except EPS and percentages
Q2’17
Q2’16
YOY Δ
Total Revenues
$ 5,810
$ 5,688
2%
GAAP Operating Income
$ 2,698
$ 2,380
13%
GAAP Net Income
$ 2,151
$ 1,870
15%
GAAP EPS
$ 2.91
$ 2.47
18%
Non-GAAP Operating Income
$ 3,075
$ 2,812
9%
Non-GAAP Net Income
$ 2,410
$ 2,146
12%
Non-GAAP EPS
$ 3.27
$ 2.84
15%
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 2 percent for the second quarter of 2017 versus the second quarter of 2016.
Repatha sales increased driven by higher unit demand.
BLINCYTO (blinatumomab) sales increased 43 percent driven by higher unit demand.
KYPROLIS sales increased 23 percent driven by higher unit demand.
Prolia sales increased 15 percent driven primarily by higher unit demand.
Nplate (romiplostim) sales increased 15 percent driven primarily by higher unit demand.
Sensipar/Mimpara (cinacalcet) sales increased 10 percent driven primarily by net selling price.
Aranesp (darbepoetin alfa) sales increased 6 percent driven by higher unit demand.
Vectibix (panitumumab) sales increased 5 percent driven by higher unit demand.
XGEVA (denosumab) sales increased 4 percent driven primarily by higher unit demand.
Enbrel (etanercept) sales decreased 1 percent due to the impact of competition, offset partially by favorable changes in inventory and net selling price.
Neulasta (pegfilgrastim) sales decreased 5 percent driven by lower unit demand.
EPOGEN (epoetin alfa) sales decreased 12 percent driven primarily by net selling price.
NEUPOGEN (filgrastim) sales decreased 30 percent driven primarily by the impact of competition.
Product Sales Detail by Product and Geographic Region
$Millions, except percentages
Q2’17
Q2’16
YOY Δ
US
ROW
TOTAL
TOTAL
TOTAL
Repatha
$60
$23
$83
$27
*
BLINCYTO
28
15
43
30
43%
KYPROLIS
140
71
211
172
23%
Prolia
326
179
505
441
15%
Nplate
99
65
164
142
15%
Sensipar / Mimpara
342
85
427
389
10%
Aranesp
288
247
535
504
6%
Vectibix
62
106
168
160
5%
XGEVA
292
103
395
381
4%
Enbrel
1,411
55
1,466
1,484
(1%)
Neulasta
937
150
1,087
1,149
(5%)
EPOGEN
292
0
292
331
(12%)
NEUPOGEN
90
47
137
196
(30%)
Other**
19
42
61
68
(10%)
Total product sales
$4,386
$1,188
$5,574
$5,474
2%
* Change in excess of 100%
** Other includes Bergamo, MN Pharma, IMLYGIC and Corlanor
Operating Expense, Operating Margin and Tax Rate Analysis
On a GAAP basis:
Total Operating Expenses decreased 6 percent, with all expense categories reflecting savings from our transformation and process improvement efforts. Cost of Sales margin improved by 0.8 percentage points driven primarily by reduced royalties. Research & Development (R&D) expenses decreased 3 percent driven by lower spending required to support certain later-stage clinical programs. Selling, General & Administrative (SG&A) expenses decreased 6 percent due to the expiration of ENBREL residual royalty payments, offset partially by investments in product launches.
Operating Margin improved by 4.9 percentage points to 48.4 percent.
Tax Rate increased 0.2 percentage points.
On a non-GAAP basis:
Total Operating Expenses decreased 5 percent, with all expense categories reflecting savings from our transformation and process improvement efforts. Cost of Sales margin improved by 0.8 percentage points driven primarily by reduced royalties. R&D expenses decreased 3 percent driven by lower spending required to support certain later-stage clinical programs. SG&A expenses decreased 7 percent due to the expiration of ENBREL residual royalty payments, offset partially by investments in product launches.
Operating Margin improved by 3.8 percentage points to 55.2 percent.
Tax Rate decreased 1.2 percentage points, reflecting discrete benefits associated with the effective settlement of certain state and federal tax matters and favorable changes in the geographic mix of earnings, offset partially by a prior year benefit associated with tax incentives.
$Millions, except percentages
GAAP
Non-GAAP
Q2’17
Q2’16
YOY Δ
Q2’17
Q2’16
YOY Δ
Cost of Sales
$1,024
$1,050
(2%)
$710
$738
(4%)
% of product sales
18.4%
19.2%
(0.8) pts
12.7%
13.5%
(0.8) pts
Research & Development
$873
$900
(3%)
$851
$878
(3%)
% of product sales
15.7%
16.4%
(0.7) pts
15.3%
16.0%
(0.7) pts
Selling, General & Administrative
$1,209
$1,292
(6%)
$1,174
$1,260
(7%)
% of product sales
21.7%
23.6%
(1.9) pts
21.1%
23.0%
(1.9) pts
Other
$6
$66
(91%)
$0
$0
NM
TOTAL Operating Expenses
$3,112
$3,308
(6%)
$2,735
$2,876
(5%)
Operating Margin
operating income as a % of product sales
48.4%
43.5%
4.9 pts
55.2%
51.4%
3.8 pts
Tax Rate
15.4%
15.2%
0.2 pts
17.4%
18.6%
(1.2) pts
NM: Not Meaningful
pts: percentage points
Cash Flow and Balance Sheet
The Company generated $2.1 billion of free cash flow in the second quarter of 2017 versus $2.5 billion in the second quarter of 2016, the difference driven by the timing of tax payments.
The Company’s second quarter 2017 dividend of $1.15 per share was paid on June 8, 2017, a 15 percent increase versus the second quarter of 2016.
During the second quarter, the Company repurchased 6.2 million shares of common stock at a total cost of $1.0 billion. At the end of the second quarter, the Company had $2.5 billion remaining under its stock repurchase authorization.
$Billions, except shares
Q2’17
Q2’16
YOY Δ
Operating Cash Flow
$2.3
$2.7
($0.4)
Capital Expenditures
0.2
0.2
0.0
Free Cash Flow
2.1
2.5
(0.3)
Dividends Paid
0.8
0.8
0.1
Share Repurchase
1.0
0.6
0.4
Avg. Diluted Shares (millions)
738
756
(18)
Cash and Investments
39.2
35.0
4.2
Debt Outstanding
35.1
33.2
1.8
Stockholders’ Equity
31.7
30.1
1.6
Note: Numbers may not add due to rounding
2017 Guidance
For the full year 2017, the Company now expects:
Total revenues in the range of $22.5 billion to $23.0 billion.
Previously, the Company expected total revenues in the range of $22.3 billion to $23.1 billion.
On a GAAP basis, EPS in the range of $10.79 to $11.37 and a tax rate in the range of 16 percent to 18 percent.
Previously, the Company expected GAAP EPS in the range of $10.64 to $11.32. Tax rate guidance is unchanged.
On a non-GAAP basis, EPS in the range of $12.15 to $12.65 and a tax rate in the range of 18.5 percent to 19.5 percent.
Previously, the Company expected non-GAAP EPS in the range of $12.00 to $12.60. Tax rate guidance is unchanged.
Capital expenditures to be approximately $700 million.
Second Quarter Product and Pipeline Update
Key development milestones:
Clinical Program
Indication
Projected Milestone
Repatha
Hyperlipidemia
Regulatory reviews (CV outcomes data)
KYPROLIS
Relapsed multiple myeloma
Regulatory reviews (ENDEAVOR OS data)
Regulatory submissions (ASPIRE OS data)
XGEVA
Prevention of SREs in multiple myeloma
Regulatory reviews
EVENITY†
Postmenopausal osteoporosis
Regulatory submissions
Aimovig† (erenumab)
Migraine prevention
U.S. regulatory review
ABP 215
(biosimilar bevacizumab)
Oncology
Regulatory reviews
ABP 980
(biosimilar trastuzumab)
Oncology
U.S. regulatory submission
†Trade name provisionally approved by FDA; CV = cardiovascular; OS = overall survival; SRE = skeletal-related event
The Company provided the following updates on selected product and pipeline programs:
Repatha
In June, the Company announced the submission of a supplemental Biologics License Application (sBLA) to the U.S. Food and Drug Administration (FDA) and a variation to the marketing authorization to the European Medicines Agency (EMA) to include data from the 27,564-patient Phase 3 Repatha cardiovascular outcomes study.
KYPROLIS
In July, the Phase 3 ASPIRE study met the key secondary endpoint of OS, demonstrating that KYPROLIS, lenalidomide and dexamethasone reduced the risk of death by 21 percent over lenalidomide and dexamethasone alone.
In July, the Company announced the submission of a supplemental New Drug Application to the FDA and a variation to the marketing application to the EMA to include OS data from the Phase 3 head-to-head ENDEAVOR study.
In June, a Phase 3 study evaluating KYPROLIS in combination with DARZALEX (daratumumab) and dexamethasone compared to KYPROLIS and dexamethasone alone in patients with relapsed or refractory multiple myeloma began enrollment.
XGEVA
In June, the FDA accepted the sBLA seeking to expand the currently approved indication to include the prevention of SREs in patients with multiple myeloma, assigning a Feb. 3, 2018, Prescription Drug User Fee Act (PDUFA) target action date.
Vectibix
In June, the FDA approved a label update for Vectibix to more precisely molecularly define patients with wild-type RAS metastatic colorectal cancer as first-line therapy in combination with FOLFOX and as monotherapy following disease progression after prior treatment with fluoropyrimidine, oxaliplatin, and irinotecan-containing chemotherapy.
BLINCYTO
In July, the FDA approved the sBLA for BLINCYTO to include OS data from the Phase 3 TOWER study, converting BLINCYTO’s accelerated approval to a full approval. The approval also expanded the indication to include patients with Ph+ relapsed or refractory B-cell precursor acute lymphoblastic leukemia.
EVENITY
In May, the Phase 3 active-comparator ARCH study in postmenopausal women with osteoporosis met the primary and the key secondary endpoints, and an imbalance in positively adjudicated cardiovascular serious adverse events was observed as a new safety signal.
In July, the FDA issued a Complete Response Letter for the Biologics License Application (BLA) for EVENITY as a treatment for postmenopausal women with osteoporosis. The resubmission will include data from the Phase 3 ARCH study and the Phase 3 BRIDGE study evaluating EVENITY in men with osteoporosis, in addition to the Phase 3 FRAME study.
Aimovig (erenumab)
In May, a BLA was submitted to FDA for the prevention of migraine based on data from pivotal studies in patients with episodic and chronic migraine. In July, FDA accepted the BLA and assigned a May 17, 2018, PDUFA target action date.
DARZALEX is a registered trademark of Janssen Biotech, Inc.
EVENITY trade name is provisionally approved by FDA
EVENITY is developed in collaboration with UCB globally, as well as our joint venture partner Astellas in Japan
Aimovig trade name is provisionally approved by FDA
Aimovig is developed in collaboration with Novartis AG
Non-GAAP Financial Measures
In this news release, management has presented its operating results for the second quarters of 2017 and 2016, in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and on a non-GAAP basis. In addition, management has presented its full year 2017 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 periods in 2017 and 2016. 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.