$AMGN Form 10-Q

0
1090

Form 10-Q for AMGEN INC


27-Apr-2015

Quarterly Report

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding Amgen’s business. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2014. Our results of operations discussed in MD&A are presented in conformity with GAAP. Amgen operates in one business segment: human therapeutics. Therefore, our results of operations are discussed on a consolidated basis. Forward-looking statements
This report and other documents we file with the U.S. Securities and Exchange Commission (SEC) contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such words as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” and “continue,” as well as variations of such words and similar expressions, are intended to identify such forward-looking statements. These statements are not guarantees of future performance, and they involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Item 1A. Risk Factors in Part II herein. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements. Reference is made in particular to forward-looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources, trends and planned dividends, stock repurchases and restructuring plans. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise. Overview
Amgen is committed to unlocking the potential of biology for patients suffering from serious illnesses by discovering, developing, manufacturing and delivering innovative human therapeutics. This approach begins by using tools like advanced human genetics to unravel the complexities of disease and understand the fundamentals of human biology.
Amgen focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people’s lives. A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.
Currently, we market primarily recombinant protein therapeutics for supportive cancer care, inflammation, nephrology and bone health. Our principal products are Neulasta� (pegfilgrastim), NEUPOGEN� (filgrastim), Enbrel� (etanercept), XGEVA� (denosumab), Prolia� (denosumab), Sensipar�/Mimpara� (cinacalcet) and our erythropoiesis-stimulating agents: Aranesp� (darbepoetin alfa) and EPOGEN� (epoetin alfa). Our product sales outside the United States consist principally of sales in Europe. For the three months ended March 31, 2015, our principal products represented 91% of worldwide product sales. We market several other products, including Vectibix� (panitumumab), Nplate� (romiplostim), Kyprolis� (carfilzomib) and BLINCYTO� (blinatumomab).


Significant developments
Following is a summary of selected significant developments affecting our business that have occurred since December 31, 2014. For additional developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2014. Products/Pipeline
Cardiovascular
Corlanor� (ivabradine)
� In April 2015, we announced that the FDA granted approval of Corlanor� to reduce the risk of hospitalization for worsening heart failure in patients with stable, symptomatic chronic heart failure with left ventricular ejection fraction ?35 percent, who are in sinus rhythm with resting heart rate ?70 beats per minute and either are on maximally tolerated doses of beta blockers or have a contraindication to beta blocker use. Commercial sales launched in April 2015.

Repatha� (evolocumab)*
� In March 2015, we announced that we submitted an application seeking marketing approval of Repatha� for the treatment of high cholesterol to the Ministry of Health, Labour and Welfare in Japan.

Nephrology
AMG 416
� In February 2015, we announced results from the head-to-head phase 3 study comparing AMG 416 with cinacalcet for the treatment of secondary hyperparathyroidism in patients with chronic kidney disease receiving hemodialysis. The study met the primary endpoint of non-inferiority of AMG 416 compared to cinacalcet.

Oncology
Kyprolis�
� In March 2015, we announced that the FDA accepted the supplemental New Drug Application of Kyprolis� for the treatment of patients with relapsed multiple myeloma who have received at least one prior therapy. As part of the acceptance, the FDA granted Kyprolis� priority review.

� In March 2015, we announced the results from a planned interim analysis showing that the phase 3 head-to-head clinical trial ENDEAVOR evaluating Kyprolis� in combination with low-dose dexamethasone versus Velcade� (bortezomib) and low-dose dexamethasone met the primary endpoint of progression-free survival (PFS). Patients with relapsed multiple myeloma treated with Kyprolis� lived approximately twice as long without their disease worsening, demonstrating statistically and clinically significant superiority over Velcade�.

� In April 2015, we announced the initiation of a phase 3 study with weekly dosing in relapsed and refractory multiple myeloma.

Neulasta�
� In March 2015, we announced the Neulasta� Delivery Kit is now available in the United States. The Neulasta� Delivery Kit includes a specially designed single-use prefilled syringe co-packaged with the new On-body Injector for Neulasta�. The Neulasta� Delivery Kit enables the healthcare provider to initiate administration of Neulasta� on the same day as cytotoxic chemotherapy-with delivery of the patient’s full dose of Neulasta� the day following chemotherapy administration, consistent with the Neulasta� prescribing information. This frees patients from a return visit to their healthcare provider the day after chemotherapy.

Talimogene laherparepvec
� In February 2015, we announced that the CTGTAC and the ODAC of the FDA will jointly review our talimogene laherparepvec BLA at a meeting on April 29, 2015. These advisory committees review marketed and investigational human drug products, including safety and effectiveness data, and make recommendations to the FDA. The FDA will consider the advisory committees’ recommendations in its review of our talimogene laherparepvec BLA. The Prescription Drug User Fee Act action date for completion of FDA review of our talimogene laherparepvec BLA for the treatment of patients with injectable regionally or distantly metastatic melanoma is October 27, 2015.

* FDA provisionally approved trade name


Trebananib
� In April 2015, we announced that we stopped administration of blinded investigational product in the phase 3 study of trebananib in first-line ovarian cancer based on a recommendation by the Data Safety Monitoring Committee, who deemed the study unlikely to achieve its primary PFS endpoint.

Vectibix�
� In April 2015, we announced that the European Commission approved a new use of Vectibix� as first-line treatment in combination with FOLFIRI for the treatment of adult patients with wild-type (WT) RAS metastatic colorectal cancer (mCRC). About half of the patients with mCRC have WT RAS tumors. FOLFIRI, an irinotecan-based chemotherapy regimen, is frequently used in first-line colorectal cancer treatment in Europe.

Selected financial information
The following is an overview of our results of operations (dollar amounts in millions, except per share data):

                              Three months ended
                                   March 31,
                                2015           2014     Change
Product sales:
U.S.                      $    3,771         $ 3,289     15  %
Rest of the world (ROW)        1,103           1,067      3  %
Total product sales            4,874           4,356     12  %
Other revenues                   159             165     (4 )%
Total revenues            $    5,033         $ 4,521     11  %
Operating expenses        $    3,011         $ 3,157     (5 )%
Operating income          $    2,022         $ 1,364     48  %
Net income                $    1,623         $ 1,073     51  %
Diluted EPS               $     2.11         $  1.40     51  %
Diluted shares                   770             768      -  %

The increase in global product sales for the three months ended March 31, 2015, was driven by ENBREL, Prolia�, EPOGEN�, Sensipar� and XGEVA�.
The decrease in operating expenses for the three months ended March 31, 2015, was driven primarily as a result of savings from transformation and process improvement efforts under our restructuring plan, offset partially by increased investments for launching new products.
The increases in net income and diluted EPS for the three months ended March 31, 2015, were driven by an increase in operating income.


Results of operations
Product sales
Worldwide product sales were as follows (dollar amounts in millions):

                          Three months ended
                               March 31,
                            2015           2014      Change
Neulasta�/NEUPOGEN�   $    1,380         $ 1,379        - %
ENBREL                     1,116             988       13 %
XGEVA�                       340             279       22 %
Prolia�                      272             196       39 %
EPOGEN�                      534             462       16 %
Aranesp�                     480             460        4 %
Sensipar�/Mimpara�           334             270       24 %
Other products               418             322       30 %
Total product sales   $    4,874         $ 4,356       12 %

Future sales of our products are influenced by a number of factors, some of which may impact sales of certain of our products more significantly than others. Such factors are discussed below and in the Overview, Item 1. Business-Marketing, Distribution and Selected Marketed Products, Item 1A. Risk Factors and Item 7-Product Sales in our Annual Report on Form 10-K for the year ended December 31, 2014.
Neulasta�/NEUPOGEN�
Total Neulasta�/NEUPOGEN� sales by geographic region were as follows (dollar amounts in millions):

                                Three months ended
                                     March 31,
                                  2015           2014     Change
Neulasta�- U.S.             $      922         $   852        8  %
Neulasta�- ROW                     212             238      (11 )%
Total Neulasta�                  1,134           1,090        4  %
NEUPOGEN�- U.S.                    181             214      (15 )%
NEUPOGEN�- ROW                      65              75      (13 )%
Total NEUPOGEN�                    246             289      (15 )%
Total Neulasta�/NEUPOGEN�   $    1,380         $ 1,379        -  %

The increase in global Neulasta� sales for the three months ended March 31, 2015, was driven mainly by an increase in the average net sales price and wholesaler inventory in the United States. The decrease in global NEUPOGEN� sales for the three months ended March 31, 2015, was driven primarily by a decrease in U.S. unit demand due to the impact of short-acting competition. We face competition in the United States, which could have an impact over time on future sales of NEUPOGEN� and, to a lesser extent, Neulasta�. Our outstanding material U.S. patent for pegfilgrastim (Neulasta� ) expires in October 2015. Apotex, Inc. announced that the FDA accepted for filing their applications, under the abbreviated pathway, for pegfilgrastim, a biosimilar version of Neulasta�, on December 17, 2014, and for filgrastim, a biosimilar version of NEUPOGEN�, on February 17, 2015. On March 6, 2015, Sandoz, a Novartis company, announced that the FDA approved its biosimilar filgrastim Zarxio� for all indications included in the reference product’s (NEUPOGEN�) label. The Sandoz biosimilar filgrastim is the subject of ongoing litigation between us and Sandoz. See Note 12, Contingencies and commitments, to the condensed consolidated financial statements for further discussion.


ENBREL
Total ENBREL sales by geographic region were as follows (dollar amounts in
millions):
                       Three months ended
                            March 31,
                          2015            2014     Change
ENBREL - U.S.     $      1,052           $ 924       14 %
ENBREL - Canada             64              64        - %
Total ENBREL      $      1,116           $ 988       13 %

The increase in ENBREL sales for the three months ended March 31, 2015, was driven primarily by an increase in the average net sales price, offset partially by a slight decline in units.
XGEVA� and Prolia�
Total XGEVA� and total Prolia� sales by geographic region were as follows (dollar amounts in millions):

                            Three months ended
                                March 31,
                              2015            2014     Change
XGEVA� - U.S.          $     245             $ 200       23 %
XGEVA� - ROW                  95                79       20 %
Total XGEVA�                 340               279       22 %
Prolia� - U.S.               170               119       43 %
Prolia� - ROW                102                77       32 %
Total Prolia�                272               196       39 %
Total XGEVA�/Prolia�   $     612             $ 475       29 %

The increases in global XGEVA� and Prolia� sales for the three months ended March 31, 2015, were driven by increases in unit demand.
EPOGEN�
Total EPOGEN� sales were as follows (dollar amounts in millions):

Three months ended
March 31,
2015 2014 Change
EPOGEN� – U.S. $ 534 $ 462 16 %The increase in EPOGEN� sales for the three months ended March 31, 2015, was driven primarily by an increase in the average net sales price and higher unit demand.
Our remaining material U.S. patent for EPOGEN� expires in May 2015. As a result, we may face competition in the United States, which may have a material adverse impact over time on EPOGEN� sales. In addition, EPOGEN� and Aranesp� compete with MIRCERA� in the United States. F. Hoffman-La Roche Ltd. (Roche) began selling MIRCERA� in October 2014 in the United States. MIRCERA� competes with Aranesp� in the nephrology segment only. On December 16, 2014, Hospira, Inc. submitted a BLA to the FDA for Retacrit�, a proposed biosimilar to EPOGEN�, under the abbreviated pathway.


Aranesp�
Total Aranesp� sales by geographic region were as follows (dollar amounts in
millions):
                       Three months ended
                           March 31,
                         2015            2014     Change
Aranesp� - U.S.   $     189             $ 177       7 %
Aranesp� - ROW          291               283       3 %
Total Aranesp�    $     480             $ 460       4 %

The increase in global Aranesp� sales for the three months ended March 31, 2015, was driven largely by unit demand in international markets. Sensipar�/Mimpara�
Total Sensipar�/Mimpara� sales by geographic region were as follows (dollar amounts in millions):

                                Three months ended
                                    March 31,
                                  2015            2014     Change
Sensipar� - U.S.           $     241             $ 178       35 %
Sensipar�/Mimpara� - ROW          93                92        1 %
Total Sensipar�/Mimpara�   $     334             $ 270       24 %

The increase in global Sensipar�/Mimpara� sales for the three months ended March 31, 2015, was driven primarily by an increase in unit demand, favorable changes in U.S. wholesaler inventories and an increase in the U.S. average net sales price.
Other products
Other product sales by geographic region were as follows (dollar amounts in millions):

                                   Three months ended
                                       March 31,
                                     2015            2014    Change
Vectibix� - U.S.              $      47             $  39       21  %
Vectibix� - ROW                      75                64       17  %
Nplate� - U.S.                       78                62       26  %
Nplate� - ROW                        48                51       (6 )%
Kyprolis� - U.S.                     97                62       56  %
Kyprolis� - ROW                      11                 6       83  %
BLINCYTO� - U.S.                     15                 -      N/A
Other - ROW                          47                38       24  %
Total other products          $     418             $ 322       30  %
Total U.S. - other products   $     237             $ 163       45  %
Total ROW - other products          181               159       14  %
Total other products          $     418             $ 322       30  %


Operating expenses
Operating expenses were as follows (dollar amounts in millions):

                                         Three months ended
                                             March 31,
                                          2015         2014      Change
Cost of sales                         $   1,033      $ 1,090        (5 )%
% of product sales                         21.2 %       25.0 %
% of total revenues                        20.5 %       24.1 %
Research and development              $     894      $ 1,027       (13 )%
% of product sales                         18.3 %       23.6 %
% of total revenues                        17.8 %       22.7 %
Selling, general and administrative   $   1,026      $ 1,023         -  %
% of product sales                         21.1 %       23.5 %
% of total revenues                        20.4 %       22.6 %
Other                                 $      58      $    17         *

* Change in excess of 100% Restructuring During the second half of 2014, we initiated a restructuring plan to invest in continuing innovation and the launch of our new pipeline molecules while improving our cost structure. As part of the plan, we stated that we would reduce our staff by 3,500 to 4,000 by the end of 2015, close our facilities in Washington state and Colorado and reduce the number of buildings at our headquarters in Thousand Oaks, California. We continue to estimate that these actions will result in pre-tax accounting charges in the range of $935 million to $1,035 million, of which $650 million has been incurred through March 31, 2015. During the three months ended March 31, 2015, we incurred $92 million of restructuring costs. We expect that substantially all remaining restructuring actions and related estimated costs will be incurred during the remainder of 2015 to support our ongoing transformation and process improvement efforts. Net savings are not expected to be significant in 2015 due to investments in new product launches and external business development. Additional disclosure information required for our restructuring plan is incorporated herein by reference to Note 2, Restructuring, to the condensed consolidated financial statements. Cost of sales Cost of sales decreased to 20.5% of total revenues for the three months ended March 31, 2015, driven primarily by a $99-million charge in the prior year related to the termination of the supply contract with Roche as a result of acquiring the licenses to filgrastim and pegfilgrastim effective January 1, 2014. Excluding the impact of the Puerto Rico excise tax, cost of sales would have been 18.7% and 22.1% of total revenues for the three months ended March 31, 2015, and 2014, respectively. See Note 3, Income taxes, to the condensed consolidated financial statements for further discussion of the Puerto Rico excise tax. Research and development The decrease in R&D expenses for the three months ended March 31, 2015, was driven by decreased costs associated with Discovery Research and Translational Sciences, marketed products support and later stage clinical programs support of $87 million, $24 million and $22 million, respectively. All categories of R&D spend benefited from savings from transformation and process improvement efforts under our restructuring plan. In 2015, these savings are expected to be offset by investments in support of our launch products as well as reinvestment in Discovery Research and Translational Sciences. Selling, general and administrative The increase in SG&A expenses for the three months ended March 31, 2015 was due to increased expenses in preparation for new product launches, offset partially by savings from transformation and process improvement efforts under our restructuring plan.


Other
Other operating expenses for the three months ended March 31, 2015, included
certain charges related to our restructuring plan, primarily severance, of $57
million.
Other operating expenses for the three months ended March 31, 2014, included
certain charges related to our cost savings initiatives, primarily severance, of
$15 million.
Non-operating expenses/income and income taxes
Non-operating expenses/income and income taxes were as follows (dollar amounts
in millions):
                                    Three months ended
                                         March 31,
                                    2015           2014
Interest expense, net            $    252       $    259
Interest and other income, net   $    106       $     99
Provision for income taxes       $    253       $    131
Effective tax rate                   13.5 %         10.9 %

Interest expense, net
The decrease in interest expense, net for the three months ended March 31, 2015, was due primarily to a lower average outstanding debt balance in the current year period.
Interest and other income, net
The increase in interest and other income, net for the three months ended March 31, 2015, was due primarily to higher interest income as a result of higher average cash balances substantially offset by net losses on investments recognized in the current year period.
Income taxes
Our effective tax rate for the three months ended March 31, 2015 was 13.5% compared with 10.9% for the corresponding period of the prior year. The increase in our effective tax rate for the three months ended March 31, 2015, was due primarily to the unfavorable tax impact of changes in the jurisdictional mix of income and expenses, offset partially by a state tax audit settlement in the three months ended March 31, 2015.
Excluding the impact of the Puerto Rico excise tax, our effective tax rate for the three months ended March 31, 2015, would have been 17.1% compared with 15.4% for the corresponding period of the prior year.
See Note 3, Income taxes, to the condensed consolidated financial statements for further discussion.
Financial condition, liquidity and capital resources Selected financial data was as follows (in millions):

                                                  March 31,      December 31,
                                                     2015            2014
Cash, cash equivalents and marketable securities $    27,118    $       27,026
Total assets                                     $    68,952    $       69,009
Current portion of long-term debt                $       500    $          500
Long-term debt                                   $    29,841    $       30,215
Stockholders' equity                             $    26,506    $       25,778

The Company intends to continue to return capital to stockholders through the payment of cash dividends and share repurchases, reflecting our confidence in the future cash flows of our business. The amount we spend, the number of shares repurchased and the timing of such repurchases will vary based on a number of factors, including the stock price, the availability of financing on acceptable terms, the amount and timing of dividend payments and blackout periods in which we are restricted from repurchasing shares; and the manner of purchases may include private block purchases, tender offers and market transactions. Whether and when we declare dividends and the size of any dividend could be affected by a number of factors. See our Annual


Report on Form 10-K for the year ended December 31, 2014, Item 1A. Risk Factors-There can be no assurance that we will continue to declare cash dividends or that we will repurchase stock.
In December 2014, the Board of Directors declared a quarterly cash dividend of $0.79 per share of common stock, which was paid on March 6, 2015. In March 2015, the Board of Directors declared a quarterly cash dividend of $0.79 per share of common stock, which will be paid on June 5, 2015.
The Company also returns capital to stockholders through its stock repurchase program. Repurchase activity under the program was temporarily suspended from the second quarter of 2013 through the third quarter of 2014, and we reinitiated repurchase activity during the fourth quarter of 2014. During the first quarter of 2015, we repurchased $451 million of stock (cash settlement of stock repurchases totaled $464 million). As of March 31, 2015, $3.4 billion remained available under the Board of Directors-approved stock repurchase program. . . .

 

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