The FINANCIAL — Amgen on October 25 announced financial results for the third quarter of 2017. Key results include:
Total revenues decreased 1 percent versus the third quarter of 2016 to $5.8 billion.
GAAP earnings per share (EPS) increased 3 percent to $2.76.
GAAP operating income decreased 3 percent to $2.4 billion and GAAP operating margin decreased 1.1 percentage points to 44.7 percent.
GAAP EPS and operating income were impacted by non-cash charges associated with the Company’s decision to discontinue internal development of AMG 899, an oral CETP inhibitor.
Non-GAAP EPS increased 8 percent to $3.27 driven by higher operating margins.
Non-GAAP operating income increased 4 percent to $3.0 billion and non-GAAP operating margin increased 2.7 percentage points to 55.6 percent.
Hurricane recovery efforts are well underway at our Puerto Rico manufacturing facility with no expected impact on product supply; expected 2017 EPS impact of $0.15 to $0.18.
2017 GAAP EPS guidance revised to $10.96-$11.20 and non-GAAP EPS guidance increased to $12.50-$12.70; total revenues guidance revised to $22.7-$23.0 billion.
The Company generated $3.3 billion of free cash flow in the third quarter of 2017, according to Amgen.
“We are seeing strong, volume-driven growth in our recently launched products, as we also effectively manage the life cycle of our mature products,” said Robert A. Bradway, chairman & chief executive officer. “Disciplined expense management and ongoing process improvements continue to provide the financial flexibility needed to invest in our best opportunities for long-term growth.”
Update on Puerto Rico Operations
In the five weeks since Hurricane Maria hit Puerto Rico, Amgen has been providing support to our staff members and the local community while implementing our robust business continuity plans and restoring manufacturing at our site in Juncos. Our drug substance manufacturing and packaging plants are fully operational and we expect to resume formulation/filling and small molecule commercial production by the end of October 2017. The Company continues to provide an uninterrupted supply of medicines for patients around the world.
The Company incurred $67 million of pre-tax expenses, or $0.07 EPS, in the third quarter related to Hurricane Maria. In the fourth quarter, the Company expects additional pre-tax expenses in the range of $75 million to $100 million, or $0.08 to $0.11 EPS. The expenses related to Hurricane Maria are included in our GAAP and non-GAAP results. At this time, the Company does not expect a significant impact to full-year 2018 results. The above estimates do not include possible insurance recoveries.
Product Sales Performance
Total product sales decreased 1 percent for the third quarter of 2017 versus the third quarter of 2016.
Repatha (evolocumab) sales increased driven by higher unit demand. Quarter over quarter sales growth was tempered by changes in inventory and accounting adjustments that benefited the second quarter of 2017.
BLINCYTO (blinatumomab) sales increased 79 percent driven by higher unit demand.
Prolia (denosumab) sales increased 22 percent driven primarily by higher unit demand.
KYPROLIS (carfilzomib) sales increased 13 percent driven by higher unit demand, offset partially by net selling price.
Sensipar/Mimpara (cinacalcet) sales increased 10 percent driven primarily by net selling price.
Nplate (romiplostim) sales increased 5 percent driven by higher unit demand and net selling price.
Vectibix (panitumumab) sales increased 2 percent driven by higher unit demand.
XGEVA (denosumab) sales decreased 2 percent driven by lower unit demand from a shift in timing of purchases by some large customers, offset partially by net selling price.
Aranesp (darbepoetin alfa) sales decreased 3 percent driven by unfavorable changes in foreign exchange rates and lower unit demand.
Enbrel (etanercept) sales decreased 6 percent driven primarily by lower unit demand and, to a lesser extent, lower net selling price, offset partially by favorable changes in inventory.
Neulasta (pegfilgrastim) sales decreased 6 percent driven by lower unit demand from a shift in timing of purchases by some large customers and small declines in the use of myelosuppressive chemotherapy regimens.
EPOGEN (epoetin alfa) sales decreased 21 percent driven primarily by unfavorable changes in net selling price and inventory.
NEUPOGEN (filgrastim) sales decreased 25 percent driven by the impact of competition.
Operating Expense, Operating Margin and Tax Rate Analysis
On a GAAP basis:
Total Operating Expenses increased 2 percent. All expense categories reflected savings from our transformation and process improvement efforts, which were more than offset by non-cash charges associated with the Company’s decision to discontinue internal development of AMG 899, an oral CETP inhibitor. Cost of Sales margin improved by 0.4 percentage points driven by a reduction in intangible asset amortization and manufacturing efficiencies, offset partially by the impact of Hurricane Maria. Research & Development (R&D) expenses decreased 11 percent driven by lower external business development expense and 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. Other expenses increased due to the aforementioned AMG 899 decision, resulting in an impairment of an intangible asset and the release of contingent consideration liabilities associated with the 2015 acquisition of Dezima Pharma B.V.
Operating Margin decreased by 1.1 percentage points to 44.7 percent.
Tax Rate improved 1.5 percentage points due primarily to favorable changes in the geographic mix of earnings and net charges related to the Company’s decision to discontinue internal development of AMG 899, offset partially by adjustments to certain federal tax credits and deductions.
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 increased by 0.5 percentage points driven primarily by the impact of Hurricane Maria, offset partially by manufacturing efficiencies. R&D expenses decreased 11 percent driven by lower external business development expense and lower spending required to support certain later-stage clinical programs. 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 2.7 percentage points to 55.6 percent.
Tax Rate increased 0.5 percentage points primarily due to adjustments to certain federal tax credits and deductions, offset partially by favorable changes in the geographic mix of earnings.
Cash Flow and Balance Sheet
The Company generated $3.3 billion of free cash flow in the third quarter of 2017 versus $2.5 billion in the third quarter of 2016, the difference driven by improved collections and lower cash expenditures.
The Company’s third quarter 2017 dividend of $1.15 per share was paid on Sept. 8, 2017, a 15 percent increase versus the third quarter of 2016.
During the third quarter, the Company repurchased 4.4 million shares of common stock at a total cost of $0.8 billion. In October 2017, the Company’s Board of Directors approved an increase in the remaining share repurchase authorization for an aggregate authorization of $5 billion.
2017 Guidance
For the full year 2017, the Company now expects:
Total revenues in the range of $22.7 billion to $23.0 billion.
Previously, the Company expected total revenues in the range of $22.5 billion to $23.0 billion.
On a GAAP basis, EPS in the range of $10.96 to $11.20 and a tax rate in the range of 15.5 percent to 16.5 percent.
Previously, the Company expected GAAP EPS in the range of $10.79 to $11.37, and tax rate in the range of 16 percent to 18 percent.
On a non-GAAP basis, EPS in the range of $12.50 to $12.70 and a tax rate in the range of 18.0 percent to 19.0 percent.
Previously, the Company expected non-GAAP EPS in the range of $12.15 to $12.65, and tax rate in the range of 18.5 percent to 19.5 percent.
Repatha
In July, the U.S. Food and Drug Administration (FDA) granted priority review for Amgen’s supplemental Biologics License Application (sBLA) to include risk reduction of major cardiovascular events based on data from the large Repatha cardiovascular outcomes study. The FDA has set a Prescription Drug User Fee Act (PDUFA) target action date of Dec. 2, 2017.
A Phase 3 study of Repatha on top of maximally tolerated statin therapy in type 2 diabetic patients with hypercholesterolemia met its co-primary endpoints of the percent reduction from baseline in LDL-C at week 12, and the mean percent reduction from baseline in LDL-C at weeks 10 and 12, with no new safety findings.
Tezepelumab
In September, positive results from a Phase 2b study of tezepelumab in patients with uncontrolled asthma were published in the New England Journal of Medicine and presented at the European Respiratory Society International Congress.
KYPROLIS
In August, the FDA accepted for review a supplemental New Drug Application to include overall survival data from the Phase 3 head-to-head ENDEAVOR study, with a PDUFA target action date of April 30, 2018.
At a pre-specified interim analysis, a Phase 3 study of Kyprolis administered at 70 mg/m2 weekly with dexamethasone versus 27 mg/m2 twice weekly with dexamethasone successfully met its progression-free survival primary endpoint of superior efficacy of the 70 mg/m2 weekly regimen in relapsed and refractory multiple myeloma patients, with no new safety findings.
Aranesp
After a recommendation by the data safety monitoring committee, a Phase 3 post-marketing requirement study to evaluate the safety and efficacy of Aranesp in anemic patients with advanced non-small cell lung cancer receiving multi-cycle chemotherapy was stopped early. The study successfully met its primary endpoint of non-inferiority in overall survival compared to placebo, with no new safety findings.
Prolia
In October, the FDA accepted for review the sBLA for the treatment of patients with glucocorticoid-induced osteoporosis, with a PDUFA target action date of May 28, 2018.
EVENITY
In September, results were published from the Phase 3 ARCH study in postmenopausal women with osteoporosis demonstrating superior fracture reduction with EVENITY followed by alendronate, compared to alendronate alone, with additional details on the observed cardiovascular safety signal. The Company is currently evaluating all EVENITY Phase 3 data to ensure a comprehensive understanding of the cardiovascular safety results, and will be working in close collaboration with the FDA within the timeline of the complete response letter received in July 2017.
AMG 301
In September, a Phase 2 study evaluating the efficacy and safety of AMG 301 for migraine prevention began enrollment. AMG 301 is a human monoclonal antibody that inhibits the PAC1 receptor.
MVASI
(bevacizumab-awwb, ABP 215)
In September, the FDA approved MVASI for all eligible indications of the reference product, Avastin® (bevacizumab).
ABP 980
In September, the FDA accepted for review a Biologics License Application for ABP 980, a biosimilar candidate to Herceptin® (trastuzumab). The FDA has set a Biosimilar User Fee Act target action date of May 28, 2018.
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