On October 27, 2016 Amgen (NASDAQ:AMGN) reported financial results for the third quarter of 2016 (Press release, Amgen, OCT 27, 2016, View Source [SID1234516053]). Schedule your 30 min Free 1stOncology Demo! Key results include:
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Revenues increased 2 percent versus the third quarter of 2015 to $5.8 billion.
Strong unit volume growth from Sensipar (cinacalcet), Prolia (denosumab), Vectibix (panitumumab), XGEVA (denosumab) and Nplate (romiplostim).
GAAP earnings per share (EPS) increased 10 percent to $2.68 driven by higher revenues and higher operating margins.
GAAP operating income increased 8 percent to $2,527 million and GAAP operating margin improved by 3.4 percentage points to 45.8 percent.
Non-GAAP EPS increased 11 percent to $3.02 driven by higher revenues and higher operating margins.
Non-GAAP operating income increased 9 percent to $2,916 million and non-GAAP operating margin improved by 4.2 percentage points to 52.9 percent.
2016 total revenues guidance increased to $22.6-$22.8 billion; EPS guidance increased to $9.94-$10.11 on a GAAP basis and $11.40-$11.55 on a non-GAAP basis.
The Company generated $2.5 billion of free cash flow.
"Our business is performing well and our double-digit earnings per share growth reflects the progress we have made through our transformation efforts," said Robert A. Bradway, chairman and chief executive officer. "We are focused on growing several newly launched products and advancing the pipeline globally."
$Millions, except EPS and percentages
Q3’16
Q3’15
YOY Δ
Total Revenues
$ 5,811
$ 5,723
2%
GAAP Operating Income
$ 2,527
$ 2,339
8%
GAAP Net Income
$ 2,017
$ 1,863
8%
GAAP EPS
$ 2.68
$ 2.44
10%
Non-GAAP Operating Income
$ 2,916
$ 2,686
9%
Non-GAAP Net Income
$ 2,276
$ 2,081
9%
Non-GAAP EPS
$ 3.02
$ 2.72
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 were flat for the third quarter of 2016 versus the third quarter of 2015.
Enbrel (etanercept) sales were flat as higher net selling price was offset by the impact of competition and unfavorable changes in inventory levels.
Neulasta (pegfilgrastim) sales decreased 5 percent driven by lower unit demand.
Aranesp (darbepoetin alfa) sales increased 8 percent driven mainly by higher unit demand due to a shift by some U.S. dialysis customers from EPOGEN (epoetin alfa) to Aranesp.
Sensipar/Mimpara sales increased 18 percent driven by net selling price and higher unit demand.
XGEVA sales increased 4 percent driven by higher unit demand.
Prolia sales increased 18 percent driven by higher unit demand.
EPOGEN sales decreased 31 percent driven by the impact of competition, abnormally high purchases by a large end customer in the year ago period and a shift by some U.S. dialysis customers to Aranesp.
KYPROLIS (carfilzomib) sales increased 34 percent driven by higher unit demand.
NEUPOGEN (filgrastim) sales decreased 36 percent driven mainly by the impact of competition in the U.S.
Vectibix sales increased 24 percent driven by higher unit demand.
Nplate sales increased 10 percent driven by higher unit demand and net selling price.
Repatha (evolocumab) sales growth was driven by higher unit demand.
BLINCYTO (blinatumomab) sales increased 26 percent driven by higher unit demand.
Product Sales Detail by Product and Geographic Region
$Millions, except percentages
Q3’16
Q3’15
YOY Δ
US
ROW
TOTAL
TOTAL
TOTAL
Enbrel
$1,388
$64
$1,452
$1,459
0%
Neulasta
1,024
176
1,200
1,267
(5%)
Aranesp
275
256
531
493
8%
Sensipar / Mimpara
329
86
415
353
18%
XGEVA
296
98
394
378
4%
Prolia
249
130
379
320
18%
EPOGEN
335
0
335
489
(31%)
KYPROLIS
140
43
183
137
34%
NEUPOGEN
127
56
183
284
(36%)
Vectibix
64
100
164
132
24%
Nplate
92
59
151
137
10%
Repatha
31
9
40
3
*
BLINCYTO
19
10
29
23
26%
Other**
14
46
60
41
46%
Total product sales
$4,383
$1,133
$5,516
$5,516
0%
* 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:
Cost of Sales margin improved by 0.1 percentage points driven primarily by manufacturing efficiencies and higher net selling price, offset partially by product mix. Research & Development (R&D) expenses decreased 12 percent driven primarily by lower spending required to support certain later-stage clinical programs and transformation and process improvement efforts. Selling, General & Administrative (SG&A) expenses were flat. Total Operating Expenses decreased 3 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.
Operating Margin improved by 3.4 percentage points to 45.8 percent.
Tax Rate increased by 1.6 percentage points due primarily to changes in the geographic mix of earnings.
On a non-GAAP basis:
Cost of Sales margin improved by 0.5 percentage points driven primarily by manufacturing efficiencies and higher net selling price, offset partially by product mix. R&D expenses decreased 11 percent driven primarily by lower spending required to support certain later-stage clinical programs and transformation and process improvement efforts. SG&A expenses increased 1 percent. Total Operating Expenses decreased 5 percent, with all expense categories reflecting savings from our transformation and process improvement efforts.
Operating Margin improved by 4.2 percentage points to 52.9 percent.
Tax Rate increased by 0.9 percentage points due primarily to changes in the geographic mix of earnings.
$Millions, except percentages
GAAP
Non-GAAP
Q3’16
Q3’15
YOY Δ
Q3’16
Q3’15
YOY Δ
Cost of Sales
$1,027
$1,034
(1%)
$715
$745
(4%)
% of product sales
18.6%
18.7%
(0.1) pts.
13.0%
13.5%
(0.5) pts.
Research & Development
$990
$1,119
(12%)
$963
$1,086
(11%)
% of product sales
17.9%
20.3%
(2.4) pts.
17.5%
19.7%
(2.2) pts.
Selling, General & Administrative
$1,244
$1,244
0%
$1,217
$1,206
1%
% of product sales
22.6%
22.6%
0 pts.
22.1%
21.9%
0.2 pts.
Other
$23
($13)
*
$0
$0
0%
TOTAL Operating Expenses
$3,284
$3,384
(3%)
$2,895
$3,037
(5%)
Operating Margin
operating income as a % of product sales
45.8%
42.4%
3.4 pts.
52.9%
48.7%
4.2 pts.
Tax Rate
16.6%
15.0%
1.6 pts.
18.9%
18.0%
0.9 pts.
* Change in excess of 100%
pts: percentage points
Cash Flow and Balance Sheet
The Company generated $2.5 billion of free cash flow in the third quarter of 2016 versus $2.8 billion in the third quarter of 2015.
The Company’s fourth quarter 2016 dividend of $1.00 per share declared on Oct. 14, 2016, will be paid on Dec. 8, 2016, to all stockholders of record as of Nov. 16, 2016.
During the third quarter, the Company repurchased 4.4 million shares of common stock at a total cost of $747 million. In October 2016, the Company’s Board of Directors approved an increase in the remaining share repurchase authorization for an aggregate authorization of $5 billion.
$Billions, except shares
Q3’16
Q3’15
YOY Δ
Operating Cash Flow
$2.7
$2.9
($0.2)
Capital Expenditures
0.2
0.1
0.0
Free Cash Flow
2.5
2.8
(0.3)
Dividends Paid
0.7
0.6
0.1
Share Repurchase
0.7
0.7
0.0
Avg. Diluted Shares (millions)
753
764
(11)
Cash and Investments
38.0
31.1
6.9
Debt Outstanding
35.3
31.6
3.7
Stockholders’ Equity
30.8
28.0
2.8
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 $22.6 billion to $22.8 billion.
Previously, the Company expected total revenues in the range of $22.5 billion to $22.8 billion.
On a GAAP basis, EPS in the range of $9.94 to $10.11 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 $9.55 to $9.90. Tax rate guidance is unchanged.
On a non-GAAP basis, EPS in the range of $11.40 to $11.55 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 $11.10 to $11.40. Tax rate guidance is unchanged.
Capital expenditures to be approximately $700 million.
Third Quarter Product and Pipeline Update
Key development milestones:
Clinical Program
Indication
Projected Milestone
Repatha
Hyperlipidemia
Phase 3 CV outcomes data Q1 2017*
Omecamtiv mecarbil
Chronic heart failure
Phase 3 CV outcomes study initiation*
KYPROLIS
Relapsed and
refractory multiple
myeloma
Phase 3 weekly administration data 2017
Romosozumab
Postmenopausal
osteoporosis
U.S. regulatory review
Active controlled Phase 3 fracture data H1 2017*
Erenumab (AMG 334)
Migraine prophylaxis
Phase 3 episodic migraine data Q4 2016
Parsabiv (etelcalcetide)†
Secondary
hyperparathyroidism
Global regulatory reviews
ABP 215
(biosimilar bevacizumab)
Oncology
Global regulatory submissions
ABP 501
(biosimilar adalimumab)
Inflammatory diseases
Ex-U.S. regulatory reviews
ABP 980
(biosimilar trastuzumab)
Breast cancer
Global regulatory submissions
*Event driven study; †Trade name provisionally approved by FDA; CV = cardiovascular
The Company provided the following updates on selected product and pipeline programs:
Repatha
In September, the Phase 3 GLAGOV study evaluating the effect of Repatha on coronary artery disease met its primary and secondary endpoints. The results will be presented Nov. 15, 2016, at the American Heart Association Scientific Sessions 2016.
Data from an event driven Phase 3 study evaluating the effects of Repatha on cardiovascular outcomes are expected in Q1 2017.
Omecamtiv mecarbil
Agreement was reached with the U.S. Food and Drug Administration (FDA) on key elements of an omecamtiv mecarbil Phase 3 cardiovascular outcomes study in chronic heart failure through a Special Protocol Assessment. Details of the protocol are being finalized with regulators and enrollment in the study is anticipated to begin in Q1 2017.
KYPROLIS
In September, a Phase 3 study evaluating an investigational regimen of KYPROLIS, melphalan and prednisone versus Velcade (bortezomib), melphalan and prednisone for 54 weeks in newly diagnosed, transplant ineligible multiple myeloma patients did not meet the primary endpoint of superiority in progression-free survival.
A Phase 3 study of once weekly KYPROLIS administration in relapsed and refractory multiple myeloma patients has completed enrollment. The results are expected in 2017.
XGEVA
In October, a Phase 3 study evaluating XGEVA for the prevention of skeletal-related events in multiple myeloma patients met the primary endpoint of non-inferiority to zoledronic acid in delaying the time to first on-study skeletal-related event.
BLINCYTO
In August, FDA approved BLINCYTO for the treatment of pediatric patients with Philadelphia chromosome‑negative relapsed or refractory B-cell precursor acute lymphoblastic leukemia.
Prolia
In August, a Phase 3 study evaluating Prolia compared with risedronate in patients receiving glucocorticoid treatment met primary and secondary endpoints at 12 months.
Romosozumab
In September, a Biologics License Application for the treatment of osteoporosis in postmenopausal women at increased risk for fracture was accepted for review by FDA, with a Prescription Drug User Fee target action date of July 19, 2017.
Results from an event driven active controlled Phase 3 fracture study in postmenopausal women with osteoporosis are expected in H1 2017.
Erenumab
In September, a Phase 3 study in episodic migraine prevention met its primary endpoint. Results from a second Phase 3 study in this population are expected in Q4 2016.
Parsabiv
In August, FDA issued a Complete Response Letter for the New Drug Application for the treatment of secondary hyperparathyroidism (sHPT) in adult patients with chronic kidney disease (CKD) on hemodialysis.
In September, the Committee for Medicinal Products for Human Use of the European Medicines Agency adopted a positive opinion for the Marketing Authorization of Parsabiv, recommending approval for the treatment of sHPT in adult patients with CKD on hemodialysis.
AMJEVITA (adalimumab-atto)*
In September, FDA approved AMJEVITA across all eligible indications of the reference product, HUMIRA (adalimumab), including treatment of psoriatic arthritis, ankylosing spondylitis and moderate-to-severe rheumatoid arthritis, polyarticular juvenile idiopathic arthritis (patients 4 years of age or older), chronic plaque psoriasis, adult Crohn’s disease and ulcerative colitis. AMJEVITA is the Company’s first biosimilar to receive regulatory approval in the U.S.
ABP 798 (biosimilar rituximab)
Phase 3 studies in Non-Hodgkin lymphoma and rheumatoid arthritis are currently enrolling patients.
ABP 710 (biosimilar infliximab)
A Phase 3 study in rheumatoid arthritis is currently enrolling patients.
Erenumab is developed in collaboration with Novartis
Omecamtiv mecarbil is developed in collaboration with Cytokinetics and Servier
Romosozumab is developed in collaboration with UCB globally, as well as Astellas in Japan
Velcade is a registered trademark of Millennium Pharmaceuticals, Inc.
Humira is a registered trademark of AbbVie Inc.
*Formerly ABP 501
Non-GAAP Financial Measures
In this news release, management has presented its operating results for the third 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 third 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.