Amgen Inc. Reports Operating Results (10-Q)

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Aug 09, 2010
Amgen Inc. (AMGN, Financial) filed Quarterly Report for the period ended 2010-06-30.

Amgen Inc. has a market cap of $53.59 billion; its shares were traded at around $55.94 with a P/E ratio of 10.84 and P/S ratio of 3.66. Amgen Inc. had an annual average earning growth of 18.1% over the past 10 years. GuruFocus rated Amgen Inc. the business predictability rank of 4-star.AMGN is in the portfolios of PRIMECAP Management, NWQ Managers of NWQ Investment Management Co, Edward Owens of Vanguard Health Care Fund, Richard Snow of Snow Capital Management, L.P., Dodge & Cox, Steven Romick of FPA Crescent Fund, Jeremy Grantham of GMO LLC, John Hussman of Hussman Economtrics Advisors, Inc., Brian Rogers of T Rowe Price Equity Income Fund, Stanley Druckenmiller of Duquesne Capital Management, LLC, First Pacific Advisors of First Pacific Advisors, LLC, Mark Hillman of Hillman Capital Management, Jim Simons of Renaissance Technologies LLC, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Steven Cohen of SAC Capital Advisors, Bill Frels of Mairs & Power Inc. , Pioneer Investments, Manning & Napier Advisors, Inc, David Dreman of Dreman Value Management, George Soros of Soros Fund Management LLC, Kenneth Fisher of Fisher Asset Management, LLC, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Kenneth Fisher of Fisher Asset Management, LLC.

Highlight of Business Operations:

Total revenues for the three and six months ended June 30, 2010 increased $91 million, or 2%, and $375 million, or 5%, respectively, over the prior year periods. For the three months ended June 30, 2010, the increase in total revenues was due to an increase in other revenues of $112 million, substantially all of which relates to certain milestone payments earned from GlaxoSmithKline plc (GSK) in connection with the approval and launch of Prolia in the EU and from Takeda Pharmaceutical Company Limited for the approval of Vectibix® in Japan, partially offset by a decline in worldwide product sales of $21 million, or 1%, discussed below. For the six months ended June 30, 2010, the increase in total revenues was primarily due to an increase in worldwide product sales of $269 million, or 4%, discussed below, and, to a lesser extent, an increase in other revenues of $106 million, primarily resulting from the milestone payments earned in the three months ended June 30, 2010.

International product sales for the three and six months ended June 30, 2010 increased $25 million, or 3%, and $140 million, or 9%, respectively, over the prior year periods. These increases were primarily due to the launches of Vectibix®, Mimpara® and Nplate® into existing international markets and the favorable impact of foreign currency exchange rate changes of $11 million and $50 million for the three and six months ended June 30, 2010, respectively. Excluding the impact of foreign currency exchange rate changes, international product sales for the three and six months ended June 30, 2010 increased 2% and 6%, respectively.

Our operating expenses for the three and six months ended June 30, 2010 increased by $31 million, or 1%, and $155 million, or 4%, respectively, over the prior year periods. These increases were primarily as a result of increased selling, general and administrative (SG&A) expenses of $76 million and $162 million, respectively, in part due to increased spending activities in anticipation of the approval and launch of Prolia. The increase in SG&A expenses in the three months ended June 30, 2010 was partially offset by $49 million of charges in the three months ended June 30, 2009 for certain cost savings initiatives and legal matters for which there were no corresponding charges in the three months ended June 30, 2010.

For the three and six months ended June 30, 2010, net income decreased $67 million, or 5%, and increased $81 million, or 4%, respectively, over the prior year periods. Net income for the three months ended June 30, 2010 decreased primarily as a result of a $115 million income tax benefit recognized in the three months ended June 30, 2009 as a result of the favorable resolution of certain non-routine transfer pricing matters with the IRS for prior periods (the IRS tax settlement), partially offset by higher operating income for the three months ended June 30, 2010, discussed above. Net income for the six months ended June 30, 2010 increased primarily as a result of higher operating income, discussed above, partially offset by the IRS tax settlement recognized in the three months ended June 30, 2009. Diluted EPS was unchanged at $1.25 for the three months ended June 30, 2010 and 2009 as the reduction in net income for the three months ended June 30, 2010 was offset by the reduction in the number of shares used in the calculation of diluted EPS (964 million shares compared to 1,017 million shares for the three months ended June 30, 2010 and 2009, respectively). Diluted EPS was $2.43 for the six months ended June 30, 2010, representing an increase of 9%, over the prior year period which also benefitted from a reduction in the number of shares used in the calculation of diluted

As of June 30, 2010, cash, cash equivalents and marketable securities totaled $14.5 billion, our total debt outstanding was $11.7 billion and our stockholders equity aggregated $23.2 billion. In addition, our cash flow from operations for the six months ended June 30, 2010 was $2,477 million, representing a 2% decrease over the corresponding prior year period. Capital expenditures for the six months ended June 30, 2010 and 2009 were approximately $271 million and $256 million, respectively. We believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our working capital, capital expenditure and debt service requirements for the foreseeable future, including the repayment of our 2011 Convertible Notes with a principal balance of $2.5 billion due in February 2011. Of our total cash, cash equivalents and marketable securities balance as of June 30, 2010, approximately $12.3 billion was generated from operations in foreign tax jurisdictions and is held outside the U.S. and is intended for use in our foreign operations. If these funds were repatriated for use in our U.S. operations, we would be required to pay additional U.S. federal and state income taxes at the applicable marginal tax rates.

The U.S. healthcare reform legislation signed into law in March 2010 will impact the revenue we earn on sales of certain of our products more than others depending on where they are used, who they are prescribed to and how they are reimbursed. Total U.S. product sales for the three months ended June 30, 2010 were adversely impacted by $45 million for the provisions of the new healthcare reform law that were in effect during this period, partially offset by $9 million of favorable changes in accounting estimates with respect to related accruals recorded in the the three months ended March 31, 2010. For the six months ended June 30, 2010, total U.S. product sales were adversely impacted by $69 million for the provisions of the new healthcare reform law. We currently anticipate that the full year impact of the new healthcare reform law will be approximately $200 million to $250 million for 2010. As additional provisions of the new healthcare reform law are implemented and certain other provisions only in effect for part of 2010 become effective for the full year, we anticipate that the future annual impact will increase significantly. As a result, we expect that the new healthcare reform law, taken as a whole, will have a material adverse effect on our business and results of operations. Estimating the aggregate financial impact resulting from the new healthcare reform law is highly complex and is dependent on a number of factors, such as our estimated sales volume and mix of products eligible for the rebates and discounts, the number of patients and provider institutions now eligible for rebates and discounts (for example, Medicaid managed care organizations, PHS provider institutions, etc.), pending implementation guidance and the results of regulatory and reimbursement matters associated with our marketed products and product candidates. Therefore, our estimates are subject to change. However, based on our current understanding of the new healthcare reform law and assuming no significant changes in our current U.S. product sales volume and mix, we currently estimate that the impact of the new healthcare reform law in 2011 will be approximately two-and-a-half times the amount currently estimated for 2010. See discussion below regarding the income statement classification of the costs associated with the new healthcare reform law.

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