10-Q: Amgen Reports Second Quarter 2024 Results, Impacted by Horizon Acquisition and Tax Adjustments

Amgen's second quarter 2024 results show a significant increase in revenue driven by the Horizon Therapeutics acquisition, but also a decrease in net income due to higher operating expenses and tax adjustments.

Summary

• Amgen's total revenue for the second quarter of 2024 increased by 20% to $8.388 billion, and for the first six months of 2024, total revenue increased by 21% to $15.835 billion, compared to the same periods in 2023.
• Product sales were the primary driver of revenue growth, increasing by 20% in the second quarter and 21% in the first six months of 2024, with a 26% increase in volume for both periods, partially offset by price declines.
• The acquisition of Horizon Therapeutics contributed $1.1 billion in product sales in the second quarter and $2.0 billion in the first six months of 2024.
• Operating expenses increased by 51% in the second quarter and 52% in the first six months of 2024, primarily due to higher amortization expenses from the Horizon acquisition and expenses from the acquired business.
• Net income decreased by 46% to $746 million in the second quarter and by 85% to $633 million in the first six months of 2024, due to higher operating expenses and tax adjustments.
• The effective tax rate decreased to 6.0% for the second quarter and 12.8% for the first six months of 2024, primarily due to the inclusion of the Horizon business and unrealized losses on equity investments.
• Amgen's cash and cash equivalents totaled $9.301 billion as of June 30, 2024, compared to $10.944 billion at the end of 2023.

Sentiment

Score: 5

Explanation: The document presents mixed results. While revenue growth is strong, the significant decrease in net income and the ongoing legal and tax issues temper the overall sentiment. The Horizon acquisition is a positive, but the integration costs and tax implications are a concern.

Positives

• Significant revenue growth driven by the Horizon acquisition and volume increases in key products.
• Strong performance in key products such as Prolia, Repatha, TEZSPIRE, EVENITY and BLINCYTO.
• Positive topline results from the Phase 3 trial evaluating UPLIZNA for the treatment of Immunoglobulin G4-related disease (IgG4-RD).
• FDA approval for IMDELLTRA for the treatment of adult patients with extensive-stage small cell lung cancer (ES-SCLC).
• FDA approval for BLINCYTO in frontline consolidation for patients with CD19-positive Philadelphia chromosome-negative B-cell precursor acute lymphoblastic leukemia (B-ALL).

Negatives

• Net income decreased significantly due to higher operating expenses and tax adjustments.
• ENBREL sales decreased by 15% in the second quarter and 10% in the first six months of 2024, primarily driven by lower net selling price.
• Otezla sales decreased by 9% in the second quarter and 5% in the first six months of 2024, driven by lower net selling price and unfavorable changes to estimated sales deductions.
• Aranesp sales decreased by 5% in the second quarter and 3% in the first six months of 2024, driven by unfavorable changes to estimated sales deductions.
• Neulasta sales decreased by 62% in the second quarter and 60% in the first six months of 2024, due to lower net selling price and volume.

Risks

• Uncertain macroeconomic conditions, including inflation and higher interest rates, pose challenges to the business.
• Ongoing geopolitical conflicts create additional uncertainty in global macroeconomic conditions.
• The industry is subject to cost containment measures and significant pricing pressures, resulting in net price declines.
• Legislation enacted to reduce healthcare expenditures, including provisions of the IRA, have affected, and are likely to continue to affect, the business.
• Wholesale and end-user buying patterns can cause fluctuations in quarterly product sales.
• The company is involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict.
• The company is under examination by the IRS for the years 2016-2018 with respect to issues similar to those for the 2010 through 2015 period.
• The company is contesting the 2010-2012 and 2013-2015 Notices through the judicial process, with a trial scheduled to begin on November 4, 2024.
• The company is subject to various laws and regulations globally regarding cybersecurity, privacy and data protection.
• Manufacturing difficulties, disruptions or delays could limit supply of products and limit product sales.

Future Outlook

Amgen expects product sales growth from acquired Horizon products and volume growth from other brands to be partially offset by net selling price declines on a year-over-year basis at a portfolio level for the remainder of 2024.

Management Comments

• The company intends to continue investing in its business while reducing debt and returning capital to stockholders through the payment of cash dividends and stock repurchases.
• The company believes that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy its needs for working capital, capital expenditure and debt service requirements, as well as its plans to reduce debt, pay dividends and repurchase stock, and other business initiatives it plans to strategically pursue, including acquisitions and licensing activities.

Industry Context

The announcement reflects the ongoing trend of consolidation in the pharmaceutical industry, with Amgen's acquisition of Horizon being a significant example. The results also highlight the challenges of pricing pressures and cost containment measures that are affecting the industry.

Comparison to Industry Standards

• Amgen's revenue growth is above the average for large-cap pharmaceutical companies, primarily due to the Horizon acquisition.
• The decrease in net income is a concern, as many large-cap pharmaceutical companies are focused on improving profitability.
• Amgen's R&D spending is in line with industry standards, but the company needs to demonstrate a strong pipeline to justify the investment.
• The company's debt levels are high, which is a common trend in the industry due to acquisitions and share buybacks.
• The company's effective tax rate is lower than the average for large-cap pharmaceutical companies, which is a positive sign.

Legal Proceedings

• On May 13, 2024, the Regional Court of Dusseldorf stayed the hearing on Sanofi Biotechnology SAS infringement action pending the outcome of Amgens Nullity Action against the European Patent No. 2,756,004 before the German Federal Patent Court.
• On July 16, 2024, the Central Division of the Unified Patent Court in Munich (UPC) rendered its decision on Sanofi-Aventis Deutschland GmbHs action seeking revocation of Amgens European Patent 3,666,797 (the EP797 Patent).
• On July 29, 2024, the Local Division of the UPC stayed Amgens action against Sanofi-Aventis Deutschland GmbH, et al. alleging that the importation, marketing, sale and use of PRALUENT infringes the EP797 Patent.
• On May 28, 2024, Amgen Inc. and Amgen Manufacturing Limited LLC filed a lawsuit in the U.S. District Court for the District of New Jersey against Celltrion Inc. and Celltrion USA, Inc. based on the submission to the FDA of a Biologics License Application (BLA) seeking approval to market and sell a biosimilar version of Amgens Prolia and XGEVA products.
• On June 7, 2024, Regeneron Pharmaceuticals, Inc. (Regeneron) filed a motion for a preliminary injunction to prohibit Amgen from engaging in the manufacture, use, offer for sell or sale within the United States, or importation into the United States, of ABP 938 until resolution of this lawsuit or the entry of a permanent injunction, whichever comes first.
• On May 14, 2024, the putative class of direct purchasers of Sensipar (Sensipar Plaintiffs) appealed the claims that were dismissed with prejudice by the U.S. District Court for the District of Delaware.
• On May 22, 2024, Amgen filed a motion for summary judgment in the Regeneron Pharmaceuticals, Inc. Antitrust Action.
• In July 2021, Amgen filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for the years 2010-2012.
• In July 2022, Amgen filed a petition in the U.S. Tax Court to contest a Notice for the years 2013-2015.
• The two tax cases were consolidated in the U.S. Tax Court on December 19, 2022, and the trial is currently scheduled to begin on November 4, 2024.
• On July 18, 2024, the U.S. District Court for the Southern District of New York held a hearing on Amgens motion to dismiss in the Securities Class Action Litigation.
• On May 24, 2024, the United States Court of Appeals for the Ninth Circuit denied ChemoCentryxs petition to appeal the class certification order.
• Trial is scheduled to begin on September 22, 2025 for the ChemoCentryx, Inc. Securities Matters.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and the ongoing legal and tax issues.
• Employees may be affected by the ongoing restructuring and cost-cutting measures.
• Customers may be affected by changes in pricing and reimbursement policies.
• Suppliers may be affected by changes in the company's supply chain and manufacturing processes.
• Creditors may be affected by the company's high debt levels and debt service requirements.

Next Steps

• The company will continue to invest in its business while reducing debt and returning capital to stockholders.
• The company will continue to monitor and address the ongoing legal and tax issues.
• The company will continue to monitor and address the ongoing cybersecurity risks.
• The company will continue to monitor and address the ongoing manufacturing risks.

Key Dates

Keywords

Amgen, Horizon Therapeutics, revenue, net income, product sales, operating expenses, tax rate, biotechnology, pharmaceuticals, Prolia, Repatha, TEZSPIRE, EVENITY, BLINCYTO, IMDELLTRA, UPLIZNA, ENBREL, Otezla, Aranesp, Neulasta, KYPROLIS, KRYSTEXXA, Vectibix, Nplate, macroeconomic conditions, pricing pressures, Inflation Reduction Act, legal proceedings, cybersecurity, manufacturing