Amgen (NASDAQ: AMGN) reported total revenue increased 4 percent during the second quarter of 2011 to $3,959 million versus $3,804 million in the second quarter of 2010. Total product sales increased 8 percent in the second quarter of 2011 to $3,893 million versus $3,613 million in the second quarter of 2010. The increase in total revenue in the second quarter of 2011 included a decline in other revenue due to certain milestone payments earned in the second quarter of 2010.
Adjusted earnings per share (EPS) were $1.37 for the second quarter of 2011, a decrease of 1 percent compared to $1.38 for the second quarter of 2010. Adjusted net income decreased 3 percent to $1,281 million in the second quarter of 2011 compared to $1,326 million in the second quarter of 2010.
“Our products recorded a strong 8 percent growth during the quarter,” said Kevin Sharer, chairman & CEO at Amgen. “Our business has momentum and we expect to be at the upper end of our revenue and EPS guidance ranges for the year.”
Adjusted EPS and adjusted net income for the second quarter of 2011 and 2010 exclude, for the applicable periods stock option expense, certain expenses related to acquisitions and actions to improve cost efficiencies, non-cash interest expense resulting from a change in accounting for our convertible notes, and certain other items. These adjustments and other items are presented on the attached reconciliations.
On a reported basis in accordance with United States (U.S.) Generally Accepted Accounting Principles (GAAP), Amgen’s GAAP diluted EPS were $1.25 in the second quarter of 2011, unchanged from the same quarter last year. GAAP net income of $1,170 million in the second quarter of 2011 decreased 3 percent from $1,202 million in the second quarter of 2010.
Product Sales Performance
Total product sales increased 8 percent to $3,893 million in the second quarter of 2011 versus $3,613 million in the second quarter of 2010. U.S. product sales increased 7 percent to $2,975 million in the second quarter of 2011 versus $2,787 million in the second quarter of 2010. International sales increased 11 percent to $918 million in the second quarter of 2011 versus $826 million in the second quarter of 2010. Excluding the $34 million favorable impact of foreign exchange in the second quarter of 2011, both total product sales and international product sales increased 7 percent.
Aranesp® (darbepoetin alfa) sales decreased 3 percent to $585 million in the second quarter of 2011 versus $603 million in the second quarter of 2010. U.S. Aranesp sales decreased 10 percent to $241 million in the second quarter of 2011 versus $267 million in the second quarter of 2010, due principally to a mid-teens percentage point decrease in unit demand, offset partially by an increase in the average net sales price. This sales decrease reflects an overall decline in the segment. International Aranesp sales increased 2 percent to $344 million in the second quarter of 2011 versus $336 million in the second quarter of 2010. Excluding the $10 million favorable impact of foreign exchange in the second quarter of 2011, international Aranesp sales decreased 1 percent due principally to a low single-digit percentage point decrease in the average net sales price, substantially offset by an increase in unit demand. This sales decrease reflects an overall decline in the segment, largely offset by an increase in share and expansion into newer territories.
EPOGEN® (Epoetin alfa) sales decreased 17 percent to $543 million in the second quarter of 2011 versus $657 million in the second quarter of 2010, due primarily to a decline in unit demand. The decrease in unit demand reflects a decrease in dose utilization due to implementation of the bundled payment system, offset slightly by patient population growth. The Company announced that it expects an additional decrease in dose utilization related to label changes and reimbursement changes proposed by the Centers for Medicare & Medicaid Services, should the proposal be implemented as drafted. If implemented, in aggregate, the Company expects dose utilization would decline in 2011 as compared to 2010 by 20 to 25 percent, offset partially by patient population growth and an increase in the average net sales price. The Company believes that the majority of the dose utilization changes will be implemented by the end of 2011 with some residual impact early in 2012. The Company also believes that mean hemoglobin levels will remain above 10 g/dL in the dialysis setting.
Combined Neulasta® (pegfilgrastim) and NEUPOGEN® (Filgrastim) sales increased 13 percent to $1,326 million in the second quarter of 2011 versus $1,174 million in the second quarter of 2010. Combined U.S. Neulasta and NEUPOGEN sales increased 15 percent to $999 million in the second quarter of 2011 versus $868 million in the second quarter of 2010, driven primarily by increases in unit demand and the average net sales price. Approximately half of the unit demand increase reflects underlying Neulasta demand growth including increased first cycle penetration due to uses of newer, more myelosuppressive chemotherapy regimens. The remaining unit demand growth was primarily driven by the timing of customer orders. Combined international Neulasta and NEUPOGEN sales increased 7 percent to $327 million in the second quarter of 2011 versus $306 million in the second quarter of 2010. Excluding the $14 million favorable impact of foreign exchange, combined international Neulasta and NEUPOGEN sales increased 2 percent reflecting growth in Neulasta due, in part, to continued conversion from NEUPOGEN to Neulasta.
Enbrel® (etanercept) sales increased 9 percent to $956 million in the second quarter of 2011 versus $877 million in the second quarter of 2010, driven primarily by increases in the average net sales price and unit demand. This sales increase reflects segment growth, offset partially by share declines. ENBREL remains the leader in both the rheumatology and dermatology segments.
Sales of Sensipar® / Mimpara® (cinacalcet) increased 16 percent to $199 million in the second quarter of 2011 versus $172 million in the second quarter of 2010. Sales of Vectibix® (panitumumab) increased 13 percent to $81 million in the second quarter of 2011 versus $72 million in the second quarter of 2010. Sales of Nplate® (romiplostim) increased 36 percent to $75 million in the second quarter of 2011 versus $55 million in the second quarter of 2010. These increases were driven by increases in global demand.
Sales of Prolia® (denosumab) in the second quarter of 2011 were $44 million, reflecting continued adoption by physicians and expanded access from payers in the U.S. and internationally.
U.S. sales of XGEVA® (denosumab) were $73 million in the second full quarter following launch. Sales were driven by increased segment share as well as overall segment growth.
Operating Expense Analysis on an Adjusted Basis:
Cost of Sales decreased to 14.6 percent of product sales in the second quarter of 2011 versus 15.2 percent of product sales in the second quarter of 2010. This decrease was driven primarily by lower bulk material cost, due to higher utilization, offset partially by the Puerto Rico excise tax. Excluding the $45 million impact of the excise tax, cost of sales would have been 13.5 percent of product sales for the quarter.
Research and Development (R&D) expenses increased 26 percent to $808 million in the second quarter of 2011 versus $642 million in the second quarter of 2010. This increase reflected the costs associated with late stage clinical programs, particularly the Phase 3 trials for AMG 386, AMG 479 and OncoVEX(GM-CSF) (talimogene laherparepvec). R&D expenses were also driven by increased support for our marketed products and by an increase in discovery research and early pipeline activities. For the full year, adjusted R&D expenses are expected to be at the upper end of the range of 18 to 20 percent of product sales.
Selling, General & Administrative (SG&A) expenses increased 15 percent to $1,111 million in the second quarter of 2011 versus $968 million in the second quarter of 2010. This increase was driven by the U.S. Healthcare Reform Federal Excise Fee of $47 million; higher ENBREL profit share expenses of $40 million due to increased ENBREL sales; and higher spending related to the launches of Prolia and XGEVA, as well as expansion of our international operations.
The adjusted tax rate for the second quarter of 2011 was 15.2 percent compared to 20.0 percent for the second quarter of 2010. The decrease was due primarily to the recognition of foreign tax credits associated with the new Puerto Rico excise tax effective in 2011 and the benefit of the federal R&D credit in the second quarter of 2011 that was not in effect for the second quarter of 2010, partially offset by the impact of the non-deductible U.S. Healthcare Reform Fee. Excluding the impact of the Puerto Rico excise tax, the adjusted tax rate for the second quarter of 2011 would have been 20.3 percent.
Average diluted shares for adjusted EPS for the second quarter of 2011 were 934 million versus 964 million for the second quarter of 2010.
Capital expenditures for the second quarter of 2011 were $123 million versus $177 million in the second quarter of 2010. Operating cash flow for the second quarter of 2011 decreased to $1.5 billion versus $1.6 billion in the second quarter of 2010. Worldwide cash and marketable securities for the second quarter of 2011 were $19.2 billion and adjusted outstanding debt for the second quarter of 2011 was $14.2 billion, reflecting our $3.0 billion debt issuance in June 2011. The Company’s adjusted outstanding debt excludes the impact of a change in accounting for the carrying values of its convertible debt. The Company repurchased 13 million shares of its stock during the second quarter of 2011 at a total cost of $732 million. As of June 30, 2011, the Company had $6.4 billion remaining under its authorized stock repurchase program.
Amgen Announced First Quarterly Cash Dividend
Amgen today announced that on July 28, 2011, its Board of Directors declared a quarterly dividend of $0.28 per share of common stock, to be paid on the payment date of Sept. 8, 2011 to all stockholders of record as of the close of business on the record date of Aug. 18, 2011. This is the first quarterly dividend declared under the Board’s dividend policy announced on April 21, 2011. Future dividends will be subject to Board approval.
2011 Guidance Update
The Company updated its total revenue guidance for 2011 to be at the upper end of the current guidance range of $15.1 billion to $15.5 billion. Amgen now expects 2011 adjusted EPS to be at the upper end of the current guidance range of $5.00 to $5.20, excluding stock option expense, certain expenses related to acquisitions and actions to improve cost efficiencies, non-cash interest expense resulting from a change in accounting for convertible debt, and certain other items presented on the attached reconciliations.
The Company still expects the total impact of U.S. Healthcare Reform in 2011 to be in the range of $400 million to $500 million, including the federal excise fee which is still expected to be in the range of $150 million to $200 million.
With respect to other guidance, Amgen continues to expect the adjusted tax rate for 2011 to be in the range of 15 percent to 16 percent. This reflects the impact of the foreign tax credit associated with the Puerto Rico excise tax.
The Company still expects 2011 capital expenditures to be approximately $600 million.
Second Quarter Product and Pipeline Update
The Company provided the following information on selected products and clinical programs:
EPOGEN/Aranesp: The Company discussed modifications to U.S. Prescribing Information for use of erythropoiesis-stimulating agents in chronic kidney disease that were finalized on June 24th.
Prolia: The Company announced that a small Phase 3 Bone Mineral Density study in men with osteoporosis met all endpoints and the safety data were consistent with what has been previously reported in other populations.
XGEVA: The Company discussed the European Medicines Agency marketing authorization it received on July 15th for the prevention of skeletal-related events in adults with bone metastases from solid tumors.
The Company also discussed that it submitted a supplemental Biologics License Application on June 27th to the U.S. Food and Drug Administration (FDA) to expand the indication for XGEVA to treat men with castrate-resistant prostate cancer to reduce the risk of developing bone metastases.
Vectibix: The Company discussed the Committee for Medicinal Products for Human Use (CHMP) positive opinion it received in the European Union for use in combination with chemotherapy in first- and second-line metastatic colorectal cancer patients with wild-type KRAS.
The Company announced that it received Complete Response Letters from the FDA on the first- and second-line metastatic colorectal cancer supplemental Biologics License Applications. The FDA has requested additional information from the ‘181 and ‘203 pivotal trials. The letters do not require additional clinical trials. Amgen is reviewing the Complete Response Letters and will work with the FDA to determine the appropriate next steps regarding these applications.
Nplate: The Company announced that the U.S. Prescribing Information for Nplate has been modified to heighten awareness that use is not indicated for the treatment of thrombocytopenia due to myelodysplastic syndrome. The Company also discussed the FDA’s recent announcement that they are working to modify the Nplate Risk Evaluation and Mitigation Strategy (REMS) to maintain a focus on physician understanding of appropriate use and potential risks, while eliminating the requirement for restricted distribution of Nplate. This will reduce the burden on physicians prescribing Nplate.
OncoVEX(GM-CSF): The Company announced that its Phase 3 trial in patients with malignant melanoma is now fully enrolled.
The Company also announced its decision to terminate its current OncoVEX(GM-CSF) Phase 3 trial in patients with squamous cell carcinoma of the head and neck (SCCHN) to permit significant modification of clinical trial design mandated by the changing therapeutic landscape for patients with SCCHN.
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