1. Page | 1
Amgen Financial Analysis
Financial Analysis
Presented by:
David Fox
Elizabeth Thompson
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Amgen Financial Analysis
Executive Summary
Amgen Inc. is a biotechnology/pharmaceutical company based in the US
with offices worldwide. After reviewing the company, historical information,
financial statements and industry risks, we would provide moderate reviews for
AMGEN Inc as an investment opportunity that affords an investor safe, steady
returns with possibility of upward growth.
AMGEN manages their acquisitions and mergers to drive the business
into new markets and purchases rights to drug formulations as patents expire.
They have a strong marketshare in the Rheumatoid Arthritis market with the
second most profitable drug and recently purchased and spunoff a genetics
sequencing lab to stabilize their pipeline. AMGEN displays growth in revenue
and overall profit margin, while carrying a significant amount of liability and
debt.
The pharmaceutical industry is a difficult one in which to sustain growth
without successive mergers or acquisitions of both whole entities and/or
specific formulations. Drug patents span 30yrs with FDA trials lasting 20yrs,
leaving the useful marketability of a drug at 10yrs in which to recoup the
millions of dollars in development. A 2015 report by the Biotechnology
Innovation Organization (BIO) illustrates the poor success rate of FDA
approvals. The Likelihood of Approval (LOA) from Phase 1 to Phase 4 is 9.6%.
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Amgen Financial Analysis
According to CSIMarket.com, AMGEN has not kept pace with competitors
in the market accounting for a slower revenue growth (4.5% less) and overall
net margin and profitability FY YTD (just under 35%). FY16Q3 did show rebound
as AMGEN outpaced the competition in revenue growth by 1.5%.
In 2012, AMGEN came under scrutiny by the FDA for illegal marketing
and misbranding of a drug and were forced to pay $72M in damages and
penalties. AMGEN stalled the release of Novartis’ biosimilar compound to the
Neupogen drug through litigation with the FDA, but are facing a similar issue
with a biosimilar formulation for AbbVie’s Humira drug as AbbVie has
requested the same delay for AMGEN’s release.
Because of these factors and AMGEN’s debt to asset ratio around
50%, we would recommend AMGEN as a moderately safe option in a steady and
upward trending, albeit fickle industry.
Company Overview
Amgen Inc. was founded in 1980 by William Bowes from Cetus
Corporation and William Salser from UCLA and is headquartered in Thousand
Oaks, California. Originally AAAApplied MMMMolecular GenGenGenGenetics, AMGEN was
Incorporated in 1983 as an IPO under then CEO and Co-Founder George B
Rathmun earning over $40M overall. AMGEN is a multi-national pharmaceutical
and biotechnology research and development company aimed at creating
targeted pharmaceuticals for high need, low solution illnesses and diseases.
Growing to over 17,000 employees across, AMGEN’s customer base spans 100
countries worldwide.
It wasn’t until 1989 that they released their first pharmaceutical solution
called Epogen used to fight anemia associated with chronic kidney failure.
Between their first release in 1989 and 2013, AMGEN has successfully deployed
fifteen FDA-approved drugs for highly specified medical conditions ranging
from anemia to arthritis to osteoporosis – three of which have been sold to
competitors. AMGEN had eleven drugs in phase III trials by the end of 2013
ultimately dropping two of these during trials. AMGEN frequently collaborates
within the pharmaceutical and biotechnology industry for biosimilar solutions
and generic formulations to keep healthcare costs down and prices competitive
for critically ill patients.
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Amgen Financial Analysis
Recent activity has landed AMGEN at #131 on the Forbes Global 2000 list.
Stock prices have peaked in 2016 at around $175 per share and currently sit at
$146 with a steady 5-year growth from 2012 ($65). Sales profit in FY15 show at
$21B.
Current executive team members driving the innovation and delivery of lifeCurrent executive team members driving the innovation and delivery of lifeCurrent executive team members driving the innovation and delivery of lifeCurrent executive team members driving the innovation and delivery of life
saving pharmaceuticals:saving pharmaceuticals:saving pharmaceuticals:saving pharmaceuticals:
Name/TitleName/TitleName/TitleName/Title Total CompensationTotal CompensationTotal CompensationTotal Compensation
Robert A. Bradway
$16,097,714
Chairman of the Board, Chief Executive Officer and
President
Anthony C. Hooper
$6,414,729
Executive Vice President, Global Commercial
Operations
Sean E. Harper
$5,607,825Executive Vice President, Research and Development
David W. Meline
$6,592,624Executive Vice President and Chief Financial Officer
Jonathan P. Graham
$12,783,301Senior Vice President, General Counsel and Secretary
The company has a proven track record of successful acquisition and
merger activity, having successfully leveraged the Immunex acquisition in 2002
for full control of the Enbrel drug; Enbrel is a top industry sales earner.
Neulasta (a Neupogen derivative) and Enbrel constitute 50% of AMGEN’s overall
sales in 2015; the other 50% comprises six other pharmaceutical offerings.
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Amgen Financial Analysis
Although AMGEN is strictly in the pharmaceutical arena, they influence the
industry greatly through selective acquisitions of both drug therapies and
companies to keep their competitive advantage. Expanding into new markets
allows the organization to prevent stagnation and continue growth and
development. This M&A activity keeps AMGEN growing and their stock
Recent Acquisitions over the last 5 years:
2011:
• Acq. BioVex Group Inc. for $425 cash up to $1B
• Acq. Laboratorio Quimico Farmaceutico Bergamo Ltda
2012:
• Acq. Micromet Inc for $1.16B
• Acq. Mustafa Nevzat Ilac for $700M
• Acq. KAI Pharmaceuticals for $315M
• Acq. deCODE Genetics for $415M
2013:
• Acq. Onyx Pharmaceuticals for $10.4B
• SpinOff NextCODE genetics
2015:
• Acq. Dezima Pharma for $300M up to $1.25B
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Amgen Financial Analysis
The purchase of Onyx Pharmaceuticals of $10.4 Billion, although a hefty sum,
may provide sustainability for AMGEN as they broach the ever-expanding
cancer therapy drug market. Along with this, the acquisition of deCODE and
subsequent spinoff NextCODE allows AMGEN better access to the pipeline for
suitable starting molecules used for development.
Industry Comparison
AMGEN is in the biotechnology (primarily pharmaceutical) industry
competing with highly competitive companies for a share in the lucrative
healthcare market. Despite the changes in healthcare with the Affordable Care
Act (ACA) and aging population, the constant shifting of diagnosable conditions
and modalities keeps the market refreshed and open to possibilities. The FDA is
heavily involved in the space, governing releases, formulations and handling
litigation concerns. The complex nature of healthcare law forces companies to
carefully navigate generic formulations and biosimilar compounds in order to
stretch revenue and investigate alternate profit streams. This comparison will
focus on three primary competitors to AMGEN as the pharmaceutical industry
has many companies competing for hundreds of drug markets targeted as
specific conditions.
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Amgen Financial Analysis
Participants in the pharmaceutical industry are lisParticipants in the pharmaceutical industry are lisParticipants in the pharmaceutical industry are lisParticipants in the pharmaceutical industry are listed in the graph below from CSIMarket.com.ted in the graph below from CSIMarket.com.ted in the graph below from CSIMarket.com.ted in the graph below from CSIMarket.com.
AbbVie Inc is the largest competitor in the Rhematoid Arthritis,
inflammatory and psoriasis treatments. AbbVie (NYSE:ABBV) was separated from
Abbot Industries Jan 1, 2013 in order to allow investors the ability to value the
two businesses separately, although many believe it was a means to shield the
profitable medical device division from the expected loss in the pharmaceutical
division. The patent for flagship drug Humira is set to expire; Humira
represents over 50% of the revenue for the pharma division.
AMGEN’s US deployed Enbrel drug competes with Humira for
marketshare. With Humira’s patent set to expire in 2016, AMGEN is in position
to secure a strong presence in the market with its already competitive Enbrel
and the awarding of a new patent to prevent Enbrel biosimilars. AbbVie is
currently traded at $62.
Johnson and Johnson is the largest competitor in the anemia sector.
Johnson and Johnson (NYSE:JNJ) owns and markets Procrit as a biosimilar to
AMGEN’s Aranesp and Neupogen treatments. AMGEN and J&J have been in court
many times over the anemia drug erythropoietin alfa marketed by AMGEN as
Epogen and by J&J as Procrit. In 2002, AMGEN was awarded $150M by an
8. Page | 8
Amgen Financial Analysis
arbitrator for violating terms of the licensing agreement between the two
companies. In 2005, J&J sued AMGEN for using anti-competitive sales practices
for marketing Epogen to Oncologists. In 2010, both companies were forced to
recall production lots of the protein manufactured in AMGEN’s Puerto Rico
plant. J&J is currently traded at $112.
Celgene Corporation is a smaller biopharmaceutical company based out
of New Jersey. Celgene (NYSE:CELG) competes in the myeloid disorder
treatments. AMGEN recently entered this lucrative market with their $10.4B
acquisition of Onyx Pharmaceuticals in 2013. AMGEN is attempting to encroach
on the dominant marketshare that Celgene’s Revlimid drug has on the sector.
AMGEN purchased Onyx in order to market and sell Kyprolis.
A whistleblower from within Celgene alleged in 2010 that the company
rebranded Thalidomide as Thalomid and inappropriately marketed the drug.
Celgene is currently traded at $112.
Financial Analysis
It is important to note as we begin the financial analysis Amgen’s main
source of income is through sales of pharmaceuticals. The latest releases in
2015/2016 of new medications and new methods of delivery of existing
medications released to market, show promise for increased sales in the
coming years, particularly in the cardiovascular and oncology related
medications. Proven products continue to be a source of sales income, but
some of their patents will be expiring over the next several years, and sales
growth is tapering on some of their established products. New product
development will be important to replace sales revenue of products that will be
eligible for generic manufacturing. Their expense for research and development
has decreased, but this is most likely because Amgen has made several
significant acquisitions of pharmaceutical companies that had significant
patents and products in development at the time of acquisition. R&D expense
continues to be a decent percentage of gross revenue, a good sign of longevity.
Increased competition and scrutiny on pricing structure in the pharmaceutical
industry by the public and government agencies also needs to be noted as a
potential cause for sales income to change. Product development is a very long
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Amgen Financial Analysis
and complicated process, from testing and trials to the very complex approval
process through the FDA which can last from 10-15 years. A change in policy
could occur very quickly, and pricing structures changing faster than
development occurs is a potential risk.
Amgen has placed itself well to insulate from this risk with the
acquisitions previously noted. These have helped secured long-term growth,
such as Onyx Pharmaceuticals in 2013, a 10.4 billion transaction that gives
Amgen access to a rapidly expanding cancer-drug market with a new product,
Kyprolis, which was approved in 2012 for a rare blood cancer. This is at a time
when the oncology market is growing increasingly important as the U.S.
population ages. Building on that momentum, Amgen acquired global
development rights to a multiple myeloma drug, BI 836909, from Boehringer
Ingelheim Sept. 1, 2016. Another acquisition that strengthens the portfolio of
cardiovascular products currently held by Amgen was Dezima, a private
company located in the Netherlands with promising developments in a
cholesterol lowering drug called Repatha, and Corlanor, which is found to
reduce hospitalization risk in heart failure patients.
Cost of sales over a five-year period increased from year to year a total of
32% from 2012 to 2015 with the exception that the cost of sales margin
improved by 4.4% from 2014 to 2015. Much of that cost of sales increase
happened in 2014. Per Amgen’s annual report, “The cost of sales increased to
22.0% of total revenues for 2014, driven by acquisition-related expenses that
included an increase of $642 million of non-cash amortization of intangible
assets acquired in the Onyx acquisition. The year ended December 31, 2014,
also included impairment and accelerated depreciation charges pursuant to our
restructuring initiative of $104 million”. Amgen began a restructuring program
in 2014 to be more lean. A recent article on Biospace.com from July 2016
states that closing a couple of manufacturing plants and a site in Colorado
which was also sold along with other excess properties, improved
manufacturing efficiency and allowed the company to develop new products.
The move was also expected to make the cost of sales more competitive, and
the latest numbers seem to prove that.
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Amgen Financial Analysis
Annual Income Statement Summary courtesy Google Finance (with addedAnnual Income Statement Summary courtesy Google Finance (with addedAnnual Income Statement Summary courtesy Google Finance (with addedAnnual Income Statement Summary courtesy Google Finance (with added
percentage calculations)percentage calculations)percentage calculations)percentage calculations)
The increases that did occur from
year to year coincide with large
increases in net profit margin.
Operating expenses have
remained stable over the last 4
years relative to revenues with an
increase of 12.8%.
In Millions of USD (except for per share
items)
% change
over 4
years
12 months ending
2015-12-31
%
change
12 months ending
2014-12-31
%
change
12 months ending
2013-12-31
%
change
12 months ending
2012-12-31
Revenue 25.5% 21,662.00 8.0% 20,063.00 7.4% 18,676.00 8.2% 17,265.00
Total Revenue 25.5% 21,662.00 8.0% 20,063.00 7.4% 18,676.00 8.2% 17,265.00
Cost of Revenue, Total 32.1% 4,227.00 -4.4% 4,422.00 32.2% 3,346.00 4.6% 3,199.00
Gross Profit 24.0% 17,435.00 11.5% 15,641.00 2.0% 15,330.00 9.0% 14,066.00
Selling/General/Admin. Expenses, Total 0.7% 4,846.00 3.1% 4,699.00 -5.4% 4,969.00 3.2% 4,814.00
Research & Development 20.4% 4,070.00 -5.3% 4,297.00 5.2% 4,083.00 20.8% 3,380.00
Unusual Expense (Income) -74.9% 60 -84.1% 377 26.5% 298 24.7% 239
Other Operating Expenses, Total -119.6% -11 -114.3% 77 -31.9% 113 101.8% 56
Total Operating Expense 12.9% 13,192.00 -4.9% 13,872.00 8.3% 12,809.00 9.6% 11,688.00
Operating Income 51.9% 8,470.00 36.8% 6,191.00 5.5% 5,867.00 5.2% 5,577.00
Net Interest Income -13.4% 492.00 -18.8% 606.00 0.7% 602.00 6.0% 568.00
Income Before Tax 59.3% 7,978.00 42.8% 5,585.00 6.1% 5,265.00 5.1% 5,009.00
Income After Tax 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00
Net Income Before Extra. Items 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00
Net Income 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00
Income Available to Common Excl. Extra Items 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00
Income Available to Common Incl. Extra Items 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00
Diluted Weighted Average Shares -2.7% 766 -0.5% 770 0.7% 765 -2.8% 787
Diluted EPS Excluding Extraordinary Items 64.1% 9.06 35.2% 6.7 0.9% 6.64 20.3% 5.52
Dividends per Share - Common Stock Primary
Issue
119.4% 3.16 29.5% 2.44 29.8% 1.88 30.6% 1.44
Diluted Normalized EPS 58.0% 9.13 27.7% 7.15 1.9% 7.02 21.5% 5.78
11. Page | 11
Amgen Financial Analysis
The main area of operating expense increase is in research and
development with an increase of 20.4%. The decrease in operating expense last
year in 2015 at the same time as an increase in higher total revenue is seen
very positively by Amgen per their annual report to grow the business and
invest for the future.
Interest income, net, decreased by 13.4% between 2012-2015. There
were small incremental increases from 2012-2013, 2013-2104, but a large
decrease of 18.8% between 2014 -15. Net income has increased from 2012 by
59.7%. This indicates that while the cost of sales increased over the same time,
product sales increases along with decreased operating expenses dramatically
improves the bottom line. From the analysis of the income statement over 4
years, the company has had significant growth each year in net income. Amgen
has earned a place as one of the powerhouse pharmaceutical companies.
12. Page | 12
Amgen Financial Analysis
Balance Sheet for Amgen, Inc courtesy Google Finance (with added percentageBalance Sheet for Amgen, Inc courtesy Google Finance (with added percentageBalance Sheet for Amgen, Inc courtesy Google Finance (with added percentageBalance Sheet for Amgen, Inc courtesy Google Finance (with added percentage
calculations)calculations)calculations)calculations)
% Change As of % As of % As of % As of
In Millions of USD (except for per share items)
over 4 years 2015-12-31 change 12/31/2014 change 12/31/2013 change 12/31/2012
Cash & Equivalents 27.2% 4,144.00 11.1% 3,731.00 -1.9% 3,805.00 16.8% 3,257.00
Short Term Investments 30.9% 27,238.00 16.9% 23,295.00 49.4% 15,596.00 -25.0% 20,804.00
Cash and Short Term Investments 30.4% 31,382.00 16.1% 27,026.00 39.3% 19,401.00 -19.4% 24,061.00
Accounts Receivable - Trade, Net 18.9% 2,995.00 17.6% 2,546.00 -5.6% 2,697.00 7.1% 2,518.00
Receivables - Other - - - -
Total Receivables, Net 18.9% 2,995.00 17.6% 2,546.00 -5.6% 2,697.00 7.1% 2,518.00
Total Inventory -11.3% 2,435.00 -8.0% 2,647.00 -12.3% 3,019.00 10.0% 2,744.00
Prepaid Expenses - - - -
Other Current Assets, Total -9.7% 1,703.00 -31.7% 2,494.00 10.8% 2,250.00 19.3% 1,886.00
Total Current Assets 23.4% 38,515.00 11.0% 34,713.00 26.8% 27,367.00 -12.3% 31,209.00
Property/Plant/Equipment, Total - Gross - 12,256.00 -0.3% 12,291.00 2.9% 11,947.00
Accumulated Depreciation, Total - -7,033.00 1.3% -6,942.00 4.8% -6,621.00
Goodwill, Net 16.8% 14,787.00 0.0% 14,788.00 -1.2% 14,968.00 18.2% 12,662.00
Intangibles, Net 193.4% 11,641.00 -8.3% 12,693.00 -4.3% 13,262.00 234.2% 3,968.00
Long Term Investments - 0 -100.0% 3,412.00 0
Other Long Term Assets, Total 41.1% 1,599.00 0.4% 1,592.00 -9.9% 1,767.00 56.0% 1,133.00
Total Assets 31.6% 71,449.00 3.5% 69,009.00 4.4% 66,125.00 21.8% 54,298.00
Accounts Payable 6.6% 965 -20.4% 1,212.00 54.0% 787 -13.0% 905
Accrued Expenses 22.9% 5,451.00 16.2% 4,691.00 11.9% 4,192.00 -5.5% 4,435.00
Notes Payable/Short Term Debt 0 0 0 0
Current Port. of LT Debt/Capital Leases -9.9% 2,247.00 349.4% 500 -80.0% 2,505.00 0.4% 2,495.00
Other Current liabilities, Total -99.7% 1 -99.8% 605 30.7% 463 30.1% 356
Total Current Liabilities 5.8% 8,664.00 23.6% 7,008.00 -11.8% 7,947.00 -3.0% 8,191.00
Long Term Debt 21.4% 29,182.00 -3.4% 30,215.00 2.0% 29,623.00 23.3% 24,034.00
Capital Lease Obligations - - - -
Total Long Term Debt 21.4% 29,182.00 -3.4% 30,215.00 2.0% 29,623.00 23.3% 24,034.00
Total Debt 18.5% 31,429.00 2.3% 30,715.00 -4.4% 32,128.00 21.1% 26,529.00
Deferred Income Tax 2,239.00 -35.3% 3,461.00 -1.1% 3,498.00 0
Minority Interest - - - -
Other Liabilities, Total 8.9% 3,281.00 28.8% 2,547.00 -14.0% 2,961.00 -1.7% 3,013.00
Total Liabilities 23.1% 43,366.00 0.3% 43,231.00 -1.8% 44,029.00 24.9% 35,238.00
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable, Net - - - -
Common Stock, Total 4.5% 30,649.00 0.8% 30,410.00 1.7% 29,891.00 1.9% 29,337.00
Additional Paid-In Capital - - - -
Retained Earnings (Accumulated Deficit) -80.0% -2,086.00 -54.9% -4,624.00 -39.4% -7,634.00 -26.8% -10,423.00
Treasury Stock - Common - - - -
Other Equity, Total 494.6% -220 -2100.0% 11 -109.3% -118 218.9% -37
Total Equity 47.3% 28,083.00 8.9% 25,778.00 16.7% 22,096.00 15.9% 19,060.00
Total Liabilities & Shareholders' Equity 31.6% 71,449.00 3.5% 69,009.00 4.4% 66,125.00 21.8% 54,298.00
Shares Outs - Common Stock Primary Issue - - - -
Total Common Shares Outstanding -0.7% 751.3 -1.2% 760.4 0.8% 754.6 -0.2% 756.3
13. Page | 13
Amgen Financial Analysis
Total Assets for Amgen at the end of 2015 was 71,449 million, an
increase from 2012 of 31.6%. From 2012, 2013, and 2014 Total Assets
increased 21.8%, 4.4%, and 3.5% respectively between each of those years.
2013 saw the largest increase in non-current assets, particularly in Net
Intangibles, due to the purchase of Onyx Pharmaceuticals. Another purchase
that occurred in 2016 will show a similar increase in assets when those
financials are released.
Note the increase in Trade Net Accounts Receivables from 2012 to 2015,
which is up 18.9%. The largest portion of that is between YE 2014 and YE
2015. Per Amgen’s 2015 annual report, a portion of operating cash flows is
dependent on timing of payments from customers outside the United States,
which include government-owned or -supported healthcare providers
(government healthcare providers). They state: “Payments from these
government healthcare providers are dependent in part on the economic
stability and creditworthiness of their applicable country. Historically, some
payments from several European government healthcare providers have
extended beyond the contractual terms of sale, and regional economic
uncertainty continues. Credit and economic conditions in Southern Europe,
particularly in Spain, Italy, Greece and Portugal, continue to adversely impact
the timing of collections of trade receivables in this region. As of December 31,
2015, and 2014, accounts receivable in these four countries totaled $222
million and $223 million, respectively. Of these receivables, $127 million and
$124 million were past due as of December 31, 2015 and 2014, respectively.
Although economic conditions in this region may continue to affect the average
length of time it takes to collect payments, to date we have not incurred any
significant losses related to these receivables; and the timing of payments in
these countries has not had nor is it currently expected to have a material
adverse impact on our overall operating cash flows.” It will likely not change
much at YE 2016 because the economic conditions have not changed much in
Southern Europe this year.
The restructuring program resulted in decreases between 2014 and 2015
that affected the areas in Total Assets that are offset by decreases in Liabilities.
They sold off property and equipment, shown by the decrease in Total
Inventory and Other Current Assets, while showing and increase in cash and
short term investments during the same time. Total Liabilities increased 24.9%
14. Page | 14
Amgen Financial Analysis
from 2012 to 2013, decreased 1.8% from 2013-2014, increased .3% from
2014-2015 for an overall increase of 23.1%.
Clearly the company is keeping
liability growth down significantly.
The increase from 2012 to 2013 was
mainly in Long Term Debt. The
graph to the right shows that debt
to assets percentage is stable and
runs between 40 and 50 percent.
Total Retained Earnings and
Stockholder Equity at the end of
2015 was $28,083, an increase of 47.3% from the end of 2012 which a positive
sign for investors.
Measures of DebtMeasures of DebtMeasures of DebtMeasures of Debt----Paying Ability AnalysisPaying Ability AnalysisPaying Ability AnalysisPaying Ability Analysis
Liquidity Ratios: Working capital for Amgen as of the end of 2015 is calculated
by looking at (in millions) the current assets, $38,515 minus $8,664 in current
liabilities, is $29,851, which is a decent cushion against short-term debt
obligations.
Liquidity RatiosLiquidity RatiosLiquidity RatiosLiquidity Ratios 11/28/201611/28/201611/28/201611/28/2016 from Stockfrom Stockfrom Stockfrom Stock----analysisanalysisanalysisanalysis----on.neton.neton.neton.net ---- Amgen, Inc.Amgen, Inc.Amgen, Inc.Amgen, Inc.
FINANCIAL STRENGTHFINANCIAL STRENGTHFINANCIAL STRENGTHFINANCIAL STRENGTH
Quick Ratio (MRQ) 4.09 2.94 2.39
Current Ratio (MRQ) 4.35 5.68 3.3
LT Debt to Equity (MRQ) 99.2 37.24 22.04
Total Debt to Equity (MRQ) 114.79 45.25 31.01
Interest Coverage (TTM) 14.77 1.21 39.5
Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Current ratio 4.44 4.95 3.44 3.81 4.80
Quick ratio 3.97 4.22 2.78 3.24 4.09
Cash ratio 3.62 3.86 2.44 2.94 3.59
15. Page | 15
Amgen Financial Analysis
Current ratio shows a picture of the debt-paying ability of Amgen. The graph
here shows the relationship of Amgen Inc.’s current ratio to the pharmaceutical
industry and the healthcare sector. Amgen Inc.'s current ratio improved from
2013 to 2014 but then slightly deteriorated from 2014 to 2015.
The decrease from 2014-2015 in the quick ratio level means that there is a
decrease in quick assets and an increase in current liabilities. This decrease
was a drop from the level reached in 2014, which was a great improvement
from 2013. 2013 was the same year for the purchase of Onyx Pharmaceuticals,
so we are likely seeing the results of that in this graph.
16. Page | 16
Amgen Financial Analysis
Amgen Inc., shortAmgen Inc., shortAmgen Inc., shortAmgen Inc., short----term (operating) activity ratiosterm (operating) activity ratiosterm (operating) activity ratiosterm (operating) activity ratios
31-Dec-15 31-Dec-14 31-Dec-13 31-Dec-12 31-Dec-11
Turnover RatiosTurnover RatiosTurnover RatiosTurnover Ratios
Inventory turnover 1.74 1.67 1.11 1.17 1.09
Receivables turnover 6.99 7.59 6.75 6.61 5.28
Payables turnover 4.38 3.65 4.25 3.53 4.22
Working capital turnover 0.7 0.7 0.94 0.72 0.7
Average No. of DaysAverage No. of DaysAverage No. of DaysAverage No. of Days
Average inventory
processing period 210 218 329 313 335
Add: Average receivable
collection period 52 48 54 55 69
Operating cycle 262 266 383 368 404
Less: Average payables
payment period 83 100 86 103 87
Cash conversion cycle 179 166 297 265 317
Source: Based on data from Amgen Inc. Annual
Reports
Accounts receivables turnover in 2015 is listed at 6.99. A higher number
would be preferred, but the issues with accounts receivable collections was
addressed earlier in our discussion. The previous years also tell the same story
regarding the lower AR turnover. The comparable number in the industry is
higher, although the sector of healthcare altogether is lower at 6.1
Inventory turnover is reported at 1.74. This means that average days to
sell inventory is at 210. The annual average days from 2011 to 2015 show an
improving downward trend.
Solvency Ratios on Amgen, IncSolvency Ratios on Amgen, IncSolvency Ratios on Amgen, IncSolvency Ratios on Amgen, Inc.
Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Debt to equity 1.12 1.19 1.45 1.39 1.13
Debt to assets 0.53 0.54 0.59 0.58 0.53
Interest coverage 8.29 6.21 6.15 5.76 7.8
17. Page | 17
Amgen Financial Analysis
The debt to assets ratio as of 12/31/2015 is 53% This means that more
than 50% of the company’s assets were financed with debt. This indicates
financial leverage that on the surface is not as attractive to lenders as a small
ratio would be. This ratio is the same as it was in 2011, with increases each
year until 2015.
The debt to equity measures financial leverage as well. At the end of
2015 is 1.12; 2014 is 1.19; 2013 is 1.45; 2012 is 1.39; 2011 is 1.13. While
these do not reflect low debt levels, it also not too high, given that the company
is investing in other companies as part of its strategy to finance increased
operations and generate more earnings. Amgen Inc’s debt to equity ratio is
higher than industry averages, which is 0.69. They have already proven the
increased revenue which is a greater amount than the interest expense, so
shareholders benefit as more earnings are being shared.
Number of times interest is earned, or interest coverage, is calculated as
8.29 in 2015; 6.21 in 2014; 6.15 in 2013; 5.76 in 2012 and 7.8 in 2011. The
ability to pay its interest payments 8.29 times in 2015 is a good indicator of
solvency, also strengthening the assumptions made regarding the debt to
equity ratio.
Profitability Ratios on Amgen, IncProfitability Ratios on Amgen, IncProfitability Ratios on Amgen, IncProfitability Ratios on Amgen, Inc.
Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Return on SalesReturn on SalesReturn on SalesReturn on Sales
Gross profit margin 79.82% 77.12% 81.61% 80.77% 82.29%
Operating profit margin 40.44% 32.03% 32.25% 33.52% 28.19%
Net profit margin 33.13% 26.69% 27.93% 26.11% 24.08%
Return on InvestmentReturn on InvestmentReturn on InvestmentReturn on Investment
Return on equity (ROE) 24.71% 20.01% 23.00% 22.80% 19.35%
Amgen Inc.'s net profit margin deteriorated from 2013 to 2014 but then
improved from 2014 to 2015 exceeding 2013 level and all previous years.
The exact situation occurs with the return on equity or ROE. The ROE measures
how much profit a company generates with shareholder investment. Amgen’s
ROE in 2015 of 24.71% is 4.77% higher than the ROE of the Pharmaceuticals &
18. Page | 18
Amgen Financial Analysis
Biotechnology Industry Sector. That along with the increase in net margin
shows that Amgen, Inc. can increase shareholder’s prosperity.
Stock Market Ratios on Amgen, Inc.
The earnings per share, or EPS calculation for Amgen, Inc is currently $
9.33. The current market price per share is $ 145.07.
The price-earnings ratio, or P/E ratio, compares the earnings per share of
a company to the market price for a share of the company’s stock. The price
earnings ratio for Amgen, Inc. compared to its competitors is the best way to
determine which stock is a better investment.
Amgen Inc. Allergan Bristol-Myers Johnson&Johnson Merck Pfizer Inc.
P/E: 15.55 19.35 60.35 19.97 38.36 27.50
Benchmark P/E: Pharmaceuticals & Biotechnology Health Care
19.63 20.86
Amgen Inc’s price multiple is lower than the price multiple of benchmark so
analysts could say that Amgen’s stock is relatively undervalued.
Summary of Financial accounting methods
AMGEN utilizes appropriate revenue recognition methods regarding cost
of goods sold, recognizing revenue when the product is sold.
2016 saw an uptick in outlook due to assumptions around the release of
competitors’ biosimilar drugs and patent expirations.
For plant, property and Equipment, AMGEN utilizes a straight-line
depreciation and amortization method and reviews assets for impairment
frequently. The pharmaceutical industry utilizes patents and trademarks among
other intangible assets and thus reviews for impairment as the industry
fluctuates.
With the sale of an asset in 2016, AMGEN booked a Loss for the variance
to account for it separate from sales and general operating expenses.
Inventories are stated at the lower of cost or market and are utilized in a
manner that approximates the first-in, first-out method for usage.
AMGEN utilizes accruals to account for deferred revenue and expenses,
aggregating these accounts to show a high level roll up.
19. Page | 19
Amgen Financial Analysis
“Sales of Amgen's products are recognized when shipped and title and
risk of loss have passed. Product sales are recorded net of accruals for
estimated rebates, wholesaler chargebacks, discounts, and other deductions
(collectively "sales deductions") and returns. Taxes collected from customers
and remitted to government authorities related to the sales of Amgen's
products, primarily in Europe, are excluded from revenues.”
Financial Analyst Recommendations
Consensus Recommendation
Detailed Analyst Recommendation
12-Month Price Target Range
157
Consensus
183
209
145.07145.07145.07145.07
Previous ClosePrevious ClosePrevious ClosePrevious Close
Strong Buy – 4
Buy – 1
Hold – 11
16 Analysts
21. Page | 21
Amgen Financial Analysis
Quarterly Earnings Surprise History
FiscalFiscalFiscalFiscal
QuarterQuarterQuarterQuarter
EndEndEndEnd
DateDateDateDate
ReportedReportedReportedReported
EarningsEarningsEarningsEarnings
PerPerPerPer
Share*Share*Share*Share*
ConsensusConsensusConsensusConsensus
EPS*EPS*EPS*EPS*
ForecastForecastForecastForecast
%%%%
SurpriseSurpriseSurpriseSurprise
Sep2016 10/27/2016 3.02 2.79 8.24
Jun2016 07/27/2016 2.84 2.74 3.65
Mar2016 04/28/2016 2.9 2.56 13.28
Dec2015 01/28/2016 2.61 2.27 14.98
Detailed Estimates
PEG Ratio
Data is provided by Zacks Investment Research
On November 30, 2016 business news writer Robert Ebling reported,
“Analysts are expecting Amgen Inc. (AMGN) to achieve $184.05 Price Target in
next 52-weeks, average price is come up through the consensus of analysts.
High potential price target is set at $209.00 however minimum price target
22. Page | 22
Amgen Financial Analysis
advised by analysts is $157.00. The Median price target for the stock is
measured at $186.00. The current majority consensus among analysts is to
hold on the stocks, with a small percentage stating to buy.
Conclusion and Recommendation
Amgen, Inc is competing well in their market with good sales growth.
They have developed a presence around the world in both manufacturing and in
sales. Their recent restructuring has started to improve cost of sales, and their
acquisitions have placed them in good position to grow in the coming years.
They spend a decent percent of their gross revenue on R&D each year to remain
competitive for the long term. Net profit margins have also increased over the
last few years. In 2011 they started a dividend, and this year it’s now $1.25, or
nearly 3%.
Their debt ratio to asset ratio indicates a reliance on debt to finance,
which can be a turn off to investors. The fears in investors about biotech
companies currently due to worries about government interference with pricing
structures also tends to keep investors in a holding pattern.
Given their very promising cardiovascular, oncologic and migraine
medicines that have been released or are soon to be released, they are
considered one of the top stocks in the S&P 500, and it is a popular biotech
stock to include in investment company’s portfolio. The conclusion is that it is
a good long term investment.
23. Page | 23
Amgen Financial Analysis
References
Accounting MethodsAccounting MethodsAccounting MethodsAccounting Methods
https://www.stockhttps://www.stockhttps://www.stockhttps://www.stock----analysisanalysisanalysisanalysis----on.net/NASDAQ/Company/Amgenon.net/NASDAQ/Company/Amgenon.net/NASDAQ/Company/Amgenon.net/NASDAQ/Company/Amgen----
Inc/Analysis/RevenuInc/Analysis/RevenuInc/Analysis/RevenuInc/Analysis/Revenues#Accountinges#Accountinges#Accountinges#Accounting----PolicyPolicyPolicyPolicy
AMGEN Demographics and HistoryAMGEN Demographics and HistoryAMGEN Demographics and HistoryAMGEN Demographics and History
www.amgen.com
Biotechnology Innovation Organization (BIO)Biotechnology Innovation Organization (BIO)Biotechnology Innovation Organization (BIO)Biotechnology Innovation Organization (BIO)
https://www.bio.org/sites/default/files/Clinical%20Development%20Success%2
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Executive CompensationExecutive CompensationExecutive CompensationExecutive Compensation
http://www1.salary.com/AMGEN-INC-Executive-Salaries.html
CompetitorsCompetitorsCompetitorsCompetitors
http://csimarket.com/stocks/compet_glance.php?code=AMGN
AbbVieAbbVieAbbVieAbbVie
http://www.fiercepharma.com/sales-and-marketing/top-10-rheumatoid-
arthritis-drugs-2013
Johnson and JohnsonJohnson and JohnsonJohnson and JohnsonJohnson and Johnson
http://www.nytimes.com/2002/10/19/business/johnson-johnson-to-pay-
150-million-in-amgen-suit.html
http://www.foxnews.com/story/2005/10/14/jj-sues-amgen-to-protect-
anemia-drug-procrit.html
CelgeneCelgeneCelgeneCelgene
https://www.bloomberg.com/news/articles/2016-08-22/from-nightmare-
drug-to-celgene-blockbuster-thalidomide-is-back
