Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37702

Amgen Inc.

(Exact name of registrant as specified in its charter)



Delaware		95-3540776
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Amgen Center Drive		91320-1799
Thousand Oaks
California
(Address of principal executive offices)		(Zip Code)

(805) 447-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value	AMGN	The NASDAQ Global Select Market
1.250% Senior Notes Due 2022	AMGN22	New York Stock Exchange
2.00% Senior Notes Due 2026	AMGN26	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ☑

As of July 24, 2019, the registrant had 599,701,222 shares of common stock, $0.0001 par value, outstanding.

AMGEN INC.

INDEX



		Page No.
PART I - FINANCIAL INFORMATION		1
Item 1.	FINANCIAL STATEMENTS	1
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME	1
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	2
	CONDENSED CONSOLIDATED BALANCE SHEETS	3
	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	4
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
Item 4.	CONTROLS AND PROCEDURES	42
PART II - OTHER INFORMATION		43
Item 1.	LEGAL PROCEEDINGS	43
Item 1A.	RISK FACTORS	43
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49
Item 6.	EXHIBITS	49
INDEX TO EXHIBITS		50
SIGNATURES		55

PART I — FINANCIAL INFORMATION



Item 1.	FINANCIAL STATEMENTS

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per-share data)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Revenues:
Product sales	$	5,574		$	5,679		$	10,860		$	11,022
Other revenues	297			380			568			591
Total revenues	5,871			6,059			11,428			11,613

Operating expenses:
Cost of sales	1,012			1,024			2,067			1,968
Research and development	924			869			1,803			1,629
Selling, general and administrative	1,260			1,353			2,414			2,480
Other	(3		)	(19		)	(6		)	(22		)
Total operating expenses	3,193			3,227			6,278			6,055

Operating income	2,678			2,832			5,150			5,558

Interest expense, net	332			347			675			685
Interest and other income, net	218			162			403			393

Income before income taxes	2,564			2,647			4,878			5,266

Provision for income taxes	385			351			707			659

Net income	$	2,179		$	2,296		$	4,171		$	4,607

Earnings per share:
Basic	$	3.59		$	3.50		$	6.78		$	6.76
Diluted	$	3.57		$	3.48		$	6.75		$	6.73

Shares used in calculation of earnings per share:
Basic	607			656			615			682
Diluted	610			660			618			685

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net income	$	2,179		$	2,296		$	4,171		$	4,607
Other comprehensive income (loss), net of reclassification adjustments and taxes:
Losses on foreign currency translation	(4		)	(111		)	(17		)	(82		)
(Losses) gains on cash flow hedges	(104		)	223			(59		)	229
Gains (losses) on available-for-sale securities	153			9			374			(334		)
Other	6			—			6			2
Other comprehensive income (loss), net of taxes	51			121			304			(185		)
Comprehensive income	$	2,230		$	2,417		$	4,475		$	4,422

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per-share data)



	June 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,525		$	6,945
Marketable securities	16,233			22,359
Trade receivables, net	3,801			3,580
Inventories	3,176			2,940
Other current assets	2,011			1,794
Total current assets	30,746			37,618

Property, plant and equipment, net	4,882			4,958
Intangible assets, net	6,813			7,443
Goodwill	14,689			14,699
Other assets	2,243			1,698
Total assets	$	59,373		$	66,416

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,001		$	1,207
Accrued liabilities	6,805			7,862
Current portion of long-term debt	2,816			4,419
Total current liabilities	10,622			13,488

Long-term debt	27,798			29,510
Long-term deferred tax liabilities	763			864
Long-term tax liabilities	7,861			8,770
Other noncurrent liabilities	1,535			1,284

Contingencies and commitments

Stockholders’ equity:
Common stock and additional paid-in capital; $0.0001 par value; 2,750.0 shares authorized; outstanding — 602.1 shares in 2019 and 629.6 shares in 2018	31,313			31,246
Accumulated deficit	(20,054		)	(17,977		)
Accumulated other comprehensive loss	(465		)	(769		)
Total stockholders’ equity	10,794			12,500
Total liabilities and stockholders’ equity	$	59,373		$	66,416

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per-share data)

(Unaudited)



	Number of shares of common stock		Common stock and additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total
Balance as of December 31, 2018	629.6		$	31,246		$	(17,977	)	$	(769	)	$	12,500
Net income	—		—			1,992			—			1,992
Other comprehensive income, net of taxes	—		—			—			253			253
Dividends declared on common stock ($1.45 per share)	—		—			(879		)	—			(879		)
Issuance of common stock in connection with the Company’s equity award programs	0.7		6			—			—			6
Stock-based compensation expense	—		64			—			—			64
Tax impact related to employee stock-based compensation expense	—		(73		)	—			—			(73		)
Repurchases of common stock	(15.9	)	—			(3,031		)	—			(3,031		)
Balance as of March 31, 2019	614.4		31,243			(19,895		)	(516		)	10,832
Net income	—		—			2,179			—			2,179
Other comprehensive income, net of taxes	—		—			—			51			51
Issuance of common stock in connection with the Company’s equity award programs	0.8		23			—			—			23
Stock-based compensation expense	—		97			—			—			97
Tax impact related to employee stock-based compensation expense	—		(50		)	—			—			(50		)
Repurchases of common stock	(13.1	)	—			(2,349		)	—			(2,349		)
Other	—		—			11			—			11
Balance as of June 30, 2019	602.1		$	31,313		$	(20,054	)	$	(465	)	$	10,794

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per-share data)

(Unaudited)



	Number of shares of common stock		Common stock and additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total
Balance as of December 31, 2017	722.2		$	30,992		$	(5,072	)	$	(679	)	$	25,241
Cumulative effect of changes in accounting principles, net of taxes	—		—			38			(9		)	29
Net income	—		—			2,311			—			2,311
Other comprehensive loss, net of taxes	—		—			—			(306		)	(306		)
Dividends declared on common stock ($1.32 per share)	—		—			(877		)	—			(877		)
Issuance of common stock in connection with the Company’s equity award programs	0.6		5			—			—			5
Stock-based compensation expense	—		61			—			—			61
Tax impact related to employee stock-based compensation expense	—		(57		)	—			—			(57		)
Repurchases of common stock	(56.4	)	—			(10,787		)	—			(10,787		)
Balance as of March 31, 2018	666.4		31,001			(14,387		)	(994		)	15,620
Net income	—		—			2,296			—			2,296
Other comprehensive income, net of taxes	—		—			—			121			121
Issuance of common stock in connection with the Company’s equity award programs	0.8		19			—			—			19
Stock-based compensation expense	—		93			—			—			93
Tax impact related to employee stock-based compensation expense	—		(65		)	—			—			(65		)
Repurchases of common stock	(18.2	)	—			(3,190		)	—			(3,190		)
Other	—		—			15			—			15
Balance as of June 30, 2018	649.0		$	31,048		$	(15,266	)	$	(873	)	$	14,909

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Six months ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	4,171		$	4,607
Depreciation, amortization and other	996			955
Deferred income taxes	(70		)	(114		)
Other items, net	32			181
Changes in operating assets and liabilities, net of acquisition:
Trade receivables, net	(228		)	(348		)
Inventories	(118		)	(135		)
Other assets	(158		)	(232		)
Accounts payable	(205		)	(329		)
Accrued income taxes, net	(257		)	(314		)
Long-term tax liabilities	(322		)	134
Other liabilities	(582		)	424
Net cash provided by operating activities	3,259			4,829
Cash flows from investing activities:
Purchases of marketable securities	(7,250		)	(6,733		)
Proceeds from sales of marketable securities	217			23,723
Proceeds from maturities of marketable securities	13,617			993
Cash acquired in acquisition, net of cash paid	—			197
Purchases of property, plant and equipment	(260		)	(342		)
Other	(24		)	6
Net cash provided by investing activities	6,300			17,844
Cash flows from financing activities:
Repayment of debt	(3,650		)	(500		)
Repurchases of common stock	(5,447		)	(13,941		)
Dividends paid	(1,781		)	(1,816		)
Other	(101		)	(85		)
Net cash used in financing activities	(10,979		)	(16,342		)
(Decrease) increase in cash and cash equivalents	(1,420		)	6,331
Cash and cash equivalents at beginning of period	6,945			3,800
Cash and cash equivalents at end of period	$	5,525		$	10,131

See accompanying notes.

AMGEN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

1. Summary of significant accounting policies

Business

Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. We operate in one business segment: human therapeutics.

Basis of presentation

The financial information for the three and six months ended June 30, 2019 and 2018, is unaudited but includes all adjustments (consisting of only normal, recurring adjustments unless otherwise indicated), which Amgen considers necessary for a fair presentation of its condensed consolidated results of operations for those periods. Interim results are not necessarily indicative of results for the full fiscal year.

The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2018, and with our condensed consolidated financial statements and the notes thereto contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2019.

Principles of consolidation

The condensed consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. We do not have any significant interests in any variable interest entities. All material intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Property, plant and equipment, net

Property, plant and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $8.1 billion and $7.8 billion as of June 30, 2019 and December 31, 2018, respectively.

Leases

Adoption of new lease standard

In February 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard that amends the guidance for the accounting and disclosure of leases. This new standard requires that lessees recognize the assets and liabilities that arise from leases on the balance sheet, including leases classified as operating leases, and that they disclose qualitative and quantitative information about leasing arrangements. The FASB subsequently issued additional amendments to address issues arising from the implementation of the new lease standard. We adopted this standard as of January 1, 2019, using the modified-retrospective method. This approach provides a method for recording existing leases at adoption. We used the adoption date as our date of initial application, and thus comparative-period financial information is not presented for periods prior to the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward the historical lease classification.

Adoption of the new standard resulted in total lease liabilities of $510 million and right-of-use (ROU) assets of $439 million as of January 1, 2019. The difference between the initial lease liabilities and the ROU assets is related primarily to previously existing lease liabilities. The standard did not materially impact our Condensed Consolidated Statements of Income and had no impact on our Condensed Consolidated Statements of Cash Flows. Our accounting policies under the new standard are described below. See Note 8, Leases.

Lease recognition

At inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we determine the classification as either operating or financing. Operating leases are included in Other assets, Accrued liabilities and Other noncurrent liabilities in our Condensed Consolidated Balance Sheets.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. Lease recognition occurs at the commencement date, and lease liability amounts are based on the present value of lease payments made during the lease term. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Because most of our leases do not provide information to determine an implicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term.

We have lease agreements with both lease and nonlease components, which are generally accounted for together as a single lease component. In addition, for certain vehicle and equipment leases, we apply a portfolio approach to determine the lease term and discount rate.

Other recent accounting pronouncements

In June 2016, the FASB issued a new accounting standard that amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than by reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning on January 1, 2020, but may be adopted earlier. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. We are currently evaluating the impact that this new standard will have on our condensed consolidated financial statements.

2. Revenues

We operate in one business segment: human therapeutics. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. Revenues by product and by geographic area, based on customers’ locations, are presented below. Rest-of-world (ROW) revenues relate to products that are sold primarily in Europe.

Revenues were as follows (in millions):



	Three months ended June 30,
	2019						2018
	US		ROW		Total		US		ROW		Total
Enbrel^®(etanercept)	$	1,315	$	48	$	1,363	$	1,252	$	50	$	1,302
Neulasta^®(pegfilgrastim)	719		105		824		948		152		1,100
Prolia^®(denosumab)	458		240		698		396		214		610
XGEVA^® (denosumab)	379		120		499		339		113		452
Aranesp^®(darbepoetin alfa)	192		244		436		241		231		472
KYPROLIS^®(carfilzomib)	166		101		267		151		112		263
EPOGEN^®(epoetin alfa)	223		—		223		250		—		250
Sensipar^®/Mimpara^®(cinacalcet)	43		79		122		330		90		420
Other products	647		495		1,142		460		350		810
Total product sales⁽¹⁾	$	4,142	$	1,432	5,574		$	4,367	$	1,312	5,679
Other revenues					297						380
Total revenues					$	5,871					$	6,059



	Six months ended June 30,
	2019						2018
	US		ROW		Total		US		ROW		Total
ENBREL	$	2,421	$	93	$	2,514	$	2,302	$	105	$	2,407
Neulasta^®	1,612		233		1,845		1,957		298		2,255
Prolia^®	848		442		1,290		716		388		1,104
XGEVA^®	735		235		970		671		226		897
Aranesp^®	374		476		850		466		460		926
KYPROLIS^®	320		192		512		288		197		485
EPOGEN^®	442		—		442		494		—		494
Sensipar^®/Mimpara^®	178		157		335		739		178		917
Other products	1,203		899		2,102		881		656		1,537
Total product sales⁽¹⁾	$	8,133	$	2,727	10,860		$	8,514	$	2,508	11,022
Other revenues					568						591
Total revenues					$	11,428					$	11,613

^____________


⁽¹⁾	Hedging gains and losses, which are included in product sales, were not material for the three and six months ended June 30, 2019 and 2018.

3. Income taxes

The effective tax rates for the three and six months ended June 30, 2019, were 15.0% and 14.5%, respectively, compared with 13.3% and 12.5%, respectively, for the corresponding periods of the prior year.

The increase in our effective tax rates for the three and six months ended June 30, 2019, was due primarily to a prior-year tax benefit associated with intercompany sales under U.S. corporate tax reform. The effective tax rates differ from the federal statutory rate primarily as a result of foreign earnings from the Company’s operations conducted in Puerto Rico, a territory of the United States that is treated as a foreign jurisdiction for U.S. tax purposes and that is subject to tax incentive grants through 2035; these earnings are subject to U.S. tax at a reduced 10.5% rate.

The U.S. territory of Puerto Rico imposes an excise tax on the gross intercompany purchase price of goods and services from our manufacturer in Puerto Rico. The rate of 4% is effective through December 31, 2027. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred.

One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely examined by tax authorities in those jurisdictions. Significant disputes may arise with authorities involving issues of the timing and amount of deductions, the use of tax credits and allocations of income and expenses among various tax jurisdictions because of differing interpretations of tax laws and regulations and the interpretations of the relevant facts. As previously disclosed, we received a Revenue Agent Report (RAR) from the Internal Revenue Service (IRS) for the years 2010, 2011 and 2012. The RAR proposes to make significant adjustments that relate primarily to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. In November 2017, we received a modified RAR that revised the IRS’s calculation but continued to propose substantial adjustments. We disagree with the proposed adjustments and are pursuing resolution with the IRS administrative appeals office, which currently has jurisdiction over the matter. If we deem necessary, we will vigorously contest the proposed adjustments through the judicial process. Final resolution of this complex matter is not likely within the next 12 months and could have a material impact on our condensed consolidated financial statements. We believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes, the ultimate resolution of any tax matters may result in payments greater or less than amounts accrued. We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009. In addition, we are currently under examination by a number of other state and foreign tax jurisdictions.

During the three and six months ended June 30, 2019, the gross amounts of our unrecognized tax benefits (UTBs) increased $60 million and $110 million, respectively, as a result of tax positions taken during the current year. Substantially all of the UTBs as of June 30, 2019, if recognized, would affect our effective tax rate.

4. Earnings per share

The computation of basic earnings per share (EPS) is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and dilutive potential common shares, which include primarily shares that may be issued under our stock option, restricted stock and performance unit award programs (collectively, dilutive securities), as determined by using the treasury stock method.

The computations for basic and diluted EPS were as follows (in millions, except per-share data):



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Income (Numerator):
Net income for basic and diluted EPS	$	2,179	$	2,296	$	4,171	$	4,607

Shares (Denominator):