AMGN Financial Analysis

Analysis Date: 2/5/2025

Business Model

Amgen generates revenue from the sale of a wide range of biopharmaceutical products across various therapeutic areas, including General Medicine, Rare Disease, Inflammation, and Oncology. Revenue is primarily driven by product sales, with some other revenue streams.

Revenue Sources

• Product Sales: Majority of revenue comes from sales of marketed products like Repatha, EVENITY, Prolia, TEZSPIRE, BLINCYTO, Otezla, Enbrel, and Horizon acquired products (TEPEZZA, KRYSTEXXA, UPLIZNA, TAVNEOS).
• Biosimilars: Growing revenue stream from biosimilar products like AMJEVITA/AMGEVITA, MVASI, KANJINTI, AVSOLA, RIABNI, PAVBLU, WEZLANA/WEZENLA, BEKEMV, IMLYGIC.
• Other Revenues: Includes royalties, contract manufacturing, and other sources, although product sales are the primary driver.

Income Statement Analysis

• Total Revenue increased by 11% year-over-year, indicating strong sales performance.
• Cost of Sales remained flat year-over-year.
• Research and Development expenses increased by 12%, reflecting continued investment in pipeline and innovation.
• Selling, General, and Administrative expenses decreased by 17%, suggesting improved efficiency or one-time acquisition related expenses in previous year.
• Operating Income significantly increased by 82%, driven by revenue growth and SG&A expense reduction. This is a strong positive trend.
• Net Income decreased by 18% despite strong operating income growth, primarily due to a significant swing in Other (Expense) Income, Net from income to expense, and increased provision for income taxes.

Balance Sheet Analysis

• Cash and Cash Equivalents increased by 9%, strengthening the company's liquidity position. Pro.
• Inventories decreased significantly by 26%, which could be a positive sign of efficient inventory management or potentially indicate supply chain adjustments. Need further investigation. Potentially Pro.
• Intangible Assets, Net decreased by 15%, likely due to amortization and potentially asset impairments. Con, if impairment driven.
• Long-Term Debt decreased by 10%, indicating deleveraging and improved financial health. Pro.
• Current Portion of Long-Term Debt increased significantly by 146%, which means more debt is maturing in the short-term. Con if not managed well.
• Total Stockholders' Equity decreased slightly by 6%. Con, if due to operational losses (but income statement shows net income).
• Total Assets decreased by 5%, primarily driven by decrease in Intangible assets and Inventories.

Capital Allocation

Amgen's capital allocation strategy includes returning capital to shareholders through dividends and share repurchases, while also reinvesting in the business, particularly in R&D and capital expenditures. Dividend was increased by 6% year-over-year in Q4 2024. Share repurchases were modest in Q4 and FY 2024, but debt reduction was significant at $4.5 billion in 2024. Capital expenditures are projected to increase significantly in 2025 to $2.3 billion, indicating investment in capacity for growth. Management expects to continue increasing dividends. Share repurchases are expected not to exceed $500 million in 2025, prioritizing debt reduction and business investment.

Management Commentary

2024 capped another year of strong execution at Amgen.

Our commercial teams grew the business across our four therapeutic areas and in each of our geographic regions.

We exited the fourth quarter with 14 medicines each annualizing at over $1,000,000,000 and notably several of these will be key drivers of growth through the decade.

We expect sales erosion driven by biosimilar competition for Prolia and XGEVA in 2025.

For 2025, we expect continued declining net selling price for Enbrel.

For 2025, we expect sales erosion driven by biosimilar competition for Prolia.

Overall Sentiment: Positive and confident. Management expresses strong confidence in the company's performance, pipeline, and long-term growth prospects. They highlight strong execution, broad portfolio growth, and significant R&D investment. While acknowledging biosimilar competition and price declines for some established products, the overall tone is optimistic about future performance.

Recommendation

Rating: Hold

Reason for Rating: Hold recommendation based on mixed signals. Strong revenue growth and operating income improvement are positives, along with robust cash flow and deleveraging. However, net income decline due to non-operating factors (equity investment losses) and increased short-term debt obligations raise concerns. Biosimilar competition for key products like Prolia and XGEVA also presents a headwind. The significant increase in capital expenditure for 2025 needs to be monitored for its impact on future growth and profitability. Wait for further clarity on net income trend and impact of increased capital expenditure and biosimilar competition before changing rating.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information from the provided documents and is subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 3:42:41 AM