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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is intended to assist the reader in understanding Amgen’s business. MD&A is provided as a supplement to and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022. Our results of operations discussed in MD&A are presented in conformity with GAAP. Amgen operates in one business segment: human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.
Forward-looking statements
This report and other documents we file with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases, written statements or our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such words as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume” and “continue” as well as variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Item 1A. Risk Factors in Part II herein and in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, Item 1A. Risk Factors of our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements. Reference is made in particular to forward-looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources, trends, planned dividends, stock repurchases, collaborations and effects of pandemics. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.
Overview
Amgen is a biotechnology company committed to unlocking the potential of biology for patients suffering from serious illnesses. A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.
Our principal products are ENBREL, Prolia, Otezla, XGEVA, Aranesp, Repatha, KYPROLIS, Neulasta and Nplate. We also market a number of other products, including MVASI, Vectibix, EVENITY, BLINCYTO, EPOGEN, AMGEVITA, Aimovig, Parsabiv, KANJINTI, LUMAKRAS/LUMYKRAS, NEUPOGEN, TEZSPIRE and Sensipar/Mimpara.
COVID-19 pandemic
Since the onset of the pandemic in 2020, we have been closely monitoring the pandemic’s effects on our global operations. We continue to take appropriate steps to minimize risks to our employees, a significant number of whom have continued to work virtually. To date, our remote working arrangements have not significantly affected our ability to maintain critical business operations, and we have not experienced disruptions to or shortages of our supply of medicines.
Over the course of the pandemic we have experienced changes in demand for some of our products as fluctuations in the frequency of patient visits to doctors’ offices have impacted the provision of treatments to existing patients and reduced diagnoses in new patients. During 2021, there was a gradual recovery in both patient visits and diagnosis rates that approached pre-pandemic levels. In 2022, the pandemic has continued to impact the healthcare sector and our business, to varying degrees across our markets. To date in 2022, in most of our major markets, with the exception of the Asia Pacific region that has been affected by sustained lockdowns, we have seen greater stability in patient visits and demand patterns even in areas facing surges in the virus. Given the evolution of COVID-19 since its onset, including the proliferation of variants, we cannot predict the impact of future virus surges on our business and will continue to closely monitor the impact of COVID-19 on our business and on the healthcare sector more generally.
With respect to our drug development activities, we continue to work to mitigate COVID-19 effects on future study enrollment in our clinical trials around the world. We remain focused on effectively supporting the delivery of care and investigational drug supply to patients enrolled in our active clinical sites.
Despite the ongoing pandemic and business impacts noted above, we believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditures and debt service requirements as well as to engage in capital-return and other business initiatives that we plan to pursue. For a discussion of risks the COVID-19 pandemic presents to our results, see Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the period ended March 31, 2022.
Significant developments
Following is a summary of selected significant developments affecting our business that occurred since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. For additional developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2021, and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022.
Acquisition
ChemoCentryx, Inc.
- On October 20, 2022, Amgen completed its acquisition of ChemoCentryx for $52.00 per share in cash, for an aggregate merger consideration of approximately $3.7 billion.
Products/Pipeline
Oncology/Hematology
LUMAKRAS/LUMYKRAS
- In September 2022, we announced results from the global Phase 3 CodeBreaK 200 trial, which showed once-daily oral LUMAKRAS/LUMYKRAS led to significantly superior progression-free survival (PFS; primary endpoint) and a significantly higher objective response rate (ORR; a key secondary endpoint) in patients with KRAS G12C-mutated non-small cell lung cancer (NSCLC), compared with intravenous chemotherapy, docetaxel. LUMAKRAS/LUMYKRAS significantly improved PFS compared to docetaxel in heavily pre-treated patients. The proportion of patients with PFS at one year was 25% for LUMAKRAS/LUMYKRAS versus 10% for docetaxel. LUMAKRAS/LUMYKRAS demonstrated a significantly higher ORR than docetaxel with double the response rates in the LUMAKRAS/LUMYKRAS arm (28% versus 13%, respectively).
ABP 959
- In August 2022, we announced positive top-line results from the DAHLIA study, a randomized, double-blind, active-controlled, two-period crossover Phase 3 study evaluating the efficacy and safety of ABP 959, a biosimilar candidate to SOLIRIS® (eculizumab), compared with SOLIRIS® in adult patients with paroxysmal nocturnal hemoglobinuria (PNH). The study met its primary endpoints, demonstrating no clinically meaningful differences between ABP 959 and SOLIRIS®. The safety and immunogenicity profile of ABP 959 was comparable to that of SOLIRIS®.
Selected financial information
The following is an overview of our results of operations (in millions, except percentages and per-share data):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Product sales | |||||||||||||||||||||||||||||||||||
| U.S. | $ | 4,466 | $ | 4,558 | (2) | % | $ | 12,949 | $ | 12,835 | 1 | % | |||||||||||||||||||||||
| ROW | 1,771 | 1,762 | 1 | % | 5,300 | 5,191 | 2 | % | |||||||||||||||||||||||||||
| Total product sales | 6,237 | 6,320 | (1) | % | 18,249 | 18,026 | 1 | % | |||||||||||||||||||||||||||
| Other revenues | 415 | 386 | 8 | % | 1,235 | 1,107 | 12 | % | |||||||||||||||||||||||||||
| Total revenues | $ | 6,652 | $ | 6,706 | (1) | % | $ | 19,484 | $ | 19,133 | 2 | % | |||||||||||||||||||||||
| Operating expenses | $ | 3,992 | $ | 4,328 | (8) | % | $ | 12,148 | $ | 13,798 | (12) | % | |||||||||||||||||||||||
| Operating income | $ | 2,660 | $ | 2,378 | 12 | % | $ | 7,336 | $ | 5,335 | 38 | % | |||||||||||||||||||||||
| Net income | $ | 2,143 | $ | 1,884 | 14 | % | $ | 4,936 | $ | 3,994 | 24 | % | |||||||||||||||||||||||
| Diluted EPS | $ | 3.98 | $ | 3.31 | 20 | % | $ | 9.11 | $ | 6.93 | 31 | % | |||||||||||||||||||||||
| Diluted shares | 538 | 570 | (6) | % | 542 | 576 | (6) | % |
In the following discussion of changes in product sales, any reference to unit demand growth or decline refers to changes in purchases of our products by healthcare providers (such as physicians or their clinics), dialysis centers, hospitals and pharmacies. In addition, any reference to increases or decreases in inventory refers to changes in inventory held by wholesaler customers and end users (such as pharmacies).
Total product sales decreased for the three months ended September 30, 2022, primarily driven by declines in the net selling prices of certain products and unfavorable changes to foreign currency exchange rates, inventory and estimated sales deductions, partially offset by higher unit demand for certain brands, including Repatha, Prolia, EVENITY, Otezla, TEZSPIRE and Vectibix. Total product sales increased for the nine months ended September 30, 2022, primarily driven by higher unit demand for certain brands, including Repatha, Prolia, EVENITY, LUMAKRAS/LUMYKRAS, KYPROLIS and Otezla, partially offset by declines in the net selling prices of certain products and unfavorable changes to foreign currency exchange rates and inventory. For the remainder of 2022, we expect that net selling prices will continue to decline at a portfolio level, driven by increased competition.
Further, we expect international product sales to continue to be unfavorably impacted by foreign currency exchange rates for the remainder of the year. The impact of such changes to foreign currency exchange rates will be partially offset by corresponding decreases in our international operating expenses. While not designed to completely address foreign currency changes, our hedging activities also seek to offset, in part, such effects on our net income by hedging our net foreign currency exposure, primarily with respect to product sales denominated in euros.
Over the course of the COVID-19 pandemic we experienced changes in demand for some of our products as fluctuations in the frequency of patient visits to doctors’ offices have impacted the provision of treatments to existing patients and reduced diagnoses in new patients. In general, declines in the sales of our products that were impacted by the dynamics of the pandemic were most significant in the early months of the pandemic, with product demand beginning to show some recovery in late 2020. During 2021, there was a gradual recovery in both patient visits and diagnosis rates that approached pre-pandemic levels; however, variants (including Omicron) began to impact the healthcare sector and our business in late 2021 and early 2022. This led to diminished capacity in the healthcare sector and reduced working days for our own sales force. As of the second quarter of 2022, we have seen the impact of these variants recede in most markets, with the exception of some markets in the Asia Pacific region, which has allowed us to engage in increased field-facing activities. Provider and patient activity has also increased, leading to improvements in demand for our products to pre-pandemic levels. However, the cumulative decrease in diagnoses over the course of the pandemic has suppressed the volume of new patients starting treatment, which continues to impact our business. Given the unpredictable nature of the pandemic, there could be intermittent disruptions in physician–patient interactions, and as a result, we may experience quarter-to-quarter variability. In addition, other changes in the healthcare ecosystem have the potential to introduce variability into product sales trends. For example, changes in U.S. employment have led to changes to the insured population. Growth in numbers of Medicaid enrollees and uninsured individuals may have a negative impact on product demand and sales. Overall, uncertainty remains around the timing and magnitude of our sales during the COVID-19 pandemic. See Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021, and Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the period ended March 31,
Other revenues increased for the three months ended September 30, 2022, due to higher licensing-related revenues. Other revenues increased for the nine months ended September 30, 2022, due to higher revenue from COVID-19 antibody material.
Operating expenses decreased for the three months ended September 30, 2022, primarily due to a licensing-related upfront payment to KKC in 2021. Operating expenses decreased for the nine months ended September 30, 2022, primarily due to the Acquired IPR&D expense related to the Five Prime acquisition and a licensing-related upfront payment to KKC in 2021, partially offset by a loss on a nonstrategic divestiture in 2022. See Note 2, Acquisitions and divestitures.
Results of operations
Product sales
Worldwide product sales were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| ENBREL | $ | 1,106 | $ | 1,289 | (14) | % | $ | 3,019 | $ | 3,357 | (10) | % | |||||||||||||||||||||||
| Prolia | 862 | 803 | 7 | % | 2,636 | 2,375 | 11 | % | |||||||||||||||||||||||||||
| Otezla | 627 | 609 | 3 | % | 1,672 | 1,619 | 3 | % | |||||||||||||||||||||||||||
| XGEVA | 495 | 517 | (4) | % | 1,530 | 1,473 | 4 | % | |||||||||||||||||||||||||||
| Aranesp | 358 | 396 | (10) | % | 1,073 | 1,118 | (4) | % | |||||||||||||||||||||||||||
| Repatha | 309 | 272 | 14 | % | 963 | 844 | 14 | % | |||||||||||||||||||||||||||
| KYPROLIS | 318 | 293 | 9 | % | 922 | 824 | 12 | % | |||||||||||||||||||||||||||
| Neulasta | 247 | 415 | (40) | % | 905 | 1,383 | (35) | % | |||||||||||||||||||||||||||
| Nplate | 288 | 273 | 5 | % | 838 | 745 | 12 | % | |||||||||||||||||||||||||||
| Other products(1) | 1,627 | 1,453 | 12 | % | 4,691 | 4,288 | 9 | % | |||||||||||||||||||||||||||
| Total product sales | $ | 6,237 | $ | 6,320 | (1) | % | $ | 18,249 | $ | 18,026 | 1 | % |
(1) Consists of product sales of our non-principal products, as well as our Gensenta and Bergamo subsidiaries.
Future sales of our products, including the potential impact of the IRA, will depend in part on the factors discussed below and in the following sections of this report: (i) Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview, and Selected financial information; and (ii) Part II, Item 1A. Risk Factors, and in the following sections of our Annual Report on Form 10-K for the year ended December 31, 2021: (i) Part I, Item 1. Business—Marketing, Distribution and Selected Marketed Products; (ii) Part I, Item 1A. Risk Factors; and (iii) Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview, and Results of operations—Product sales, as well as in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022: (i) Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of operations—Product sales; and (ii) Part II, Item 1A. Risk Factors.
ENBREL
Total ENBREL sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| ENBREL — U.S. | $ | 1,086 | $ | 1,263 | (14) | % | $ | 2,965 | $ | 3,270 | (9) | % | |||||||||||||||||||||||
| ENBREL — Canada | 20 | 26 | (23) | % | 54 | 87 | (38) | % | |||||||||||||||||||||||||||
| Total ENBREL | $ | 1,106 | $ | 1,289 | (14) | % | $ | 3,019 | $ | 3,357 | (10) | % |
The decrease in ENBREL sales for the three months ended September 30, 2022, was driven by lower net selling price, unfavorable changes to estimated sales deductions and lower unit demand.
The decrease in ENBREL sales for the nine months ended September 30, 2022, was driven by unfavorable changes to estimated sales deductions, lower unit demand and lower net selling price.
For the remainder of 2022, we expect that net selling price will continue to decline driven by increased competition.
Prolia
Total Prolia sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Prolia — U.S. | $ | 590 | $ | 530 | 11 | % | $ | 1,783 | $ | 1,569 | 14 | % | |||||||||||||||||||||||
| Prolia — ROW | 272 | 273 | — | % | 853 | 806 | 6 | % | |||||||||||||||||||||||||||
| Total Prolia | $ | 862 | $ | 803 | 7 | % | $ | 2,636 | $ | 2,375 | 11 | % |
The increase in global Prolia sales for the three and nine months ended September 30, 2022, was driven by higher unit demand.
Otezla
Total Otezla sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Otezla — U.S. | $ | 529 | $ | 495 | 7 | % | $ | 1,366 | $ | 1,284 | 6 | % | |||||||||||||||||||||||
| Otezla — ROW | 98 | 114 | (14) | % | 306 | 335 | (9) | % | |||||||||||||||||||||||||||
| Total Otezla | $ | 627 | $ | 609 | 3 | % | $ | 1,672 | $ | 1,619 | 3 | % |
The increase in global Otezla sales for the three months ended September 30, 2022, was driven by higher unit demand, partially offset by unfavorable changes to inventory and foreign currency exchange rates.
The increase in global Otezla sales for the nine months ended September 30, 2022, was driven by higher unit demand, partially offset by lower net selling price.
For a discussion of litigation related to Otezla, see Part IV—Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, and Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended June 30, 2022 and September 30, 2022.
XGEVA
Total XGEVA sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| XGEVA — U.S. | $ | 363 | $ | 372 | (2) | % | $ | 1,122 | $ | 1,061 | 6 | % | |||||||||||||||||||||||
| XGEVA — ROW | 132 | 145 | (9) | % | 408 | 412 | (1) | % | |||||||||||||||||||||||||||
| Total XGEVA | $ | 495 | $ | 517 | (4) | % | $ | 1,530 | $ | 1,473 | 4 | % |
The decrease in global XGEVA sales for the three months ended September 30, 2022, was driven by lower unit demand and unfavorable changes to inventory and foreign currency exchange rates, partially offset by higher net selling price.
The increase in global XGEVA sales for the nine months ended September 30, 2022, was primarily driven by higher net selling price.
Aranesp
Total Aranesp sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Aranesp — U.S. | $ | 128 | $ | 149 | (14) | % | $ | 397 | $ | 409 | (3) | % | |||||||||||||||||||||||
| Aranesp — ROW | 230 | 247 | (7) | % | 676 | 709 | (5) | % | |||||||||||||||||||||||||||
| Total Aranesp | $ | 358 | $ | 396 | (10) | % | $ | 1,073 | $ | 1,118 | (4) | % |
The decrease in global Aranesp sales for the three months ended September 30, 2022, was primarily driven by lower net selling price and unfavorable changes to foreign currency exchange rates.
The decrease in global Aranesp sales for the nine months ended September 30, 2022, was primarily driven by lower net selling price and unfavorable changes to foreign currency exchange rates, partially offset by favorable changes to estimated sales deductions.
Aranesp continues to face competition from a long-acting erythropoiesis-stimulating agent (ESA) and also faces competition from biosimilar versions of EPOGEN, which will continue to impact sales in the future.
Repatha
Total Repatha sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Repatha — U.S. | $ | 142 | $ | 139 | 2 | % | $ | 461 | $ | 421 | 10 | % | |||||||||||||||||||||||
| Repatha — ROW | 167 | 133 | 26 | % | 502 | 423 | 19 | % | |||||||||||||||||||||||||||
| Total Repatha | $ | 309 | $ | 272 | 14 | % | $ | 963 | $ | 844 | 14 | % |
The increase in global Repatha sales for the three and nine months ended September 30, 2022, was driven by higher unit demand, partially offset by lower net selling price and unfavorable changes to foreign currency exchange rates. Higher unit demand benefited from contracting changes to support and expand Medicare Part D and commercial patient access and the inclusion of Repatha on China’s National Reimbursement Drug List as of January 1, 2022, both of which resulted in decreases to the net selling price in 2022.
For a discussion of ongoing litigation related to Repatha, see Part IV—Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, and Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2022, June 30, 2022 and September 30, 2022.
KYPROLIS
Total KYPROLIS sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| KYPROLIS — U.S. | $ | 217 | $ | 198 | 10 | % | $ | 626 | $ | 547 | 14 | % | |||||||||||||||||||||||
| KYPROLIS — ROW | 101 | 95 | 6 | % | 296 | 277 | 7 | % | |||||||||||||||||||||||||||
| Total KYPROLIS | $ | 318 | $ | 293 | 9 | % | $ | 922 | $ | 824 | 12 | % |
The increase in global KYPROLIS sales for the three and nine months ended September 30, 2022, was driven by higher unit demand, partially offset by unfavorable changes to foreign currency exchange rates.
The FDA has reported that it has granted tentative or final approval of ANDAs for generic carfilzomib products filed by a number of companies. The date of approval of those ANDAs for generic carfilzomib products is governed by the Hatch–Waxman Act and any applicable settlement agreements between us and certain companies that seek to develop generic carfilzomib products.
Neulasta
Total Neulasta sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Neulasta — U.S. | $ | 205 | $ | 360 | (43) | % | $ | 772 | $ | 1,215 | (36) | % | |||||||||||||||||||||||
| Neulasta — ROW | 42 | 55 | (24) | % | 133 | 168 | (21) | % | |||||||||||||||||||||||||||
| Total Neulasta | $ | 247 | $ | 415 | (40) | % | $ | 905 | $ | 1,383 | (35) | % |
The decrease in global Neulasta sales for the three and nine months ended September 30, 2022, was primarily driven by lower net selling price and unit demand.
Increased competition as a result of biosimilar versions of Neulasta has had and will continue to have a significant adverse impact on brand sales, including accelerating net price erosion and lower unit demand. We also expect other biosimilar versions, including biosimilars that will use an on-body injector that would compete with our Onpro injector, to be approved in the future.
For a discussion of ongoing patent litigations related to these and other biosimilars, see Part IV—Note 19, Contingencies and commitments, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021, and Part I—Note 13, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2022.
Nplate
Total Nplate sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Nplate — U.S. | $ | 162 | $ | 156 | 4 | % | $ | 474 | $ | 404 | 17 | % | |||||||||||||||||||||||
| Nplate — ROW | 126 | 117 | 8 | % | 364 | 341 | 7 | % | |||||||||||||||||||||||||||
| Total Nplate | $ | 288 | $ | 273 | 5 | % | $ | 838 | $ | 745 | 12 | % |
The increase in global Nplate sales for the three months ended September 30, 2022, was driven by higher unit demand and net selling price, partially offset by unfavorable changes to estimated sales deductions and foreign currency exchange rates.
The increase in global Nplate sales for the nine months ended September 30, 2022, was driven by higher unit demand, higher net selling price and favorable changes to estimated sales deductions, partially offset by unfavorable changes to foreign currency exchange rates.
Other products
Other product sales by geographic region were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| MVASI — U.S. | $ | 139 | $ | 187 | (26) | % | $ | 468 | $ | 617 | (24) | % | |||||||||||||||||||||||
| MVASI — ROW | 70 | 87 | (20) | % | 228 | 245 | (7) | % | |||||||||||||||||||||||||||
| Vectibix — U.S. | 106 | 84 | 26 | % | 287 | 255 | 13 | % | |||||||||||||||||||||||||||
| Vectibix— ROW | 141 | 116 | 22 | % | 368 | 375 | (2) | % | |||||||||||||||||||||||||||
| EVENITY — U.S. | 136 | 94 | 45 | % | 376 | 230 | 63 | % | |||||||||||||||||||||||||||
| EVENITY— ROW | 65 | 55 | 18 | % | 186 | 157 | 18 | % | |||||||||||||||||||||||||||
| BLINCYTO — U.S. | 84 | 74 | 14 | % | 240 | 201 | 19 | % | |||||||||||||||||||||||||||
| BLINCYTO — ROW | 58 | 51 | 14 | % | 179 | 139 | 29 | % | |||||||||||||||||||||||||||
| EPOGEN — U.S. | 136 | 138 | (1) | % | 392 | 393 | — | % | |||||||||||||||||||||||||||
| AMGEVITA — ROW | 117 | 111 | 5 | % | 341 | 324 | 5 | % | |||||||||||||||||||||||||||
| Aimovig — U.S. | 103 | 77 | 34 | % | 289 | 225 | 28 | % | |||||||||||||||||||||||||||
| Aimovig — ROW | 4 | 2 | 100 | % | 11 | 2 | * | ||||||||||||||||||||||||||||
| Parsabiv — U.S. | 61 | 24 | * | 189 | 107 | 77 | % | ||||||||||||||||||||||||||||
| Parsabiv — ROW | 39 | 37 | 5 | % | 100 | 104 | (4) | % | |||||||||||||||||||||||||||
| KANJINTI — U.S. | 58 | 92 | (37) | % | 207 | 354 | (42) | % | |||||||||||||||||||||||||||
| KANJINTI — ROW | 14 | 24 | (42) | % | 46 | 79 | (42) | % | |||||||||||||||||||||||||||
| LUMAKRAS — U.S. | 61 | 33 | 85 | % | 160 | 42 | * | ||||||||||||||||||||||||||||
| LUMYKRAS — ROW | 14 | 3 | * | 54 | 3 | * | |||||||||||||||||||||||||||||
| NEUPOGEN — U.S. | 21 | 32 | (34) | % | 65 | 86 | (24) | % | |||||||||||||||||||||||||||
| NEUPOGEN — ROW | 14 | 20 | (30) | % | 45 | 51 | (12) | % | |||||||||||||||||||||||||||
| TEZSPIRE — U.S. | 55 | — | NM | 91 | — | NM | |||||||||||||||||||||||||||||
| Sensipar — U.S. | 4 | — | NM | 13 | 4 | * | |||||||||||||||||||||||||||||
| Sensipar/Mimpara — ROW | 13 | 19 | (32) | % | 44 | 62 | (29) | % | |||||||||||||||||||||||||||
| Other — U.S.(1) | 80 | 61 | 31 | % | 206 | 141 | 46 | % | |||||||||||||||||||||||||||
| Other — ROW(1) | 34 | 32 | 6 | % | 106 | 92 | 15 | % | |||||||||||||||||||||||||||
| Total other products | $ | 1,627 | $ | 1,453 | 12 | % | $ | 4,691 | $ | 4,288 | 9 | % | |||||||||||||||||||||||
| Total U.S. — other products | $ | 1,044 | $ | 896 | 17 | % | $ | 2,983 | $ | 2,655 | 12 | % | |||||||||||||||||||||||
| Total ROW — other products | 583 | 557 | 5 | % | 1,708 | 1,633 | 5 | % | |||||||||||||||||||||||||||
| Total other products | $ | 1,627 | $ | 1,453 | 12 | % | $ | 4,691 | $ | 4,288 | 9 | % |
NM = not meaningful
- Change in excess of 100%
(1) Consists of Corlanor, AVSOLA, IMLYGIC and RIABNI, as well as sales by our Gensenta and Bergamo subsidiaries.
Operating expenses
Operating expenses were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Cost of sales | $ | 1,588 | $ | 1,609 | (1) | % | $ | 4,659 | $ | 4,736 | (2) | % | |||||||||||||||||||||||
| % of product sales | 25.5 | % | 25.5 | % | 25.5 | % | 26.3 | % | |||||||||||||||||||||||||||
| % of total revenues | 23.9 | % | 24.0 | % | 23.9 | % | 24.8 | % | |||||||||||||||||||||||||||
| Research and development | $ | 1,112 | $ | 1,422 | (22) | % | $ | 3,110 | $ | 3,471 | (10) | % | |||||||||||||||||||||||
| % of product sales | 17.8 | % | 22.5 | % | 17.0 | % | 19.3 | % | |||||||||||||||||||||||||||
| % of total revenues | 16.7 | % | 21.2 | % | 16.0 | % | 18.1 | % | |||||||||||||||||||||||||||
| Acquired in-process research and development | $ | — | $ | — | NM | $ | — | $ | 1,505 | NM | |||||||||||||||||||||||||
| % of product sales | — | % | — | % | — | % | 8.3 | % | |||||||||||||||||||||||||||
| % of total revenues | — | % | — | % | — | % | 7.9 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | $ | 1,287 | $ | 1,305 | (1) | % | $ | 3,842 | $ | 3,943 | (3) | % | |||||||||||||||||||||||
| % of product sales | 20.6 | % | 20.6 | % | 21.1 | % | 21.9 | % | |||||||||||||||||||||||||||
| % of total revenues | 19.3 | % | 19.5 | % | 19.7 | % | 20.6 | % | |||||||||||||||||||||||||||
| Other | $ | 5 | $ | (8) | * | $ | 537 | $ | 143 | * | |||||||||||||||||||||||||
| Total operating expenses | $ | 3,992 | $ | 4,328 | (8) | % | $ | 12,148 | $ | 13,798 | (12) | % |
NM = not meaningful
- Change in excess of 100%
Cost of sales
Cost of sales was essentially flat, at 23.9% of total revenues for the three months ended September 30, 2022, driven by lower costs associated with COVID-19 antibody shipments and lower manufacturing costs, offset by changes in product mix.
Cost of sales decreased to 23.9% of total revenues for the nine months ended September 30, 2022, driven by lower costs associated with COVID-19 antibody shipments, manufacturing costs and amortization expense from acquisition-related assets, partially offset by changes in product mix.
Research and development
The decrease in R&D expense for the three and nine months ended September 30, 2022, was driven by a licensing-related upfront payment to KKC in 2021 and lower marketed product support, partially offset by higher spend in late-stage development and research and early pipeline programs.
Acquired in-process research and development
The decrease in Acquired IPR&D expense for the nine months ended September 30, 2022, was due to the bemarituzumab program, which was acquired as part of the Five Prime acquisition in 2021. See Note 2, Acquisitions and divestitures.
Selling, general and administrative
The decrease in SG&A expense for the three and nine months ended September 30, 2022, was primarily driven by lower marketed product support.
Other
Other operating expenses for the three months ended September 30, 2022, consisted primarily of an impairment-related charge associated with an intangible asset acquired in a business combination. Other operating expenses for the nine months ended September 30, 2022, consisted primarily of a loss on a nonstrategic divestiture. See Note 2, Acquisitions and divestitures.
Other operating expenses for the three months ended September 30, 2021, consisted primarily of changes in the fair values of contingent consideration liabilities. Other operating expenses for the nine months ended September 30, 2021, consisted primarily of expenses related to cost savings initiatives.
Nonoperating expense/income and income taxes
Nonoperating expense/income and income taxes were as follows (dollar amounts in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Interest expense, net | $ | (368) | $ | (296) | $ | (991) | $ | (862) | |||||||||||||||
| Other income (expense), net | $ | 100 | $ | 73 | $ | (747) | $ | 97 | |||||||||||||||
| Provision for income taxes | $ | 249 | $ | 271 | $ | 662 | $ | 576 | |||||||||||||||
| Effective tax rate | 10.4 | % | 12.6 | % | 11.8 | % | 12.6 | % |
Interest expense, net
The increase in Interest expense, net, for the three and nine months ended September 30, 2022, was primarily due to higher overall debt outstanding and higher LIBORs on debt for which we effectively pay a variable rate of interest through the use of interest rate swaps.
Other income (expense), net
The increase in Other income (expense), net, for the three months ended September 30, 2022, was primarily due to the gain recognized on the extinguishment of debt and higher interest income, partially offset by lower current year net gains on our strategic equity investments and higher current year losses in connection with our BeiGene investment.
The decrease in Other income (expense), net, for the nine months ended September 30, 2022, was primarily due to net losses on our strategic equity investments in the current year compared with net gains recognized in the prior year and higher current year net losses in connection with our BeiGene investment, partially offset by the gain recognized on the extinguishment of debt and higher interest income in the current year.
Income taxes
The decrease in our effective tax rate for the three months ended September 30, 2022, was primarily due to the prior year nondeductible IPR&D expense arising from the acquisition of Five Prime and net favorable items, partially offset by a nondeductible loss from a nonstrategic divestiture. The decrease in our effective tax rate for the nine months ended September 30, 2022, was primarily due to the prior year nondeductible IPR&D expense arising from the acquisition of Five Prime, partially offset by current year net unfavorable items compared to last year and a nondeductible loss from a nonstrategic divestiture. See Note 2, Acquisitions and divestitures.
The Administration and Congress continue to discuss changes to existing tax law that could substantially increase the taxes we pay to the U.S. government. Further, the OECD recently reached an agreement to align countries on a minimum corporate tax rate and an expansion of the taxing rights of market countries. If enacted, either by all OECD participants or unilaterally by individual countries, this agreement could result in tax increases in both the United States and foreign jurisdictions. The U.S. Treasury recently released final foreign tax credit regulations that eliminate U.S. creditability of the Puerto Rico Excise Tax beginning in 2023, which would increase our U.S. tax liability. However, the U.S. territory of Puerto Rico recently enacted Act 52-2022, which provides for an alternate fixed tax rate on industrial development income that the U.S. Treasury recently confirmed will be creditable under U.S. law. As part of this new law, eligible businesses would be subject to incremental income and withholding taxes in lieu of payment of the Puerto Rico Excise Tax. In order to qualify for the alternative fixed tax rate, we must amend our current tax grant with the Puerto Rico government by December 31, 2022. Once we qualify for this alternative fixed tax rate, which we expect to occur as of January 1, 2023, our tax expense will increase.
In 2017, we received an RAR and a modified RAR from the IRS for the years 2010–2012, proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2021, we filed a petition in the U.S. Tax Court to contest two duplicate Statutory Notices of Deficiency (Notices) for the years 2010–2012 that we received in May and July 2021, which seek to increase our U.S. taxable income for the years 2010–2012 by an amount that would result in additional federal tax of approximately $3.6 billion plus interest. Any additional tax that could be imposed for the years 2010–2012 would be reduced by up to approximately $900 million of repatriation tax previously accrued on our foreign earnings.
In 2020, we received an RAR and a modified RAR from the IRS for the years 2013–2015, also proposing significant adjustments that primarily relate to the allocation of profits between certain of our entities in the United States and the U.S. territory of Puerto Rico similar to those proposed for the years 2010–2012. We disagreed with the proposed adjustments and calculations and pursued resolution with the IRS appeals office but were unable to reach resolution. In July 2022, we filed a petition in the U.S. Tax Court to contest a Notice for the years 2013–2015 that we previously reported receiving in April 2022 that seeks to increase our U.S. taxable income for the years 2013–2015 by an amount that would result in additional federal tax of approximately $5.1 billion, plus interest. In addition, the Notice asserts penalties of approximately $2.0 billion. Any additional tax that could be imposed for the years 2013–2015 would be reduced by up to approximately $2.2 billion of repatriation tax previously accrued on our foreign earnings.
We firmly believe that the IRS positions set forth in the 2010–2012 and 2013–2015 Notices are without merit. We are contesting the 2010–2012 and 2013–2015 Notices through the judicial process, and we filed a motion to consolidate the two periods into one case in the U.S. Tax Court.
We are currently under examination by the IRS for the years 2016–2018 with respect to issues similar to those for the 2010 through 2015 period. In addition, we have examinations by a number of state and foreign tax jurisdictions.
Final resolution of these complex matters is not likely within the next 12 months. We believe our accrual for income tax liabilities is appropriate based on past experience, interpretations of tax law, application of the tax law to our facts and judgments about potential actions by tax authorities; however, due to the complexity of the provision for income taxes and uncertain resolution of these matters, the ultimate outcome of any tax matters may result in payments substantially greater than amounts accrued and could have a material adverse impact on our condensed consolidated financial statements.
We are no longer subject to U.S. federal income tax examinations for years ended on or before December 31, 2009.
See Part II, Item 1A, Risk Factors—The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability in our Quarterly Report on Form 10-Q for the period ended June 30, 2022*,* and Note 4, Income taxes, to the condensed consolidated financial statements for further discussion.
Financial condition, liquidity and capital resources
Selected financial data were as follows (in millions):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Cash, cash equivalents and marketable securities | $ | 11,478 | $ | 8,037 | |||||||
| Total assets | $ | 63,700 | $ | 61,165 | |||||||
| Current portion of long-term debt | $ | 1,543 | $ | 87 | |||||||
| Long-term debt | $ | 37,161 | $ | 33,222 | |||||||
| Stockholders’ equity | $ | 3,653 | $ | 6,700 |
Cash, cash equivalents and marketable securities
Our balance of cash, cash equivalents and marketable securities was $11.5 billion as of September 30, 2022. The primary objective of our investment portfolio is to maintain safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.
Capital allocation
Consistent with the objective to optimize our capital structure, we deploy our accumulated cash balances in a strategic manner and consider a number of alternatives, including investments in innovation, both internally and externally, strategic transactions (including those that expand our portfolio of products in areas of therapeutic interest), payment of dividends, stock repurchases and repayment of debt.
We intend to continue to invest in our business while returning capital to stockholders through the payment of cash dividends and stock repurchases, thereby reflecting our confidence in the future cash flows of our business and our desire to optimize our cost of capital. The timing and amount of future dividends and stock repurchases will vary based on a number of factors, including future capital requirements for strategic transactions, availability of financing on acceptable terms, debt service requirements, our credit rating, changes to applicable tax laws or corporate laws, changes to our business model and periodic determination by our Board of Directors that cash dividends and/or stock repurchases are in the best interests of stockholders and are in compliance with applicable laws and the Company’s agreements. In addition, the timing and amount of stock repurchases may also be affected by our overall level of cash, stock price and blackout periods, during which we are restricted from repurchasing stock. The manner of stock repurchases may include block purchases, tender offers, ASRs and market transactions.
In August 2022, March 2022 and December 2021, the Board of Directors declared quarterly cash dividends of $1.94 per share of common stock, which were paid in September 2022, June 2022 and March 2022, respectively, an increase of 10% over the quarterly cash dividend paid each quarter in 2021. In October 2022, the Board of Directors declared a quarterly cash dividend of $1.94 per share of common stock, which will be paid in December 2022.
We also returned capital to stockholders through our stock repurchase program. During the nine months ended September 30, 2022, we executed trades to repurchase $6.3 billion of common stock, including $6.0 billion related to our ASR agreements described below. As of September 30, 2022, $4.6 billion of authorization remained available under our stock repurchase program. In October 2022, the Board of Directors increased the amount authorized under our stock repurchase program by an additional $2.4 billion.
In February 2022, we entered into ASR agreements under which we paid an aggregate amount of $6.0 billion to the Dealers and retired an initial 23.3 million shares of common stock. Approximately $0.9 billion in value of stock remained to be delivered by the Dealers upon final settlement. Final settlement under the ASR agreements occurred in September 2022 resulting in an additional 1.5 million shares received from the Dealers. In total, 24.8 million shares of common stock were repurchased under the ASR agreements.
As a result of stock repurchases and quarterly dividend payments, we have an accumulated deficit as of September 30, 2022 and December 31, 2021. Our accumulated deficit is not anticipated to affect our future ability to operate, repurchase stock, pay dividends or repay our debt given our continuing profitability and strong financial position.
We believe that existing funds, cash generated from operations and existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditure and debt service requirements, our plans to pay dividends and repurchase stock and other business initiatives we plan to strategically pursue, including acquisitions and licensing activities. We anticipate that our liquidity needs can be met through a variety of sources, including cash provided by operating activities, sales of marketable securities, borrowings through commercial paper and/or syndicated credit facilities and access to other domestic and foreign debt markets and equity markets. See our Annual Report on Form 10-K for the year ended December 31, 2021, Part I, Item 1A. Risk Factors—Global economic conditions may negatively affect us and may magnify certain risks that affect our business.
Certain of our financing arrangements contain nonfinancial covenants. In addition, our revolving credit agreement includes a financial covenant that requires us to maintain a specified minimum interest coverage ratio of (i) the sum of consolidated net income, interest expense, provision for income taxes, depreciation expense, amortization expense, unusual or nonrecurring charges and other noncash items (consolidated earnings before interest, taxes, depreciation and amortization) to (ii) consolidated interest expense, each as defined and described in the credit agreement. We were in compliance with all applicable covenants under these arrangements as of September 30, 2022.
Cash flows
Our summarized cash flow activity was as follows (in millions):
| Nine months ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash provided by operating activities | $ | 7,072 | $ | 6,453 | |||||||
| Net cash (used in) provided by investing activities | $ | (2,571) | $ | 963 | |||||||
| Net cash used in financing activities | $ | (2,988) | $ | (1,713) |
Operating
Cash provided by operating activities has been and is expected to continue to be our primary recurring source of funds. Cash provided by operating activities during the nine months ended September 30, 2022, increased primarily due to higher net income, after adjustments for noncash items, and the impact of working capital items.
Investing
Cash used in investing activities during the nine months ended September 30, 2022, was primarily due to net cash outflows related to marketable securities activity of $1.9 billion and capital expenditures of $596 million. Cash provided by investing activities during the nine months ended September 30, 2021, was primarily due to net cash inflows related to marketable securities activity of $3.4 billion, partially offset by the acquisition of Five Prime for $1.6 billion, net of cash acquired, and capital expenditures of $593 million. We currently estimate 2022 spending on capital projects to be approximately $950 million.
Financing
Cash used in financing activities during the nine months ended September 30, 2022, was primarily due to payments to repurchase our common stock of $6.4 billion, including amounts paid under the ASR agreements discussed above, the payment of dividends of $3.2 billion and the extinguishment of debt of $297 million, partially offset by proceeds from the issuance of debt of $6.9 billion. Cash used in financing activities during the nine months ended September 30, 2021, was primarily due to payments to repurchase our common stock of $3.5 billion and the payment of dividends of $3.0 billion, partially offset by proceeds from the issuance of debt of $4.9 billion. See Note 9, Financing arrangements, and Note 10, Stockholders’ equity, to the condensed consolidated financial statements for further discussion.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies and estimates is presented in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2021.
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