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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, 2022, and our Quarterly Report on Form 10-Q for the period ended March 31, 2023. 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, 2022, and in Part II, Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the period ended March 31, 2023. 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 Prolia, ENBREL, XGEVA, Otezla, Repatha, Aranesp, KYPROLIS, Nplate and EVENITY. We also market a number of other products, including Neulasta, Vectibix, BLINCYTO, MVASI, AMJEVITA/AMGEVITA, TEZSPIRE, Parsabiv, Aimovig, LUMAKRAS/LUMYKRAS, EPOGEN, KANJINTI and TAVNEOS.
Macroeconomic challenges
Uncertain macroeconomic conditions, including higher inflation, rising interest rates and instability in the financial system, geopolitical conflicts and rising healthcare costs continue to pose challenges to our business. As a result of public and private healthcare-provider focus, the industry continues to be subject to cost containment measures and significant pricing pressures, including net price declines. Moreover, legislation enacted to reduce healthcare expenditures, including provisions of the IRA, have affected, and are likely to continue to affect, our business. See our Quarterly Report on Form 10-Q for the period ended March 31, 2023, Part II, Item 1A. Risk Factors—Global economic conditions may negatively affect us and may magnify certain risks that affect our business.
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 period ended March 31, 2023. 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, 2022, and our Quarterly Report on Form 10-Q for the period ended March 31, 2023.
FTC challenges to our proposed acquisition of Horizon Therapeutics plc
In May 2023, the FTC filed a complaint in the U.S. District Court for the Northern District of Illinois (Northern Illinois District Court) seeking a temporary restraining order and preliminary injunction enjoining our proposed acquisition of Horizon, and the parties have since agreed to, and the Northern Illinois District Court has granted, a stipulated temporary restraining order providing that Horizon and Amgen would not close the proposed acquisition until the earlier of October 31, 2023, or the second business day after the Northern Illinois District Court rules on the FTC’s request for a preliminary injunction. The Northern Illinois District Court scheduled an evidentiary hearing on the FTC’s request for a preliminary injunction beginning on September 11, 2023. Attorneys general for California, Minnesota, New York, Illinois, Washington and Wisconsin joined the Northern Illinois District Court lawsuit as co-complainants. On June 22, 2023, the FTC filed an administrative complaint alleging that our proposed acquisition of Horizon would violate federal antitrust laws. See Note 14, Contingencies and commitments, to the condensed consolidated financial statements in this Quarterly Report.
Products/Pipeline
On August 3, 2023, the Company announced positive top-line results from two late stage clinical studies in oncology.
Tarlatamab
The DeLLphi-301 study, evaluating tarlatamab, a first-in-class DLL3 targeting bi-specific T-cell engager (BiTE®) molecule, in patients with relapsed or refractory small cell lung cancer (SCLC) who had failed two or more prior lines of treatment, demonstrated a durable objective response rate (primary endpoint) that substantially exceeds what was previously reported in the Phase 1 study. Safety and tolerability were also more favorable compared to the Phase 1 study, with no new safety signals identified. The Company will discuss these potentially registrational data with regulatory agencies to evaluate tarlatamab as a potential treatment for patients with relapsed or refractory SCLC. Detailed results will be presented at an upcoming medical congress.
LUMAKRAS/LUMYKRAS
The CodeBreaK 300 study, a global Phase 3 study evaluating LUMAKRAS/LUMYKRAS combined with Vectibix in patients with chemorefractory metastatic KRAS G12C mutated colorectal cancer (CRC), met its primary endpoint of progression-free survival (PFS) for both the 240 mg and 960 mg doses of LUMAKRAS/LUMYKRAS. At comparable doses, efficacy results were consistent with what was observed in CodeBreaK 101 with no new safety signals. The Company will discuss these data with regulatory agencies to evaluate LUMAKRAS/LUMYKRAS in combination with Vectibix as a potential treatment for patients with metastatic KRAS G12C mutated CRC. Detailed results will be presented at an upcoming medical congress.
The FDA recently granted Breakthrough Therapy Designation to LUMAKRAS in combination with Vectibix for the treatment of patients with metastatic KRAS G12C mutated CRC, as determined by an FDA approved test, who have received prior chemotherapy, based on data from the previous CodeBreaK 101 study.
Selected financial information
The following is an overview of our results of operations (in millions, except percentages and per-share data):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Product sales | |||||||||||||||||||||||||||||||||||
| U.S. | $ | 4,736 | $ | 4,446 | 7 | % | $ | 8,711 | $ | 8,483 | 3 | % | |||||||||||||||||||||||
| ROW | 1,947 | 1,835 | 6 | % | 3,818 | 3,529 | 8 | % | |||||||||||||||||||||||||||
| Total product sales | 6,683 | 6,281 | 6 | % | 12,529 | 12,012 | 4 | % | |||||||||||||||||||||||||||
| Other revenues | 303 | 313 | (3) | % | 562 | 820 | (31) | % | |||||||||||||||||||||||||||
| Total revenues | $ | 6,986 | $ | 6,594 | 6 | % | $ | 13,091 | $ | 12,832 | 2 | % | |||||||||||||||||||||||
| Operating expenses | $ | 4,302 | $ | 4,418 | (3) | % | $ | 8,486 | $ | 8,156 | 4 | % | |||||||||||||||||||||||
| Operating income | $ | 2,684 | $ | 2,176 | 23 | % | $ | 4,605 | $ | 4,676 | (2) | % | |||||||||||||||||||||||
| Net income | $ | 1,379 | $ | 1,317 | 5 | % | $ | 4,220 | $ | 2,793 | 51 | % | |||||||||||||||||||||||
| Diluted EPS | $ | 2.57 | $ | 2.45 | 5 | % | $ | 7.86 | $ | 5.13 | 53 | % | |||||||||||||||||||||||
| Diluted shares | 537 | 537 | — | % | 537 | 544 | (1) | % |
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 increased for the three months ended June 30, 2023, driven by volume growth for certain brands, including Repatha, Prolia, TEZSPIRE, EVENITY, AMJEVITA/AMGEVITA and BLINCYTO, partially offset by declines in net selling prices of certain products, including Neulasta, MVASI and KANJINTI, higher inventory drawdowns compared to the prior year and unfavorable changes to foreign currency exchange rates.
Total product sales increased for the six months ended June 30, 2023, driven by volume growth for certain brands, including Repatha, EVENITY, TEZSPIRE, Prolia, Nplate, BLINCYTO and AMJEVITA/AMGEVITA, partially offset by declines in net selling prices of certain products, including Neulasta, MVASI and KANJINTI, higher inventory drawdowns compared to the prior year, unfavorable changes to estimated sales deductions and unfavorable changes to foreign currency exchange rates. For the remainder of 2023, we expect that net selling price will continue to decline year-over-year at a portfolio level, driven by increased competition.
As a result of uncertain macroeconomic conditions, we expect volatility around foreign currency exchange rates to continue. The impact of unfavorable 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.
Our product sales have been affected by reduced demand as a result of the COVID-19 pandemic. In general, the dynamics of the pandemic were most significant on our product sales in the early months of the pandemic. Further, the cumulative decrease in diagnoses over the course of the pandemic suppressed the volume of new patients starting treatment, which continues to impact the business. Given the unpredictable nature of the pandemic, there could be future intermittent disruptions in physician–patient interactions, and as a result, we may again experience quarter-to-quarter variability. In addition, other disruptions, including changes in the healthcare ecosystem, uncertain macroeconomic conditions and geopolitical conflicts, have the potential to introduce variability into product sales. For example, growth in numbers of Medicaid enrollees and uninsured individuals, provisions of the IRA and actions by governments and other entities to curb high inflation may have a negative impact on product sales. See Part II, Item 1A. Risk Factors, of this Quarterly Report.
Other revenues decreased for the three and six months ended June 30, 2023, due to lower revenue from our COVID-19 manufacturing collaboration.
Operating expenses decreased for the three months ended June 30, 2023, driven by a loss on a nonstrategic divestiture in the prior period, partially offset by higher Cost of sales, higher R&D spend and an impairment charge associated with an IPR&D asset. Operating expenses increased for the six months ended June 30, 2023, driven by higher Cost of sales, expenses related to our restructuring plan, higher R&D spend and an impairment charge associated with an IPR&D asset, partially offset by a loss on a nonstrategic divestiture in the prior period. See Note 2, Restructuring, and Note 3, Acquisitions and divestitures, to the condensed consolidated financial statements.
Results of operations
Product sales
Worldwide product sales were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Prolia | $ | 1,028 | $ | 922 | 11 | % | $ | 1,955 | 1,774 | 10 | % | ||||||||||||||||||||||||
| ENBREL | 1,068 | 1,051 | 2 | % | 1,647 | 1,913 | (14) | % | |||||||||||||||||||||||||||
| XGEVA | 530 | 533 | (1) | % | 1,066 | 1,035 | 3 | % | |||||||||||||||||||||||||||
| Otezla | 600 | 594 | 1 | % | 992 | 1,045 | (5) | % | |||||||||||||||||||||||||||
| Repatha | 424 | 325 | 30 | % | 812 | 654 | 24 | % | |||||||||||||||||||||||||||
| Aranesp | 365 | 357 | 2 | % | 720 | 715 | 1 | % | |||||||||||||||||||||||||||
| KYPROLIS | 346 | 317 | 9 | % | 704 | 604 | 17 | % | |||||||||||||||||||||||||||
| Nplate | 310 | 284 | 9 | % | 672 | 550 | 22 | % | |||||||||||||||||||||||||||
| EVENITY | 281 | 191 | 47 | % | 535 | 361 | 48 | % | |||||||||||||||||||||||||||
| Other products(1) | 1,731 | 1,707 | 1 | % | 3,426 | 3,361 | 2 | % | |||||||||||||||||||||||||||
| Total product sales | $ | 6,683 | $ | 6,281 | 6 | % | $ | 12,529 | $ | 12,012 | 4 | % |
(1) Consists of product sales of our non-principal products, as well as our Bergamo and Gensenta subsidiaries.
Future sales of our products 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, 2022: (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 Report on Form 10-Q for the period ended March 31, 2023: (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.
Prolia
Total Prolia sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Prolia — U.S. | $ | 691 | $ | 611 | 13 | % | $ | 1,314 | $ | 1,193 | 10 | % | |||||||||||||||||||||||
| Prolia — ROW | 337 | 311 | 8 | % | 641 | 581 | 10 | % | |||||||||||||||||||||||||||
| Total Prolia | $ | 1,028 | $ | 922 | 11 | % | $ | 1,955 | $ | 1,774 | 10 | % |
The increase in global Prolia sales for the three and six months ended June 30, 2023, was driven by volume growth. For a discussion of litigation related to Prolia, see Note 14, Contingencies and commitments, to the condensed consolidated financial statements in this Quarterly Report.
ENBREL
Total ENBREL sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| ENBREL — U.S. | $ | 1,055 | $ | 1,036 | 2 | % | $ | 1,619 | $ | 1,879 | (14) | % | |||||||||||||||||||||||
| ENBREL — Canada | 13 | 15 | (13) | % | 28 | 34 | (18) | % | |||||||||||||||||||||||||||
| Total ENBREL | $ | 1,068 | $ | 1,051 | 2 | % | $ | 1,647 | $ | 1,913 | (14) | % |
The increase in ENBREL sales for the three months ended June 30, 2023, was driven by favorable changes to estimated sales deductions and higher net selling price, partially offset by lower inventory.
The decrease in ENBREL sales for the six months ended June 30, 2023, was driven by lower inventory, unfavorable changes to estimated sales deductions and lower net selling price.
For the remainder of 2023, we expect improved payer coverage will lead to continued growth in new patients that supports volume, and declining net selling price.
XGEVA
Total XGEVA sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| XGEVA — U.S. | $ | 387 | $ | 391 | (1) | % | $ | 771 | $ | 759 | 2 | % | |||||||||||||||||||||||
| XGEVA — ROW | 143 | 142 | 1 | % | 295 | 276 | 7 | % | |||||||||||||||||||||||||||
| Total XGEVA | $ | 530 | $ | 533 | (1) | % | $ | 1,066 | $ | 1,035 | 3 | % |
The decrease in global XGEVA sales for the three months ended June 30, 2023, was primarily driven by unfavorable changes to estimated sales deductions, lower inventory and unfavorable changes to foreign currency exchange rates, partially offset by higher net selling price.
The increase in global XGEVA sales for the six months ended June 30, 2023, was driven by higher net selling price and volume growth, partially offset by unfavorable changes to estimated sales deductions and foreign currency exchange rates.
For a discussion of litigation related to XGEVA, see Note 14, Contingencies and commitments, to the condensed consolidated financial statements in this Quarterly Report.
Otezla
Total Otezla sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Otezla — U.S. | $ | 495 | $ | 487 | 2 | % | $ | 789 | $ | 837 | (6) | % | |||||||||||||||||||||||
| Otezla — ROW | 105 | 107 | (2) | % | 203 | 208 | (2) | % | |||||||||||||||||||||||||||
| Total Otezla | $ | 600 | $ | 594 | 1 | % | $ | 992 | $ | 1,045 | (5) | % |
The increase in global Otezla sales for the three months ended June 30, 2023, was driven by volume growth.
The decrease in global Otezla sales for the six months ended June 30, 2023, was driven by lower inventory and net selling price and unfavorable changes to foreign currency exchange rates, partially offset by volume growth.
For the remainder of 2023, we expect new patient demand to continue to be impacted by free drug programs from newly launched competition.
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, 2022; and Part I—Note 14, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2023.
Repatha
Total Repatha sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Repatha — U.S. | $ | 212 | $ | 154 | 38 | % | $ | 409 | $ | 319 | 28 | % | |||||||||||||||||||||||
| Repatha — ROW | 212 | 171 | 24 | % | 403 | 335 | 20 | % | |||||||||||||||||||||||||||
| Total Repatha | $ | 424 | $ | 325 | 30 | % | $ | 812 | $ | 654 | 24 | % |
The increase in global Repatha sales for the three and six months ended June 30, 2023, was primarily driven by volume growth, partially offset by lower net selling price.
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, 2022; Part I—Note 14, Contingencies and commitments, to the condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the period ended March 31, 2023; and Note 14, Contingencies and commitments, to the condensed consolidated financial statements in this Quarterly Report.
Aranesp
Total Aranesp sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Aranesp — U.S. | $ | 123 | $ | 132 | (7) | % | $ | 238 | $ | 269 | (12) | % | |||||||||||||||||||||||
| Aranesp — ROW | 242 | 225 | 8 | % | 482 | 446 | 8 | % | |||||||||||||||||||||||||||
| Total Aranesp | $ | 365 | $ | 357 | 2 | % | $ | 720 | $ | 715 | 1 | % |
The increase in global Aranesp sales for the three months ended June 30, 2023, was driven by volume growth and favorable changes to estimated sales deductions, partially offset by unfavorable changes to foreign currency exchange rates and lower net selling price.
The increase in global Aranesp sales for the six months ended June 30, 2023, was driven by volume growth, partially offset by unfavorable changes to foreign currency exchange rates and lower net selling price.
ROW Aranesp sales for the three and six months ended June 30, 2023, were favorably impacted by the timing of orders in certain markets outside the United States. U.S. Aranesp sales for the three and six months ended June 30, 2023, decreased due to lower unit demand as a result of independent and medium-sized dialysis organizations transitioning from Aranesp to EPOGEN. We expect Aranesp to continue to face competition from EPOGEN and its biosimilars, which will impact volume and net selling price in the future.
KYPROLIS
Total KYPROLIS sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| KYPROLIS — U.S. | $ | 234 | $ | 213 | 10 | % | $ | 468 | $ | 409 | 14 | % | |||||||||||||||||||||||
| KYPROLIS — ROW | 112 | 104 | 8 | % | 236 | 195 | 21 | % | |||||||||||||||||||||||||||
| Total KYPROLIS | $ | 346 | $ | 317 | 9 | % | $ | 704 | $ | 604 | 17 | % |
The increase in global KYPROLIS sales for the three months ended June 30, 2023, was driven by volume growth, partially offset by lower net selling price.
The increase in global KYPROLIS sales for the six months ended June 30, 2023, was driven by volume growth.
Nplate
Total Nplate sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Nplate — U.S. | $ | 176 | $ | 156 | 13 | % | $ | 422 | $ | 312 | 35 | % | |||||||||||||||||||||||
| Nplate — ROW | 134 | 128 | 5 | % | 250 | 238 | 5 | % | |||||||||||||||||||||||||||
| Total Nplate | $ | 310 | $ | 284 | 9 | % | $ | 672 | $ | 550 | 22 | % |
The increase in global Nplate sales for the three months ended June 30, 2023, was driven by volume growth, partially offset by unfavorable changes to foreign currency exchange rates.
The increase in global Nplate sales for the six months ended June 30, 2023, was driven by volume growth, partially offset by unfavorable changes to estimated sales deductions and foreign currency exchange rates. Nplate sales for the six months ended June 30, 2023, included an $82 million order from the U.S. government.
EVENITY
Total EVENITY sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| EVENITY — U.S. | $ | 192 | $ | 130 | 48 | % | $ | 356 | $ | 240 | 48 | % | |||||||||||||||||||||||
| EVENITY — ROW | 89 | 61 | 46 | % | 179 | 121 | 48 | % | |||||||||||||||||||||||||||
| Total EVENITY | $ | 281 | $ | 191 | 47 | % | $ | 535 | $ | 361 | 48 | % |
The increase in global EVENITY sales for the three and six months ended June 30, 2023, was primarily driven by volume growth across our markets.
Other products
Other product sales by geographic region were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Neulasta — U.S. | $ | 199 | $ | 263 | (24) | % | $ | 410 | $ | 567 | (28) | % | |||||||||||||||||||||||
| Neulasta — ROW | 37 | 47 | (21) | % | 75 | 91 | (18) | % | |||||||||||||||||||||||||||
| Vectibix — U.S. | 118 | 96 | 23 | % | 229 | 181 | 27 | % | |||||||||||||||||||||||||||
| Vectibix — ROW | 130 | 111 | 17 | % | 252 | 227 | 11 | % | |||||||||||||||||||||||||||
| BLINCYTO — U.S. | 145 | 77 | 88 | % | 271 | 156 | 74 | % | |||||||||||||||||||||||||||
| BLINCYTO — ROW | 61 | 62 | (2) | % | 129 | 121 | 7 | % | |||||||||||||||||||||||||||
| MVASI — U.S. | 123 | 161 | (24) | % | 244 | 329 | (26) | % | |||||||||||||||||||||||||||
| MVASI — ROW | 74 | 82 | (10) | % | 155 | 158 | (2) | % | |||||||||||||||||||||||||||
| AMJEVITA — U.S. | 19 | — | NM | 70 | — | NM | |||||||||||||||||||||||||||||
| AMGEVITA — ROW | 131 | 116 | 13 | % | 244 | 224 | 9 | % | |||||||||||||||||||||||||||
| TEZSPIRE — U.S. | 133 | 29 | * | 229 | 36 | * | |||||||||||||||||||||||||||||
| Parsabiv — U.S. | 54 | 71 | (24) | % | 112 | 128 | (13) | % | |||||||||||||||||||||||||||
| Parsabiv — ROW | 33 | 32 | 3 | % | 66 | 61 | 8 | % | |||||||||||||||||||||||||||
| Aimovig — U.S. | 78 | 88 | (11) | % | 142 | 186 | (24) | % | |||||||||||||||||||||||||||
| Aimovig — ROW | 4 | 4 | — | % | 9 | 7 | 29 | % | |||||||||||||||||||||||||||
| LUMAKRAS — U.S. | 50 | 51 | (2) | % | 98 | 99 | (1) | % | |||||||||||||||||||||||||||
| LUMYKRAS — ROW | 27 | 26 | 4 | % | 53 | 40 | 33 | % | |||||||||||||||||||||||||||
| EPOGEN — U.S. | 61 | 136 | (55) | % | 121 | 256 | (53) | % | |||||||||||||||||||||||||||
| KANJINTI — U.S. | 38 | 69 | (45) | % | 71 | 149 | (52) | % | |||||||||||||||||||||||||||
| KANJINTI — ROW | 12 | 16 | (25) | % | 26 | 32 | (19) | % | |||||||||||||||||||||||||||
| TAVNEOS — U.S. | 29 | — | NM | 52 | — | NM | |||||||||||||||||||||||||||||
| TAVNEOS — ROW | 1 | — | NM | 1 | — | NM | |||||||||||||||||||||||||||||
| Other — U.S.(1) | 124 | 95 | 31 | % | 276 | 179 | 54 | % | |||||||||||||||||||||||||||
| Other — ROW(1) | 50 | 75 | (33) | % | 91 | 134 | (32) | % | |||||||||||||||||||||||||||
| Total other products | $ | 1,731 | $ | 1,707 | 1 | % | $ | 3,426 | $ | 3,361 | 2 | % | |||||||||||||||||||||||
| Total U.S. — other products | $ | 1,171 | $ | 1,136 | 3 | % | $ | 2,325 | $ | 2,266 | 3 | % | |||||||||||||||||||||||
| Total ROW — other products | 560 | 571 | (2) | % | 1,101 | 1,095 | 1 | % | |||||||||||||||||||||||||||
| Total other products | $ | 1,731 | $ | 1,707 | 1 | % | $ | 3,426 | $ | 3,361 | 2 | % |
NM = not meaningful
- Change in excess of 100%
(1) Consists of AVSOLA, Corlanor, RIABNI, NEUPOGEN, IMLYGIC, Sensipar/Mimpara and BEKEMV as well as sales by our Bergamo and Gensenta subsidiaries.
Operating expenses
Operating expenses were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Cost of sales | $ | 1,813 | $ | 1,510 | 20 | % | $ | 3,533 | $ | 3,071 | 15 | % | |||||||||||||||||||||||
| % of product sales | 27.1 | % | 24.0 | % | 28.2 | % | 25.6 | % | |||||||||||||||||||||||||||
| % of total revenues | 26.0 | % | 22.9 | % | 27.0 | % | 23.9 | % | |||||||||||||||||||||||||||
| Research and development | $ | 1,113 | $ | 1,039 | 7 | % | $ | 2,171 | $ | 1,998 | 9 | % | |||||||||||||||||||||||
| % of product sales | 16.7 | % | 16.5 | % | 17.3 | % | 16.6 | % | |||||||||||||||||||||||||||
| % of total revenues | 15.9 | % | 15.8 | % | 16.6 | % | 15.6 | % | |||||||||||||||||||||||||||
| Selling, general and administrative | $ | 1,294 | $ | 1,327 | (2) | % | $ | 2,552 | $ | 2,555 | — | % | |||||||||||||||||||||||
| % of product sales | 19.4 | % | 21.1 | % | 20.4 | % | 21.3 | % | |||||||||||||||||||||||||||
| % of total revenues | 18.5 | % | 20.1 | % | 19.5 | % | 19.9 | % | |||||||||||||||||||||||||||
| Other | $ | 82 | $ | 542 | (85) | % | $ | 230 | $ | 532 | (57) | % | |||||||||||||||||||||||
| Total operating expenses | $ | 4,302 | $ | 4,418 | (3) | % | $ | 8,486 | $ | 8,156 | 4 | % |
Cost of sales
Cost of sales increased to 26.0% and 27.0% of total revenues for the three and six months ended June 30, 2023, respectively, primarily driven by higher profit share expenses, higher amortization expense from acquisition-related assets and changes in our product mix.
Research and development
The increase in R&D expense for the three months ended June 30, 2023, was driven by higher spend in late-stage development and marketed product support.
The increase in R&D expense for the six months ended June 30, 2023, was driven by higher spend in late-stage development, marketed product support, and research and early pipeline.
Selling, general and administrative
The decrease in SG&A expense for the three months ended June 30, 2023, was primarily driven by lower marketed product support, partially offset by higher acquisition-related expenses.
SG&A expense for the six months ended June 30, 2023, remained relatively unchanged, as lower marketed product support was offset by higher general and administrative expenses, including acquisition-related expenses.
Other
Other operating expenses for the three and six months ended June 30, 2023, consisted primarily of expenses related to our restructuring plan and an impairment charge associated with an IPR&D asset. See Note 2, Restructuring, to the condensed consolidated financial statements.
Other operating expenses for the three and six months ended June 30, 2022, consisted primarily of a loss on a nonstrategic divestiture. See Note 3, Acquisitions and divestitures, to the condensed consolidated financial statements.
Nonoperating expense/income and income taxes
Nonoperating expense/income and income taxes were as follows (dollar amounts in millions):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Interest expense, net | $ | (752) | $ | (328) | $ | (1,295) | $ | (623) | |||||||||||||||
| Other (expense) income, net | $ | (318) | $ | (317) | $ | 1,746 | $ | (847) | |||||||||||||||
| Provision for income taxes | $ | 235 | $ | 214 | $ | 836 | $ | 413 | |||||||||||||||
| Effective tax rate | 14.6 | % | 14.0 | % | 16.5 | % | 12.9 | % |
Interest expense, net
The increase in Interest expense, net, for the three and six months ended June 30, 2023, was primarily due to higher overall debt outstanding and higher interest rates on debt for which we effectively pay a variable rate of interest through the use of interest rate swaps.
Other (expense) income, net
During the first quarter of 2023, we changed the method of accounting for our investment in BeiGene from the equity method to recording the investment at fair value, with changes in fair value recognized in earnings. See Note 7, Investments, to the condensed consolidated financial statements.
Other (expense) income, net, for the three months ended June 30, 2023, was relatively unchanged compared with the prior period. The losses recorded in the current period exceeded the losses recorded in the prior period for BeiGene and other strategic equity investments and were substantially offset by increased interest income due to the higher cash balance and higher interest rates.
The change in Other (expense) income, net, for the six months ended June 30, 2023, was primarily due to the net gain recognized in the current year period on our investment in BeiGene, the increase in interest income due to the higher cash balance and higher interest rates and the impact of higher losses on our other strategic equity investments recognized in the prior year.
Income taxes
The increase in our effective tax rate for the three months ended June 30, 2023, was primarily due to the new Puerto Rico income tax beginning in 2023, partially offset by the current period change in the fair value of our equity investments and net favorable items. The increase in our effective tax rate for the six months ended June 30, 2023, was primarily due to the new Puerto Rico income tax beginning in 2023, current year change in the fair value of our equity investments and an increase in interest expense on tax reserves, partially offset by net favorable items.
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. Some individual countries, including those in the EU, have begun to implement the global minimum tax agreement with effective dates as early as 2024. If enacted, either by all OECD participants or unilaterally by individual countries, this agreement could result in a tax increase that could affect our U.S. and foreign tax liabilities.
The U.S. Treasury released final foreign tax credit regulations in December 2021 that eliminated U.S. creditability of the Puerto Rico excise tax beginning in 2023. In response, on June 30, 2022, the U.S. territory of Puerto Rico enacted Act 52-2022, which provides for an alternative income tax rate on industrial development income that the U.S. Treasury confirmed will be creditable under federal law. As part of this new law, eligible businesses will 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 income tax, our current tax grant with the Puerto Rico government was amended in December 2022. We qualified for this alternative income tax beginning on January 1, 2023, and our tax expense increased. See Note 5, Income taxes, to the condensed consolidated financial statements.
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. The two cases were consolidated in the U.S. Tax Court on December 19, 2022. On February 10, 2023, the U.S. Tax Court entered an order setting a trial date of November 4, 2024.
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 are under examination by a number of state and foreign tax jurisdictions.
Final resolution of these complex matters is not likely within the next 12 months. We continue to 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 our Annual Report on Form 10-K for the year ended December 31, 2022, Part I, Item 1A, Risk Factors—The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability, and Note 5, Income taxes, to the condensed consolidated financial statements in this filing for further discussion.
Financial condition, liquidity and capital resources
Selected financial data were as follows (in millions):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Cash, cash equivalents and marketable securities | $ | 34,248 | $ | 9,305 | |||||||
| Total assets | $ | 90,269 | $ | 65,121 | |||||||
| Current portion of long-term debt | $ | 2,167 | $ | 1,591 | |||||||
| Long-term debt | $ | 59,377 | $ | 37,354 | |||||||
| Stockholders’ equity | $ | 6,781 | $ | 3,661 |
Cash, cash equivalents and marketable securities
Our balance of cash, cash equivalents and marketable securities was $34.2 billion as of June 30, 2023, of which $27.8 billion is anticipated to be used for the proposed acquisition of Horizon. See Note 3, Acquisitions and divestitures, to the condensed consolidated financial statements. 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 (including investments that expand our portfolio of products in areas of therapeutic interest), capital expenditures, repayment of debt, payment of dividends and stock repurchases.
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 in applicable tax laws or corporate laws, changes in 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 March 2023 and December 2022, our Board of Directors declared quarterly cash dividends of $2.13 per share of common stock, which were paid in June 2023 and March 2023, respectively, and was an increase of 10% over the quarterly cash dividends paid each quarter in 2022. In August 2023, our Board of Directors declared a quarterly cash dividend of $2.13 per share of common stock that will be paid in September 2023.
During the six months ended June 30, 2023, we did not repurchase any of our common stock. As of June 30, 2023, $7.0 billion of authorization remained available under our stock repurchase program.
As a result of stock repurchases and quarterly dividend payments, we have an accumulated deficit as of June 30, 2023 and December 31, 2022. 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 Quarterly Report on 10-Q for the period ended March 31, 2023, Part II, Item 1A. Risk Factors—Global economic conditions may negatively affect us and may magnify certain risks that affect our business.
Financing arrangements
In February 2023, we filed a shelf registration statement with the SEC that allows us to issue unspecified amounts of debt securities; common stock; preferred stock; warrants to purchase debt securities, common stock, preferred stock or depositary shares; rights to purchase common stock or preferred stock; securities purchase contracts; securities purchase units; and depositary shares. Under this shelf registration statement, all of the securities available for issuance may be offered from time to time, with terms to be determined at the time of issuance. This shelf registration statement expires in February 2026.
During the three months ended March 31, 2023, in connection with the proposed acquisition of Horizon, we issued $24.0 billion of debt composed of eight series of notes. If the proposed acquisition of Horizon does not occur by a specified date or at all, we will be required to redeem all but one of the series of notes at a price equal to 101% of the principal amount of the notes plus accrued and unpaid interest. In connection with the issue of these notes, we elected to terminate all remaining commitments under the bridge credit agreement we entered into in December 2022. See Note 10, Financing arrangements, to the condensed consolidated financial statements.
During the three months ended March 31, 2023, we amended and restated our syndicated, unsecured, revolving credit agreement, under which we may borrow up to $4.0 billion (increased from $2.5 billion prior to the amendment) for general corporate purposes, including as a liquidity backstop for our commercial paper program. The commitments under the revolving credit agreement may be increased by up to $1.25 billion with the agreement of the banks (increased from $750 million prior to the amendment). Each bank that is a party to the agreement has an initial commitment term of five years. This term may be extended for up to two additional one-year periods with the agreement of the banks. Annual commitment fees for this agreement are 0.09% of the unused portion of the facility based on our current credit rating. Generally, we would be charged interest for any amounts borrowed under this facility, based on our current credit rating, at (i) SOFR plus 1.01% or (ii) the highest of (A) the administrative agent bank base commercial lending rate, (B) the overnight federal funds rate plus 0.50% or (C) one-month SOFR plus 1.1%. As of June 30, 2023 and December 31, 2022, no amounts were outstanding under this facility.
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 June 30, 2023.
Cash flows
Our summarized cash flow activity was as follows (in millions):
| Six months ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net cash provided by operating activities | $ | 5,173 | $ | 4,094 | |||||||
| Net cash provided by (used in) investing activities | $ | 1,147 | $ | (2,304) | |||||||
| Net cash provided by (used in) financing activities | $ | 20,299 | $ | (4,576) |
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 six months ended June 30, 2023, increased due to timing of payments to tax authorities and other working capital items, partially offset by lower net income after adjustments for noncash items.
Investing
Cash provided by investing activities during the six months ended June 30, 2023, was primarily due to net cash inflows from sales and maturities of marketable securities of $1.7 billion, partially offset by capital expenditures of $615 million, including construction costs of new plants in North Carolina and Ohio. Cash used in investing activities during the six months ended June 30, 2022, was primarily due to net cash outflows from purchases of marketable securities, net of maturities, of $1.9 billion and capital expenditures of $436 million. We currently estimate 2023 spending on capital projects to be approximately $925 million.
Financing
Cash provided by financing activities during the six months ended June 30, 2023, was primarily due to proceeds from the issuance of debt of $23.8 billion, partially offset by the payment of dividends of $2.3 billion as well as the repayment and extinguishment of debt of $1.1 billion. Cash used in financing activities during the six months ended June 30, 2022, was primarily due to payments to repurchase our common stock of $6.4 billion, including amounts paid under our ASR agreements, and the payment of dividends of $2.1 billion, partially offset by proceeds from the issuance of debt of $4.0 billion. See Note 10, Financing arrangements, and Note 11, 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, 2022.
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