amgen financial analysis

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Amgen Financial Analysis

Financial Analysis

Presented by:

David Fox

Elizabeth Thompson

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Executive Summary

Amgen Inc. is a biotechnology/pharmaceutical company based in the US

with offices worldwide. After reviewing the company, historical information,

financial statements and industry risks, we would provide moderate reviews for

AMGEN Inc as an investment opportunity that affords an investor safe, steady

returns with possibility of upward growth.

AMGEN manages their acquisitions and mergers to drive the business

into new markets and purchases rights to drug formulations as patents expire.

They have a strong marketshare in the Rheumatoid Arthritis market with the

second most profitable drug and recently purchased and spunoff a genetics

sequencing lab to stabilize their pipeline. AMGEN displays growth in revenue

and overall profit margin, while carrying a significant amount of liability and

debt.

The pharmaceutical industry is a difficult one in which to sustain growth

without successive mergers or acquisitions of both whole entities and/or

specific formulations. Drug patents span 30yrs with FDA trials lasting 20yrs,

leaving the useful marketability of a drug at 10yrs in which to recoup the

millions of dollars in development. A 2015 report by the Biotechnology

Innovation Organization (BIO) illustrates the poor success rate of FDA

approvals. The Likelihood of Approval (LOA) from Phase 1 to Phase 4 is 9.6%.

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According to CSIMarket.com, AMGEN has not kept pace with competitors

in the market accounting for a slower revenue growth (4.5% less) and overall

net margin and profitability FY YTD (just under 35%). FY16Q3 did show rebound

as AMGEN outpaced the competition in revenue growth by 1.5%.

In 2012, AMGEN came under scrutiny by the FDA for illegal marketing

and misbranding of a drug and were forced to pay $72M in damages and

penalties. AMGEN stalled the release of Novartis’ biosimilar compound to the

Neupogen drug through litigation with the FDA, but are facing a similar issue

with a biosimilar formulation for AbbVie’s Humira drug as AbbVie has

requested the same delay for AMGEN’s release.

Because of these factors and AMGEN’s debt to asset ratio around

50%, we would recommend AMGEN as a moderately safe option in a steady and

upward trending, albeit fickle industry.

Company Overview

Amgen Inc. was founded in 1980 by William Bowes from Cetus

Corporation and William Salser from UCLA and is headquartered in Thousand

Oaks, California. Originally AAAApplied MMMMolecular GenGenGenGenetics, AMGEN was

Incorporated in 1983 as an IPO under then CEO and Co-Founder George B

Rathmun earning over $40M overall. AMGEN is a multi-national pharmaceutical

and biotechnology research and development company aimed at creating

targeted pharmaceuticals for high need, low solution illnesses and diseases.

Growing to over 17,000 employees across, AMGEN’s customer base spans 100

countries worldwide.

It wasn’t until 1989 that they released their first pharmaceutical solution

called Epogen used to fight anemia associated with chronic kidney failure.

Between their first release in 1989 and 2013, AMGEN has successfully deployed

fifteen FDA-approved drugs for highly specified medical conditions ranging

from anemia to arthritis to osteoporosis – three of which have been sold to

competitors. AMGEN had eleven drugs in phase III trials by the end of 2013

ultimately dropping two of these during trials. AMGEN frequently collaborates

within the pharmaceutical and biotechnology industry for biosimilar solutions

and generic formulations to keep healthcare costs down and prices competitive

for critically ill patients.

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Recent activity has landed AMGEN at #131 on the Forbes Global 2000 list.

Stock prices have peaked in 2016 at around $175 per share and currently sit at

$146 with a steady 5-year growth from 2012 ($65). Sales profit in FY15 show at

$21B.

Current executive team members driving the innovation and delivery of life Current executive team members driving the innovation and delivery of life Current executive team members driving the innovation and delivery of life Current executive team members driving the innovation and delivery of life

saving pharmaceuticals:saving pharmaceuticals:saving pharmaceuticals:saving pharmaceuticals:

Name/TitleName/TitleName/TitleName/Title Total CompensationTotal CompensationTotal CompensationTotal Compensation

Robert A. Bradway

$16,097,714

Chairman of the Board, Chief Executive Officer and

President

Anthony C. Hooper

$6,414,729

Executive Vice President, Global Commercial

Operations

Sean E. Harper

$5,607,825 Executive Vice President, Research and Development

David W. Meline

$6,592,624 Executive Vice President and Chief Financial Officer

Jonathan P. Graham

$12,783,301 Senior Vice President, General Counsel and Secretary

The company has a proven track record of successful acquisition and

merger activity, having successfully leveraged the Immunex acquisition in 2002

for full control of the Enbrel drug; Enbrel is a top industry sales earner.

Neulasta (a Neupogen derivative) and Enbrel constitute 50% of AMGEN’s overall

sales in 2015; the other 50% comprises six other pharmaceutical offerings.

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Although AMGEN is strictly in the pharmaceutical arena, they influence the

industry greatly through selective acquisitions of both drug therapies and

companies to keep their competitive advantage. Expanding into new markets

allows the organization to prevent stagnation and continue growth and

development. This M&A activity keeps AMGEN growing and their stock

Recent Acquisitions over the last 5 years:

2011:

• Acq. BioVex Group Inc. for $425 cash up to $1B

• Acq. Laboratorio Quimico Farmaceutico Bergamo Ltda

2012:

• Acq. Micromet Inc for $1.16B

• Acq. Mustafa Nevzat Ilac for $700M

• Acq. KAI Pharmaceuticals for $315M

• Acq. deCODE Genetics for $415M

2013:

• Acq. Onyx Pharmaceuticals for $10.4B

• SpinOff NextCODE genetics

2015:

• Acq. Dezima Pharma for $300M up to $1.25B

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The purchase of Onyx Pharmaceuticals of $10.4 Billion, although a hefty sum,

may provide sustainability for AMGEN as they broach the ever-expanding

cancer therapy drug market. Along with this, the acquisition of deCODE and

subsequent spinoff NextCODE allows AMGEN better access to the pipeline for

suitable starting molecules used for development.

Industry Comparison

AMGEN is in the biotechnology (primarily pharmaceutical) industry

competing with highly competitive companies for a share in the lucrative

healthcare market. Despite the changes in healthcare with the Affordable Care

Act (ACA) and aging population, the constant shifting of diagnosable conditions

and modalities keeps the market refreshed and open to possibilities. The FDA is

heavily involved in the space, governing releases, formulations and handling

litigation concerns. The complex nature of healthcare law forces companies to

carefully navigate generic formulations and biosimilar compounds in order to

stretch revenue and investigate alternate profit streams. This comparison will

focus on three primary competitors to AMGEN as the pharmaceutical industry

has many companies competing for hundreds of drug markets targeted as

specific conditions.

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Participants in the pharmaceutical industry are lisParticipants in the pharmaceutical industry are lisParticipants in the pharmaceutical industry are lisParticipants in the pharmaceutical industry are listed in the graph below from CSIMarket.com.ted in the graph below from CSIMarket.com.ted in the graph below from CSIMarket.com.ted in the graph below from CSIMarket.com.

AbbVie Inc is the largest competitor in the Rhematoid Arthritis,

inflammatory and psoriasis treatments. AbbVie (NYSE:ABBV) was separated from

Abbot Industries Jan 1, 2013 in order to allow investors the ability to value the

two businesses separately, although many believe it was a means to shield the

profitable medical device division from the expected loss in the pharmaceutical

division. The patent for flagship drug Humira is set to expire; Humira

represents over 50% of the revenue for the pharma division.

AMGEN’s US deployed Enbrel drug competes with Humira for

marketshare. With Humira’s patent set to expire in 2016, AMGEN is in position

to secure a strong presence in the market with its already competitive Enbrel

and the awarding of a new patent to prevent Enbrel biosimilars. AbbVie is

currently traded at $62.

Johnson and Johnson is the largest competitor in the anemia sector.

Johnson and Johnson (NYSE:JNJ) owns and markets Procrit as a biosimilar to

AMGEN’s Aranesp and Neupogen treatments. AMGEN and J&J have been in court

many times over the anemia drug erythropoietin alfa marketed by AMGEN as

Epogen and by J&J as Procrit. In 2002, AMGEN was awarded $150M by an

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arbitrator for violating terms of the licensing agreement between the two

companies. In 2005, J&J sued AMGEN for using anti-competitive sales practices

for marketing Epogen to Oncologists. In 2010, both companies were forced to

recall production lots of the protein manufactured in AMGEN’s Puerto Rico

plant. J&J is currently traded at $112.

Celgene Corporation is a smaller biopharmaceutical company based out

of New Jersey. Celgene (NYSE:CELG) competes in the myeloid disorder

treatments. AMGEN recently entered this lucrative market with their $10.4B

acquisition of Onyx Pharmaceuticals in 2013. AMGEN is attempting to encroach

on the dominant marketshare that Celgene’s Revlimid drug has on the sector.

AMGEN purchased Onyx in order to market and sell Kyprolis.

A whistleblower from within Celgene alleged in 2010 that the company

rebranded Thalidomide as Thalomid and inappropriately marketed the drug.

Celgene is currently traded at $112.

Financial Analysis

It is important to note as we begin the financial analysis Amgen’s main

source of income is through sales of pharmaceuticals. The latest releases in

2015/2016 of new medications and new methods of delivery of existing

medications released to market, show promise for increased sales in the

coming years, particularly in the cardiovascular and oncology related

medications. Proven products continue to be a source of sales income, but

some of their patents will be expiring over the next several years, and sales

growth is tapering on some of their established products. New product

development will be important to replace sales revenue of products that will be

eligible for generic manufacturing. Their expense for research and development

has decreased, but this is most likely because Amgen has made several

significant acquisitions of pharmaceutical companies that had significant

patents and products in development at the time of acquisition. R&D expense

continues to be a decent percentage of gross revenue, a good sign of longevity.

Increased competition and scrutiny on pricing structure in the pharmaceutical

industry by the public and government agencies also needs to be noted as a

potential cause for sales income to change. Product development is a very long

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and complicated process, from testing and trials to the very complex approval

process through the FDA which can last from 10-15 years. A change in policy

could occur very quickly, and pricing structures changing faster than

development occurs is a potential risk.

Amgen has placed itself well to insulate from this risk with the

acquisitions previously noted. These have helped secured long-term growth,

such as Onyx Pharmaceuticals in 2013, a 10.4 billion transaction that gives

Amgen access to a rapidly expanding cancer-drug market with a new product,

Kyprolis, which was approved in 2012 for a rare blood cancer. This is at a time

when the oncology market is growing increasingly important as the U.S.

population ages. Building on that momentum, Amgen acquired global

development rights to a multiple myeloma drug, BI 836909, from Boehringer

Ingelheim Sept. 1, 2016. Another acquisition that strengthens the portfolio of

cardiovascular products currently held by Amgen was Dezima, a private

company located in the Netherlands with promising developments in a

cholesterol lowering drug called Repatha, and Corlanor, which is found to

reduce hospitalization risk in heart failure patients.

Cost of sales over a five-year period increased from year to year a total of

32% from 2012 to 2015 with the exception that the cost of sales margin

improved by 4.4% from 2014 to 2015. Much of that cost of sales increase

happened in 2014. Per Amgen’s annual report, “The cost of sales increased to

22.0% of total revenues for 2014, driven by acquisition-related expenses that

included an increase of $642 million of non-cash amortization of intangible

assets acquired in the Onyx acquisition. The year ended December 31, 2014,

also included impairment and accelerated depreciation charges pursuant to our

restructuring initiative of $104 million”. Amgen began a restructuring program

in 2014 to be more lean. A recent article on Biospace.com from July 2016

states that closing a couple of manufacturing plants and a site in Colorado

which was also sold along with other excess properties, improved

manufacturing efficiency and allowed the company to develop new products.

The move was also expected to make the cost of sales more competitive, and

the latest numbers seem to prove that.

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Annual Income Statement Summary courtesy Google Finance (with added Annual Income Statement Summary courtesy Google Finance (with added Annual Income Statement Summary courtesy Google Finance (with added Annual Income Statement Summary courtesy Google Finance (with added

percentage calculations)percentage calculations)percentage calculations)percentage calculations)

The increases that did occur from

year to year coincide with large

increases in net profit margin.

Operating expenses have

remained stable over the last 4

years relative to revenues with an

increase of 12.8%.

In Millions of USD (except for per share

items)

% change

over 4

years

12 months ending

2015-12-31

%

change

12 months ending

2014-12-31

%

change

12 months ending

2013-12-31

%

change

12 months ending

2012-12-31

Revenue 25.5% 21,662.00 8.0% 20,063.00 7.4% 18,676.00 8.2% 17,265.00

Total Revenue 25.5% 21,662.00 8.0% 20,063.00 7.4% 18,676.00 8.2% 17,265.00

Cost of Revenue, Total 32.1% 4,227.00 -4.4% 4,422.00 32.2% 3,346.00 4.6% 3,199.00

Gross Profit 24.0% 17,435.00 11.5% 15,641.00 2.0% 15,330.00 9.0% 14,066.00

Selling/General/Admin. Expenses, Total 0.7% 4,846.00 3.1% 4,699.00 -5.4% 4,969.00 3.2% 4,814.00

Research & Development 20.4% 4,070.00 -5.3% 4,297.00 5.2% 4,083.00 20.8% 3,380.00

Unusual Expense (Income) -74.9% 60 -84.1% 377 26.5% 298 24.7% 239

Other Operating Expenses, Total -119.6% -11 -114.3% 77 -31.9% 113 101.8% 56

Total Operating Expense 12.9% 13,192.00 -4.9% 13,872.00 8.3% 12,809.00 9.6% 11,688.00

Operating Income 51.9% 8,470.00 36.8% 6,191.00 5.5% 5,867.00 5.2% 5,577.00

Net Interest Income -13.4% 492.00 -18.8% 606.00 0.7% 602.00 6.0% 568.00

Income Before Tax 59.3% 7,978.00 42.8% 5,585.00 6.1% 5,265.00 5.1% 5,009.00

Income After Tax 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00

Net Income Before Extra. Items 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00

Net Income 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00

Income Available to Common Excl. Extra Items 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00

Income Available to Common Incl. Extra Items 59.7% 6,939.00 34.5% 5,158.00 1.5% 5,081.00 16.9% 4,345.00

Diluted Weighted Average Shares -2.7% 766 -0.5% 770 0.7% 765 -2.8% 787

Diluted EPS Excluding Extraordinary Items 64.1% 9.06 35.2% 6.7 0.9% 6.64 20.3% 5.52

Dividends per Share - Common Stock Primary

Issue119.4% 3.16 29.5% 2.44 29.8% 1.88 30.6% 1.44

Diluted Normalized EPS 58.0% 9.13 27.7% 7.15 1.9% 7.02 21.5% 5.78

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The main area of operating expense increase is in research and

development with an increase of 20.4%. The decrease in operating expense last

year in 2015 at the same time as an increase in higher total revenue is seen

very positively by Amgen per their annual report to grow the business and

invest for the future.

Interest income, net, decreased by 13.4% between 2012-2015. There

were small incremental increases from 2012-2013, 2013-2104, but a large

decrease of 18.8% between 2014 -15. Net income has increased from 2012 by

59.7%. This indicates that while the cost of sales increased over the same time,

product sales increases along with decreased operating expenses dramatically

improves the bottom line. From the analysis of the income statement over 4

years, the company has had significant growth each year in net income. Amgen

has earned a place as one of the powerhouse pharmaceutical companies.

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Balance Sheet for Amgen, Inc courtesy Google Finance (with added percentage Balance Sheet for Amgen, Inc courtesy Google Finance (with added percentage Balance Sheet for Amgen, Inc courtesy Google Finance (with added percentage Balance Sheet for Amgen, Inc courtesy Google Finance (with added percentage

calculations)calculations)calculations)calculations)

% Change As of % As of % As of % As of

In Millions of USD (except for per share items)over 4 years 2015-12-31 change 12/31/2014 change 12/31/2013 change 12/31/2012

Cash & Equivalents 27.2% 4,144.00 11.1% 3,731.00 -1.9% 3,805.00 16.8% 3,257.00

Short Term Investments 30.9% 27,238.00 16.9% 23,295.00 49.4% 15,596.00 -25.0% 20,804.00

Cash and Short Term Investments 30.4% 31,382.00 16.1% 27,026.00 39.3% 19,401.00 -19.4% 24,061.00

Accounts Receivable - Trade, Net 18.9% 2,995.00 17.6% 2,546.00 -5.6% 2,697.00 7.1% 2,518.00

Receivables - Other - - - -

Total Receivables, Net 18.9% 2,995.00 17.6% 2,546.00 -5.6% 2,697.00 7.1% 2,518.00

Total Inventory -11.3% 2,435.00 -8.0% 2,647.00 -12.3% 3,019.00 10.0% 2,744.00

Prepaid Expenses - - - -

Other Current Assets, Total -9.7% 1,703.00 -31.7% 2,494.00 10.8% 2,250.00 19.3% 1,886.00

Total Current Assets 23.4% 38,515.00 11.0% 34,713.00 26.8% 27,367.00 -12.3% 31,209.00

Property/Plant/Equipment, Total - Gross - 12,256.00 -0.3% 12,291.00 2.9% 11,947.00

Accumulated Depreciation, Total - -7,033.00 1.3% -6,942.00 4.8% -6,621.00

Goodwill, Net 16.8% 14,787.00 0.0% 14,788.00 -1.2% 14,968.00 18.2% 12,662.00

Intangibles, Net 193.4% 11,641.00 -8.3% 12,693.00 -4.3% 13,262.00 234.2% 3,968.00

Long Term Investments - 0 -100.0% 3,412.00 0

Other Long Term Assets, Total 41.1% 1,599.00 0.4% 1,592.00 -9.9% 1,767.00 56.0% 1,133.00

Total Assets 31.6% 71,449.00 3.5% 69,009.00 4.4% 66,125.00 21.8% 54,298.00

Accounts Payable 6.6% 965 -20.4% 1,212.00 54.0% 787 -13.0% 905

Accrued Expenses 22.9% 5,451.00 16.2% 4,691.00 11.9% 4,192.00 -5.5% 4,435.00

Notes Payable/Short Term Debt 0 0 0 0

Current Port. of LT Debt/Capital Leases -9.9% 2,247.00 349.4% 500 -80.0% 2,505.00 0.4% 2,495.00

Other Current liabilities, Total -99.7% 1 -99.8% 605 30.7% 463 30.1% 356

Total Current Liabilities 5.8% 8,664.00 23.6% 7,008.00 -11.8% 7,947.00 -3.0% 8,191.00

Long Term Debt 21.4% 29,182.00 -3.4% 30,215.00 2.0% 29,623.00 23.3% 24,034.00

Capital Lease Obligations - - - -

Total Long Term Debt 21.4% 29,182.00 -3.4% 30,215.00 2.0% 29,623.00 23.3% 24,034.00

Total Debt 18.5% 31,429.00 2.3% 30,715.00 -4.4% 32,128.00 21.1% 26,529.00

Deferred Income Tax 2,239.00 -35.3% 3,461.00 -1.1% 3,498.00 0

Minority Interest - - - -

Other Liabilities, Total 8.9% 3,281.00 28.8% 2,547.00 -14.0% 2,961.00 -1.7% 3,013.00

Total Liabilities 23.1% 43,366.00 0.3% 43,231.00 -1.8% 44,029.00 24.9% 35,238.00

Redeemable Preferred Stock, Total - - - -

Preferred Stock - Non Redeemable, Net - - - -

Common Stock, Total 4.5% 30,649.00 0.8% 30,410.00 1.7% 29,891.00 1.9% 29,337.00

Additional Paid-In Capital - - - -

Retained Earnings (Accumulated Deficit) -80.0% -2,086.00 -54.9% -4,624.00 -39.4% -7,634.00 -26.8% -10,423.00

Treasury Stock - Common - - - -

Other Equity, Total 494.6% -220 -2100.0% 11 -109.3% -118 218.9% -37

Total Equity 47.3% 28,083.00 8.9% 25,778.00 16.7% 22,096.00 15.9% 19,060.00

Total Liabilities & Shareholders' Equity 31.6% 71,449.00 3.5% 69,009.00 4.4% 66,125.00 21.8% 54,298.00

Shares Outs - Common Stock Primary Issue - - - -

Total Common Shares Outstanding -0.7% 751.3 -1.2% 760.4 0.8% 754.6 -0.2% 756.3

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Total Assets for Amgen at the end of 2015 was 71,449 million, an

increase from 2012 of 31.6%. From 2012, 2013, and 2014 Total Assets

increased 21.8%, 4.4%, and 3.5% respectively between each of those years.

2013 saw the largest increase in non-current assets, particularly in Net

Intangibles, due to the purchase of Onyx Pharmaceuticals. Another purchase

that occurred in 2016 will show a similar increase in assets when those

financials are released.

Note the increase in Trade Net Accounts Receivables from 2012 to 2015,

which is up 18.9%. The largest portion of that is between YE 2014 and YE

2015. Per Amgen’s 2015 annual report, a portion of operating cash flows is

dependent on timing of payments from customers outside the United States,

which include government-owned or -supported healthcare providers

(government healthcare providers). They state: “Payments from these

government healthcare providers are dependent in part on the economic

stability and creditworthiness of their applicable country. Historically, some

payments from several European government healthcare providers have

extended beyond the contractual terms of sale, and regional economic

uncertainty continues. Credit and economic conditions in Southern Europe,

particularly in Spain, Italy, Greece and Portugal, continue to adversely impact

the timing of collections of trade receivables in this region. As of December 31,

2015, and 2014, accounts receivable in these four countries totaled $222

million and $223 million, respectively. Of these receivables, $127 million and

$124 million were past due as of December 31, 2015 and 2014, respectively.

Although economic conditions in this region may continue to affect the average

length of time it takes to collect payments, to date we have not incurred any

significant losses related to these receivables; and the timing of payments in

these countries has not had nor is it currently expected to have a material

adverse impact on our overall operating cash flows.” It will likely not change

much at YE 2016 because the economic conditions have not changed much in

Southern Europe this year.

The restructuring program resulted in decreases between 2014 and 2015

that affected the areas in Total Assets that are offset by decreases in Liabilities.

They sold off property and equipment, shown by the decrease in Total

Inventory and Other Current Assets, while showing and increase in cash and

short term investments during the same time. Total Liabilities increased 24.9%

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from 2012 to 2013, decreased 1.8% from 2013-2014, increased .3% from

2014-2015 for an overall increase of 23.1%.

Clearly the company is keeping

liability growth down significantly.

The increase from 2012 to 2013 was

mainly in Long Term Debt. The

graph to the right shows that debt

to assets percentage is stable and

runs between 40 and 50 percent.

Total Retained Earnings and

Stockholder Equity at the end of

2015 was $28,083, an increase of 47.3% from the end of 2012 which a positive

sign for investors.

Measures of DebtMeasures of DebtMeasures of DebtMeasures of Debt----Paying Ability AnalysisPaying Ability AnalysisPaying Ability AnalysisPaying Ability Analysis

Liquidity Ratios: Working capital for Amgen as of the end of 2015 is calculated

by looking at (in millions) the current assets, $38,515 minus $8,664 in current

liabilities, is $29,851, which is a decent cushion against short-term debt

obligations.

Liquidity RatiosLiquidity RatiosLiquidity RatiosLiquidity Ratios 11/28/201611/28/201611/28/201611/28/2016 from Stockfrom Stockfrom Stockfrom Stock----analysisanalysisanalysisanalysis----on.net on.net on.net on.net ---- Amgen, Inc.Amgen, Inc.Amgen, Inc.Amgen, Inc.

FINANCIAL STRENGTHFINANCIAL STRENGTHFINANCIAL STRENGTHFINANCIAL STRENGTH

Quick Ratio (MRQ) 4.09 2.94 2.39

Current Ratio (MRQ) 4.35 5.68 3.3

LT Debt to Equity (MRQ) 99.2 37.24 22.04

Total Debt to Equity (MRQ) 114.79 45.25 31.01

Interest Coverage (TTM) 14.77 1.21 39.5

Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011

Current ratio 4.44 4.95 3.44 3.81 4.80

Quick ratio 3.97 4.22 2.78 3.24 4.09

Cash ratio 3.62 3.86 2.44 2.94 3.59

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Current ratio shows a picture of the debt-paying ability of Amgen. The graph

here shows the relationship of Amgen Inc.’s current ratio to the pharmaceutical

industry and the healthcare sector. Amgen Inc.'s current ratio improved from

2013 to 2014 but then slightly deteriorated from 2014 to 2015.

The decrease from 2014-2015 in the quick ratio level means that there is a

decrease in quick assets and an increase in current liabilities. This decrease

was a drop from the level reached in 2014, which was a great improvement

from 2013. 2013 was the same year for the purchase of Onyx Pharmaceuticals,

so we are likely seeing the results of that in this graph.

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Amgen Inc., shortAmgen Inc., shortAmgen Inc., shortAmgen Inc., short----term (operating) activity ratiosterm (operating) activity ratiosterm (operating) activity ratiosterm (operating) activity ratios

31-Dec-15 31-Dec-14 31-Dec-13 31-Dec-12 31-Dec-11

Turnover RatiosTurnover RatiosTurnover RatiosTurnover Ratios

Inventory turnover 1.74 1.67 1.11 1.17 1.09

Receivables turnover 6.99 7.59 6.75 6.61 5.28

Payables turnover 4.38 3.65 4.25 3.53 4.22

Working capital turnover 0.7 0.7 0.94 0.72 0.7

Average No. of DaysAverage No. of DaysAverage No. of DaysAverage No. of Days

Average inventory

processing period 210 218 329 313 335

Add: Average receivable

collection period 52 48 54 55 69

Operating cycle 262 266 383 368 404

Less: Average payables

payment period 83 100 86 103 87

Cash conversion cycle 179 166 297 265 317

Source: Based on data from Amgen Inc. Annual

Reports

Accounts receivables turnover in 2015 is listed at 6.99. A higher number

would be preferred, but the issues with accounts receivable collections was

addressed earlier in our discussion. The previous years also tell the same story

regarding the lower AR turnover. The comparable number in the industry is

higher, although the sector of healthcare altogether is lower at 6.1

Inventory turnover is reported at 1.74. This means that average days to

sell inventory is at 210. The annual average days from 2011 to 2015 show an

improving downward trend.

Solvency Ratios on Amgen, IncSolvency Ratios on Amgen, IncSolvency Ratios on Amgen, IncSolvency Ratios on Amgen, Inc.

Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011

Debt to equity 1.12 1.19 1.45 1.39 1.13

Debt to assets 0.53 0.54 0.59 0.58 0.53

Interest coverage 8.29 6.21 6.15 5.76 7.8

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The debt to assets ratio as of 12/31/2015 is 53% This means that more

than 50% of the company’s assets were financed with debt. This indicates

financial leverage that on the surface is not as attractive to lenders as a small

ratio would be. This ratio is the same as it was in 2011, with increases each

year until 2015.

The debt to equity measures financial leverage as well. At the end of

2015 is 1.12; 2014 is 1.19; 2013 is 1.45; 2012 is 1.39; 2011 is 1.13. While

these do not reflect low debt levels, it also not too high, given that the company

is investing in other companies as part of its strategy to finance increased

operations and generate more earnings. Amgen Inc’s debt to equity ratio is

higher than industry averages, which is 0.69. They have already proven the

increased revenue which is a greater amount than the interest expense, so

shareholders benefit as more earnings are being shared.

Number of times interest is earned, or interest coverage, is calculated as

8.29 in 2015; 6.21 in 2014; 6.15 in 2013; 5.76 in 2012 and 7.8 in 2011. The

ability to pay its interest payments 8.29 times in 2015 is a good indicator of

solvency, also strengthening the assumptions made regarding the debt to

equity ratio.

Profitability Ratios on Amgen, IncProfitability Ratios on Amgen, IncProfitability Ratios on Amgen, IncProfitability Ratios on Amgen, Inc. Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011

Return on SalesReturn on SalesReturn on SalesReturn on Sales

Gross profit margin 79.82% 77.12% 81.61% 80.77% 82.29%

Operating profit margin 40.44% 32.03% 32.25% 33.52% 28.19%

Net profit margin 33.13% 26.69% 27.93% 26.11% 24.08%

Return on InvestmentReturn on InvestmentReturn on InvestmentReturn on Investment

Return on equity (ROE) 24.71% 20.01% 23.00% 22.80% 19.35%

Amgen Inc.'s net profit margin deteriorated from 2013 to 2014 but then

improved from 2014 to 2015 exceeding 2013 level and all previous years.

The exact situation occurs with the return on equity or ROE. The ROE measures

how much profit a company generates with shareholder investment. Amgen’s

ROE in 2015 of 24.71% is 4.77% higher than the ROE of the Pharmaceuticals &

Page | 18


Biotechnology Industry Sector. That along with the increase in net margin

shows that Amgen, Inc. can increase shareholder’s prosperity.

Stock Market Ratios on Amgen, Inc.

The earnings per share, or EPS calculation for Amgen, Inc is currently $

9.33. The current market price per share is $ 145.07.

The price-earnings ratio, or P/E ratio, compares the earnings per share of

a company to the market price for a share of the company’s stock. The price

earnings ratio for Amgen, Inc. compared to its competitors is the best way to

determine which stock is a better investment.

Amgen Inc. Allergan Bristol-Myers Johnson&Johnson Merck Pfizer Inc.

P/E: 15.55 19.35 60.35 19.97 38.36 27.50

Benchmark P/E: Pharmaceuticals & Biotechnology Health Care

19.63 20.86

Amgen Inc’s price multiple is lower than the price multiple of benchmark so

analysts could say that Amgen’s stock is relatively undervalued.

Summary of Financial accounting methods

AMGEN utilizes appropriate revenue recognition methods regarding cost

of goods sold, recognizing revenue when the product is sold.

2016 saw an uptick in outlook due to assumptions around the release of

competitors’ biosimilar drugs and patent expirations.

For plant, property and Equipment, AMGEN utilizes a straight-line

depreciation and amortization method and reviews assets for impairment

frequently. The pharmaceutical industry utilizes patents and trademarks among

other intangible assets and thus reviews for impairment as the industry

fluctuates.

With the sale of an asset in 2016, AMGEN booked a Loss for the variance

to account for it separate from sales and general operating expenses.

Inventories are stated at the lower of cost or market and are utilized in a

manner that approximates the first-in, first-out method for usage.

AMGEN utilizes accruals to account for deferred revenue and expenses,

aggregating these accounts to show a high level roll up.

Page | 19


“Sales of Amgen's products are recognized when shipped and title and

risk of loss have passed. Product sales are recorded net of accruals for

estimated rebates, wholesaler chargebacks, discounts, and other deductions

(collectively "sales deductions") and returns. Taxes collected from customers

and remitted to government authorities related to the sales of Amgen's

products, primarily in Europe, are excluded from revenues.”

Financial Analyst Recommendations

Consensus Recommendation

Detailed Analyst Recommendation

12-Month Price Target Range

157

Consensus

183

209

145.07145.07145.07145.07

Previous ClosePrevious ClosePrevious ClosePrevious Close

Strong Buy – 4

Buy – 1

Hold – 11

16 Analysts

Page | 20


Momentum

(4(4(4(4 Weeks)Weeks)Weeks)Weeks) QuarterQuarterQuarterQuarter EndEndEndEnd &&&& FiscalFiscalFiscalFiscal

12/2016 13 of 13 estimates changed

Up:

12

Down:

1

Earnings Growth (2016)

Price / Earnings (2016)

Page | 21


Quarterly Earnings Surprise History

Fiscal Fiscal Fiscal Fiscal

Quarter Quarter Quarter Quarter

EndEndEndEnd

Date Date Date Date

ReportedReportedReportedReported

Earnings Earnings Earnings Earnings

Per Per Per Per

Share*Share*Share*Share*

Consensus Consensus Consensus Consensus

EPS* EPS* EPS* EPS*

ForecastForecastForecastForecast

% % % %

SurpriseSurpriseSurpriseSurprise

Sep2016 10/27/2016 3.02 2.79 8.24

Jun2016 07/27/2016 2.84 2.74 3.65

Mar2016 04/28/2016 2.9 2.56 13.28

Dec2015 01/28/2016 2.61 2.27 14.98

Detailed Estimates

PEG Ratio

Data is provided by Zacks Investment Research

On November 30, 2016 business news writer Robert Ebling reported,

“Analysts are expecting Amgen Inc. (AMGN) to achieve $184.05 Price Target in

next 52-weeks, average price is come up through the consensus of analysts.

High potential price target is set at $209.00 however minimum price target

Page | 22


advised by analysts is $157.00. The Median price target for the stock is

measured at $186.00. The current majority consensus among analysts is to

hold on the stocks, with a small percentage stating to buy.

Conclusion and Recommendation

Amgen, Inc is competing well in their market with good sales growth.

They have developed a presence around the world in both manufacturing and in

sales. Their recent restructuring has started to improve cost of sales, and their

acquisitions have placed them in good position to grow in the coming years.

They spend a decent percent of their gross revenue on R&D each year to remain

competitive for the long term. Net profit margins have also increased over the

last few years. In 2011 they started a dividend, and this year it’s now $1.25, or

nearly 3%.

Their debt ratio to asset ratio indicates a reliance on debt to finance,

which can be a turn off to investors. The fears in investors about biotech

companies currently due to worries about government interference with pricing

structures also tends to keep investors in a holding pattern.

Given their very promising cardiovascular, oncologic and migraine

medicines that have been released or are soon to be released, they are

considered one of the top stocks in the S&P 500, and it is a popular biotech

stock to include in investment company’s portfolio. The conclusion is that it is

a good long term investment.

Page | 23


References

Accounting MethodsAccounting MethodsAccounting MethodsAccounting Methods

https://www.stockhttps://www.stockhttps://www.stockhttps://www.stock----analysisanalysisanalysisanalysis----on.net/NASDAQ/Company/Amgenon.net/NASDAQ/Company/Amgenon.net/NASDAQ/Company/Amgenon.net/NASDAQ/Company/Amgen----

Inc/Analysis/RevenuInc/Analysis/RevenuInc/Analysis/RevenuInc/Analysis/Revenues#Accountinges#Accountinges#Accountinges#Accounting----PolicyPolicyPolicyPolicy

AMGEN Demographics and HistoryAMGEN Demographics and HistoryAMGEN Demographics and HistoryAMGEN Demographics and History

www.amgen.com

Biotechnology Innovation Organization (BIO)Biotechnology Innovation Organization (BIO)Biotechnology Innovation Organization (BIO)Biotechnology Innovation Organization (BIO)

https://www.bio.org/sites/default/files/Clinical%20Development%20Success%2

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Executive CompensationExecutive CompensationExecutive CompensationExecutive Compensation

http://www1.salary.com/AMGEN-INC-Executive-Salaries.html

CompetitorsCompetitorsCompetitorsCompetitors

http://csimarket.com/stocks/compet_glance.php?code=AMGN

AbbVieAbbVieAbbVieAbbVie

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arthritis-drugs-2013

Johnson and JohnsonJohnson and JohnsonJohnson and JohnsonJohnson and Johnson

http://www.nytimes.com/2002/10/19/business/johnson-johnson-to-pay-

150-million-in-amgen-suit.html

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anemia-drug-procrit.html

CelgeneCelgeneCelgeneCelgene

https://www.bloomberg.com/news/articles/2016-08-22/from-nightmare-

drug-to-celgene-blockbuster-thalidomide-is-back

Page | 24


http://www.hotstockspoint.com/analysts-expectation-amgen-inc-amgn-hit-

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amp-p-500-company.html

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http://www.amgen.com/

https://www.google.com/finance?q=NASDAQ%3AAMGN&sq=Amgen&sp=1&ei=

n3E7WMD5FtHGmAGc6K2YCg

https://finance.yahoo.com/quote/AMGN.SW/financials?p=AMGN.SW

Biospace.com

amgen financial analysis

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