May 27, 2022
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Amgen shares drop after earnings release and disclosure of $5B tax dispute

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When Thousand Oaks-based Amgen released its financial results for the first quarter of 2022 on April 27, the biggest surprise didn’t come from its dip in net profits or rise in revenue, but from a tax dispute with the Internal Revenue Service.

Amgen said it received a notice of deficiency from the IRS on April 18, seeking additional back taxes of $5.1 billion, plus interest and penalties, related to profits generated between 2013 to 2015 from its United States and Puerto Rico locations. Puerto Rico is home to most of the company’s manufacturing operations.

In its earnings release, Amgen said it “firmly believes” the adjustments proposed by the IRS for the 2010-2015 period and the penalties proposed by the IRS for the 2013-2015 period are “without merit.”

Amgen added that it believes the IRS adjustments for the 2010-2015 period are overstated by approximately $2 billion. In addition, Amgen said the IRS assertion of approximately $2 billion in penalties for the 2013-2015 period is “wholly unwarranted.”

“We are in litigation so we can’t comment on discussions with the IRS … but we are confident in our position and the level of reserves that we have added,” Amgen CFO Peter Griffith said during the company’s earnings call. “We believe the IRS measures are without merit and we are going to dispute.”

The IRS is currently auditing the 2016-2018 period, Amgen said. The company expects the audit to continue for several years, and it is possible the 2010-2015 dispute will be resolved before the conclusion of the 2016-2018 audit and administrative appeals process.

Amgen shares opened at $235.73 on April 28, down 5.2% from the previous day’s close, which was just before the earnings announcement and disclosure of the tax dispute.

Amgen’s revenues grew 6% in the first quarter of 2022 compared to a year earlier, as the company generated $6.2 billion in revenue, stemming from 2% growth in global product sales and increased revenue from the company’s COVID-19 treatment manufacturing collaboration.

Net profits declined about 5%, however, to $1.4 billion, or $2.69 per share. The decrease was primarily driven by net losses recognized on the company’s strategic equity investments in the current year, compared with net gains recognized in the prior year.

Not accounting for those losses, Amgen’s non-GAAP earnings were at $4.25 a share, which beat analysts’ expectations. Analysts surveyed by FactSet Analysts projected non-GAAP earnings of $4.10 per share.

First quarter sales of Amgen’s arthritis treatment and best-selling drug, Enbrel, fell 7% to $862 million, while sales of its psoriasis skin treatment, Otezla, fell 5% to $451 million, both due to increased competition from biosimilars.

Prolia, which treats osteoporosis, saw sales increase 12% to $758 million, while sales of one of Amgen’s newer drug treatments, Lumakras, which battles lung cancer, totaled $62 million for the quarter, in line with expectations, the company said.

One of its other new drugs, Tezspire, a severe asthma treatment, made $7 million in the first quarter and has been “well received” by prescribers, with initial adoption by both allergists and pulmonologists.

Amgen ended the quarter with cash and equivalents worth $6.5 billion and outstanding debt of $36.9 billion.

NOTE: This article was posted April 27 and updated April 28 with the Amgen’s latest share price.