Amgen vows to fight after IRS demands $3.6B in back taxes—and a bigger bill could be on the way

amgen
Amgen warned in its second-quarter earnings that the COVID-19 recovery has been gradual and will likely hit sales for the rest of the year. (Amgen)

No one enjoys owing the IRS, especially when the bill totals $3.6 billion.

But that’s apparently the amount in back taxes the U.S. tax collecting agency is seeking from Amgen, not including interest, for the years 2010, 2011 and 2012, according to the company’s earnings release on Tuesday. 

The California-based drugmaker, however, doesn’t want to cough up to Uncle Sam without a fight. In July, Amgen filed a petition in the U.S. Tax Court refuting notices, saying it will “vigorously” contest the IRS' bid. 

The IRS is also proposing "significant adjustments" for 2013 and 2015, Amgen Chief Financial Officer Peter Griffith said on a call with analysts. The agency is in the process of auditing 2016 through 2018, which will likely end up with similar results, Griffith said. 

“We strongly believe the IRS’ position is without merit,” he told analysts during the second-quarter earnings call. The dispute could take years to resolve, Griffith added.

The IRS's tax claims revolve around how Amgen allocates its profits between its largest manufacturing facility in Puerto Rico to the U.S., Griffith said. Amgen holds a “difference of opinion on the significant risk and complexity we undertake with activities performed” at the Puerto Rico site, he said. 

While Amgen didn’t detail the IRS’ specific quarrels with its tax scheme, other large companies, such as Coca Cola, have recently come under the agency’s microscope for offshoring profits in a bid for lower tax rates, The Wall Street Journal reports

The finance chief didn’t answer how much the company might owe in interest, saying that would be up to the IRS. Any additional taxes imposed could be reduced by up to $900 million based on reparation taxes Amgen has previously accrued on foreign earnings, the company said. 

Based on two prior IRS tax settlements by GlaxoSmithKline and Medtronic, Mizuho analyst Salim Syed wrote to clients on Wednesday that Amgen could settle the case for around $3 billion in 2025.

RELATED: Amgen splashes $550M and plans to hire hundreds in manufacturing push into the Tarheel State

Amgen’s tax revelation came amid a mixed quarter for the drugmaker, which raked in $6.5 billion during the period. While that was a 5% increase compared with last year, the COVID-19 recovery has been gradual and will likely hit sales for the rest of the year, Amgen forecasted. 

Some of its mainstay growth drivers reported declining year-over-year sales as well. Migraine med Aimovig drew in $82 million over the quarter, a 16% decline compared with last year, while arthritis med Enbrel dropped 8% to $1.1 billion. 

On a positive note, the number of new patients starting Amgen’s psoriasis drug Otezla reached near pre-pandemic levels before COVID-19 shuttered doctors' offices. Except those gains were offset by patients switching to other treatments, Amgen said. Otezla raked in $423 million, also down 5%. 

That could spell trouble as Amgen vies to expand Otezla’s label to mild to moderate plaque psoriasis patients later this year. The treatment, which the company picked up from Celgene, is already approved to treat severe plaque psoriasis.

Otezla's decline was likely the result of “pent up treatment decision making that didn’t happen because patients weren’t going to see their dermatologist last year,” Amgen’s global commercial operations chief Murdo Gordon said on Tuesday's call. The company remains optimistic about Otezla’s prospects, he said.

RELATED: Surprise! Amgen's hot KRAS drug seals early FDA approval, winning a shot against 'undruggable' cancer

Meanwhile, Amgen is hard at work rolling out its potential oncology blockbuster Lumakras, which scored a historic FDA nod in May as the first treatment for non-small cell lung cancer (NSCLC) with a particular genetic mutation called KRAS G12C.

Amgen didn’t disclose how much Lumakras generated in sales since its accelerated approval. The company did note that more than 2,000 patients have received the drug so far. 

Diagnosing KRAS patients and moving that info to the front page of pathology reports are seen as key to Lumakras’ early commercial success. For its part, Amgen said its data show KRAS testing for NSCLC patients has grown, and that most testing labs are now labeling the mutation as "actionable."

“We’re very pleased with the enthusiasm Lumakras has generated in the oncology community," Gordon said.