Amgen's Q1 Earnings Decline Y/Y

Zacks

Amgen (AMGN) reported first quarter 2014 earnings of $1.86 per share, 5 cents above the Zacks Consensus Estimate but 4.6% below the year-ago earnings.

Total revenues increased 7% to $4,521 million in the first quarter of 2014, missing the Zacks Consensus Estimate of $4,727 million.

Including one-time items, first quarter earnings fell 26% to $1.40 per share.

The Quarter in Detail

First quarter total product revenues increased 5% from the year-ago quarter to $4,356 million (U.S.: $3,289 million, ex-U.S.: $1,067 million) with products like Neulasta, Epogen, Vectibix, Prolia and Xgeva driving growth. Sales, however, declined 9% sequentially due to inventory drawdowns especially in the case of Enbrel.

Revenues of Amgen’s erythropoiesis-stimulating agent (:ESA) Aranesp declined 2% from the year-ago quarter to $460 million (U.S.: $177 million; ex-U.S.: $283 million) due to lower demand. Revenues will continue to be impacted by competition and price cuts in Europe.

Revenues of Amgen’s other ESA, Epogen, grew 6% to $462 million.

Worldwide revenues of Neulasta and Neupogen increased 3% to $1,379 million in the first quarter. Amgen said the impact of recently launched short-acting competition in the U.S. and long-acting competition in Europe remains nominal so far.

Enbrel delivered revenues of $988 million, down 5% from the year-ago quarter. Revenues, which declined 17.7% sequentially, were impacted by lower unit demand. The company has been taking steps to improve Enbrel’s performance which includes optimization of the sales force, higher direct-to-consumer (:DTC) advertising and increased focus on appropriate access.

First quarter 2014 Prolia revenues came in at $196 million, up 38% from the year-ago quarter due to higher demand. Although the company noted some seasonality, which is typical in the first quarter, Amgen said that the second quarter is already off to a good start. The response to a new DTC campaign, launched in January, has been strong and has resulted in a major increase (from 10% to 23%) in unaided awareness.

Meanwhile, Xgeva delivered first quarter 2014 revenues of $279 million, up 25% from the year-ago quarter due to higher demand.

Sensipar/Mimpara revenues increased 2% from the year-ago quarter to $270 million due to segment growth and higher demand. Vectibix revenues came in at $103 million during the quarter, up 18% from the year-ago quarter. Vectibix is gaining share in both the U.S. and Europe.

Kyprolis, an Onyx product, posted sales of $68 million, down 6.8% sequentially.

While first quarter 2014 R&D expenses increased 16.4% from the year-ago period, SG&A expenses declined 14.2%. Investment in late-stage clinical programs for Kyprolis and other candidates led to the increase in R&D spend. Meanwhile, the end of the Enbrel profit share arrangement with Pfizer (PFE) led to lower SG&A spend.

Amgen did not repurchase any shares during the first quarter with $1.6 billion remaining under its share buyback program. Amgen expects its share buyback activities to slow down in 2014 and 2015 with a higher focus on increasing dividend meaningfully.

Amgen continues to progress with its pipeline. The company remains on track to file for approval of evolocumab (cholesterol management) and ivabradine (chronic heart failure) this year. Meanwhile, the interim analysis of the ASPIRE study on Kyprolis in relapsed multiple myeloma patients, and the final analysis of the FOCUS study in relapsed refractory multiple myeloma patients should occur in the second quarter or third quarter.

2014 Guidance Maintained

During 2014, Amgen expects to earn $7.90 - $8.20 per share on total revenues of $19.2 billion - $19.6 billion. The company expects operating income to be boosted by $800 million due to the end of the Enbrel profit-sharing arrangement. The Zacks Consensus Estimate for earnings and revenues are within the guidance range at $8.10 per share and $19.5 billion, respectively.

Our Take

Amgen’s first quarter results were disappointing with the company reporting a decline in earnings. Although revenues increased from the year-ago period, they were well short of expectations. Revenues also fell on a sequential basis with most products recording a sequential decline.

However, we expect 2014 to be a data rich year for the company as it gears up to present data on several late-stage candidates. Importantly, Amgen could be in a position to file for approval of its PSCK9 inhibitor, evolocumab, this year. Investors will also be focused on the FOCUS data on Kyprolis. The inclusion of positive data in the label would boost sales.

Amgen currently carries a Zacks Rank #2 (Buy). A better-ranked stock in the biotech sector is Biogen Idec (BIIB), a Zacks Rank #1 (Strong Buy) stock.

Meanwhile, an equally attractive stock is biotech company, Gilead (GILD) – a Zacks Rank #2 stock – which posted first quarter results yesterday after market close. Gilead’s results surpassed expectations by a wide margin with its hepatitis C virus (:HCV) drug, Sovaldi, delivering sales of $2.3 billion in its first full quarter on the market.

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