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Amgen (AMGN) Up 11.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Amgen (AMGN). Shares have added about 11.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Amgen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Amgen Beats on Q3 Earnings & Sales

Amgen reported third-quarter 2019 earnings of $3.66 per share, which beat the Zacks Consensus Estimate of $3.51. Earnings declined 1% year over year due to lower revenues and operating profits.

Total revenues of $5.74 billion in the quarter beat the Zacks Consensus Estimate of $5.63 billion. However, total revenues declined 3% year over year.

Quarter in Detail

Total product revenues decreased 1% from the year-ago quarter to $5.46 billion (U.S.: $4.03 billion; ex-U.S.: $1.43 billion) as increasing demand for newer products like Prolia and strong performance of the newly launched biosimilar products — Kanjinti and Mvasi in the United States — was offset by the erosion of mature brands from biosimilar competition. Product sales growth was mostly driven by higher volumes (up 3%) as prices were lower for several drugs. Net selling prices declined 4% year over year in the quarter, which resulted in a decline in total revenues.

Other revenues of $274 million declined 30.5% in the quarter due to a milestone payment received in the prior-year quarter.

Prolia revenues came in at $630 million, up 18% from the year-ago quarter, driven by volume increases resulting from new patient growth as well as strong repeat rates.

Xgeva delivered revenues of $476 million, up 10% from the year-ago quarter mainly due to higher demand, which drove volumes.

Kyprolis recorded sales of $266 million, up 15% year over year driven primarily by 12% volume growth in the United States.

Blincyto sales increased 47% from the year-ago period to $85 million, reflecting rise in demand.

Repatha generated revenues of $168 million, up 40% year over year, as higher volume was offset by lower prices.

Vectibix revenues came in at $196 million, up 8% year over year. Nplate sales rose 10% to $195 million.

Parsabiv, launched in several markets including the United States in 2018, recorded sales of $157 million, which was lower than $168 million in the previous quarter. While Parsabiv sales gained from higher demand, sales declined sequentially as trends were impacted by purchasing patterns, which included a larger purchase in the second quarter.

New migraine drug, Aimovig recorded sales of $66 million in the quarter, lower than $83 million in the previous quarter due to unfavorable changes in accounting estimates for sales discounts in prior periods. However, Aimovig volumes rose 12% on a sequential basis.

On the call, the company said that approximately 260,000 new patients in the United States have been prescribed Aimovig since launch. Meanwhile, more than 30,000 physicians have prescribed Aimovig since launch. It commanded a 50% market share among CGRP antibodies at the end of the third quarter.

Evenity recorded sales of $59 million in the quarter compared with $28 million in the previous quarter. In the United States, where Evenity was launched in April this year, sales were $12 million while international sales were $47 million with the majority coming from Japan.

Amgen recorded biosimilar revenues of $173 million in the quarter, much higher than $82 million in the previous quarter driven by the launches of Kanjinti and Mvasi in the United States. Total sales comprised sales of $81 million in the United States and $92 million in international markets.

However, Amgen’s mature drugs like Enbrel, Aranesp, Epogen, Neupogen and Neulasta are facing an array of branded and generic competitors.

Aranesp revenues declined 5% from the prior-year quarter to $452 million on lower volume due to increased competitive pressure. Amgen expects Aranesp sales to decline at a faster rate with both long-acting and short-acting competition in the United States.

Revenues of the other ESA, Epogen declined 15% to $215 million due to lower selling prices as the category has become extremely competitive.

Neulasta revenues declined 32% from the year-ago period to $711 million due to lower selling prices and biosimilar competition.

Neupogen recorded 36% decline in sales to $54 million in the quarter due to unfavorable changes in accounting estimates and biosimilar competition in the United States, which hurt demand and prices.

Enbrel delivered revenues of $1.37 billion, up 6% from the year-ago quarter, driven primarily by favorable changes in inventory along with a slight price increase, which offset the 2% decline in volumes due to continued competition.

Sensipar/Mimpara revenues declined 73% to $109 million due to at-risk small-molecule generic launches.

Other product sales rose 25% to $85 million.

Operating Margins Decrease

Adjusted operating margin declined 280 basis points (bps) to 51.1%. Adjusted operating expenses were flat year over year in the third quarter.

SG&A spend decreased 5% to $1.21 billion on cost control. R&D expenses rose 8% year over year to $977 million due to higher spending on Amgen’s early- and late-stage oncology pipeline.

Adjusted tax rate was 15.2% for the quarter, a 2.2 points increase from the year-ago quarter.

Amgen repurchased 6.2 million shares worth $1.2 billion in the third quarter and has $3.6 billion remaining under its stock repurchase authorization. In the fourth quarter, it plans to buy an additional $1 billion to $1.5 billion of shares.

2019 Guidance

Amgen slightly raised its previously issued sales guidance while increasing the earnings range significantly. The company expects revenues in the range of $22.8-$23 billion versus $22.4-$22.9 billion expected previously. Adjusted earnings per share are anticipated in the range of $14.20-$14.45 versus $13.75-$14.30 expected previously. The guidance excludes the impact of the Otezla acquisition, which is expected to close by the end of 2019.

Operating costs in 2019 are expected to be up slightly from 2018 level on an absolute basis versus prior expectation of remaining flat. Research and development costs are expected to rise in high single-digit percentage terms in 2019. However, SG&A expenses are expected to decline as launch expenses normalize. Adjusted tax rate is expected in the range of 14% to 15% (maintained). Amgen expects operating costs to increase 15% in the fourth quarter versus the third.

Amgen plans to invest approximately $650 million in capital expenditures in 2019 versus prior expectation of $700 million.

Initial 2020 Outlook

In 2020, Amgen’s base business is expected to be stable. However, it expects to grow with the anticipated addition of Otezla.

Ends Neuroscience Research Efforts

On the call, the company announced that it is discontinuing its early neuroscience research efforts with the exception of programs centered on neuro inflammation. Amgen chief executive officer, Bob Bradway, said that the company wants to focus its research efforts in therapeutic areas like cardiovascular disease, inflammatory disease and oncology, where it thinks it can be successful.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Amgen has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Amgen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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