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Amgen (AMGN) Down 4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Amgen (AMGN). Shares have lost about 4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Amgen due for a breakout? 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 drivers.

Amgen Q1 Earnings Top, Sales Hurt by Pricing Pressure

Amgen reported first-quarter 2019 earnings of $3.56 per share, which beat the Zacks Consensus Estimate of $3.45. Earnings increased 3% year over year helped by a lower share count as sales were weak in the quarter.

Total revenues of $5.56 billion in the quarter were almost in line with the Zacks Consensus Estimate and flat year over year.

Quarter in Detail

Total product revenues decreased 1% from the year-ago quarter to $5.29 billion (U.S.: $3.99 billion; ex-U.S.: $1.30 billion) as increasing demand for newer products like Prolia was offset by the erosion of mature brands from biosimilar competition. Product sales growth was mostly driven by higher volumes as pricing pressure hurt sales of several drugs, mainly Repatha and Aimovig.

Other revenues of $271 million rose 28.4% in the quarter driven by royalty income growth.

Prolia revenues came in at $592 million, up 20% from the year-ago quarter, attributable to 17% volume growth resulting from higher demand. However, a seasonal sales pattern with first-quarter sales being lower than second quarter due to a six month dosing interval hurt Prolia sales to an extent in the quarter.

Xgeva delivered revenues of $471 million, up 6% from the year-ago quarter mainly due to higher demand, which drove volumes.

Kyprolis recorded sales of $245 million, up 10% year over year driven primarily by growth in key markets including the United States.

Blincyto sales increased 41% from the year-ago period to $69 million, reflecting rise in demand.

Repatha generated revenues of $141 million, up 15% year over year, as higher unit demand was offset by lower prices. Repatha volumes grew 81% globally and 90% in the United States.

Sales of Repatha have suffered since launch due to payer restrictions. Despite Amgen’s efforts to improve access to Repatha, patients face significant hurdles due to high co-pay expenses. In response, Amgen announced a cut in the U.S. list price of Repatha by 60% to improve access and affordability of Repatha.

Vectibix revenues came in at $170 million, up 1% year over year. Nplate sales rose 6% to $189 million.

Parsabiv, launched in several markets including United States 2018, recorded sales of $126 million in the first quarter, higher than $120 million in the previous quarter driven by higher demand.

Aimovig recorded sales of $59 million in the quarter, less than $95 million in the previous quarter as discounts and rebates offered to improve coverage led to lower selling price of the drug.

On the call, the company said that approximately 200,000 new patients in the United States have tried Aimovig since launch, suggesting that there remains growth potential. Aimovig has captured 60% market share in total scripts and 40% of new-to-brand prescriptions.

Amgen recorded biosimilar revenues of $55 million in the quarter, entirely from international markets versus $34 million in the previous quarter. On the call, the company said that Kanjinti and Amgevita are off to a strong start in Europe, explaining the higher biosimilars revenues in the quarter. Amgen expects more biosimilars to gain approval this year with biosimilars making important contribution to total revenues, especially as drug pricing issues increase demand for lower cost treatment options.

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

Aranesp revenues declined 9% from the prior-year quarter to $414 million on lower demand primarily due to increased competitive pressure.

Revenues of the other ESA, Epogen, declined 10% to $219 million due to lower selling prices as the category has become extremely competitive. Sales in the quarter benefited from approximately $20 million of large end customer purchases. Pfizer’s Retacrit, the first biosimilar version of Epogen, was launched in November 2018. Biosimilar competition coupled with Amgen’s contractual pricing commitments with DaVita is expected to hurt Epogen’s price significantly in 2019

Neulasta revenues declined 12% from the year-ago period to $1.02 billion due to lower selling prices and inventory changes.

Two companies, Mylan and Coherus launched biosimilars of Neulasta in the United States in mid- 2018/early 2019 while three long-acting biosimilar competitors were launched in the EU, which are hurting sales of Neulasta. More biosimilars are expected to be launched in 2019, which will put further pressure on Neulasta sales.

Also, increased competition from PD-1s and other new cancer therapies are hurting demand for the class of medicines to which Neulasta belongs. However, the Neulasta Onpro kit (on-body injector) continues to perform well, commanding a market share of more than 60% in the United States for all Neulasta sales.

Neupogen recorded 29% decline in sales to $73 million in the first quarter due to biosimilar competition in the United States, which hurt demand and prices.

Enbrel delivered revenues of $1.15 billion, up 4% from the year-ago driven primarily by favorable changes in accounting estimates along with a slight price increase, which offset the unfavorable impact of changes in inventory. On the call, Amgen said that the slight benefit in pricing should persist through the rest of the year.

Sensipar/Mimpara revenues declined 57% to $213 million. Though Sensipar lost patent exclusivity in March 2018, Amgen was keeping generic competition at bay. However, recently some generic drugmakers launched small molecule generic versions (at-risk), which hurt Sensipar sales significantly in the first quarter. In the second quarter, U.S. sales of Sensipar are expected to be lower than Q1 levels.

Other product sales rose 24% to $78 million.

Operating Margins Decrease

Adjusted operating margin declined 450 basis points (bps) to 52.4% due to higher operating costs.

SG&A spend increased 5% to $1.15 billion on higher investments to support new products including Aimovig, Evenity, Amgevita and Kanjinti. R&D expenses rose 16% year over year to $859 million due to higher spending on the early-stage oncology pipeline.

Adjusted tax rate was 14.6% for the quarter, a 0.9 points increase from the year-ago quarter.

Amgen repurchased 15.9 million shares worth $3.0 billion in the first quarter and has $2.1 billion remaining under its stock repurchase authorization.

2019 Guidance

Amgen raised the lower end of its previously issued sales and earnings guidance for 2019. The company expects revenues in the range of $22.0-$22.9 billion versus $21.8-$22.9 billion previously. Adjusted earnings per share are anticipated in the range of $13.25 - $14.30 versus $13.10-$14.30 expected previously.

Amgen believes that higher sales of newer products should make up for uncertainty surrounding timing and intensity of generic competition to Sensipar and biosimilar competition to Neulasta and continued competitive dynamics for Enbrel and other mature products will create pressure on the top line in 2019.  However, recently launched products including Aimovig, Repatha and biosimilars and international expansion provide incremental growth opportunities.

Operating costs in 2019 are expected to be flat to down from 2018 on an absolute basis. R&D costs are expected to rise in a single digit percentage terms in 2019. However, SG&A expenses are expected to decline as launch expenses normalize.

Adjusted tax rate is estimated at approximately 14.

Amgen plans to invest approximately $700 million in capital expenditures in 2019.


 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Amgen has a subpar Growth Score of D, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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