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Amgen (AMGN) Q1 Earnings Top, Sales Hurt by Pricing Pressure

Zacks Equity Research

Amgen, Inc. AMGN 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.

Other revenues of $271million 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 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.

Sales of Amgen’s PCSK9 inhibitor, 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.

Amgen’s new migraine drug, 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.

Amgen recorded biosimilar revenues of $55 million in the quarter, entirely from international markets versus $34 million in the previous quarter. Amgen achieved several important milestones with its biosimilars portfolio in 2018 including its first two launches in EU – Amjevita (biosimilar of AbbVie’s Humira) and Kanjinti (a biosimilar of Roche’s Herceptin). 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.

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 PFE 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 MYL 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.

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.

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 Amgen’s early-stage oncology pipeline.

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.

Operating costs in 2019 are expected to be flat from 2018 level on an absolute basis.

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

Our Take

Amgen’s first-quarter results were decent. However, soft sales performance of Aimovig disappointed investors. Aimovig faces fierce competition fromother newly launched CGRP antibodies, Lilly’s LLY Emgality and Teva’s Ajovy,

Amgen shares have declined 7.9% this year so far against 4.7% increase registered by the industry during this period.

While Amgen’s newer drugs – Prolia, Xgeva, Blincyto, Kyprolis – will drive sales, uncertainty related to the timing and intensity of generic competition to Sensipar 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.

Amgen is also rapidly advancing its pipeline and the approval of osteoporosis drug Evenity late last month was a boost. Amgen boasts a strong biosimilars pipeline, which could be an important long-term growth driver for the company. It expects to launch additional biosimilars in 2019.

Amgen currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amgen Inc. Price, Consensus and EPS Surprise

 

Amgen Inc. Price, Consensus and EPS Surprise | Amgen Inc. Quote

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