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Amgen (AMGN) Q2 Earnings & Sales Beat, New Drugs Shine

Zacks Equity Research

Amgen AMGN reported second-quarter 2019 earnings of $3.97 per share, which beat the Zacks Consensus Estimate of $3.58. Earnings increased 4% year over year helped by a lower share count.

Total revenues of $5.87 billion in the quarter beat the Zacks Consensus Estimate of $5.68 billion. However, total revenues declined 3% year over year.

Quarter in Detail

Total product revenues decreased 2% from the year-ago quarter to $5.57 billion (U.S.: $4.14 billion; ex-U.S.: $1.43 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 prices were lower for several drugs.

Other revenues of $297 million declined 21.8% in the quarter due to a milestone payment received in the prior-year quarter.

Prolia revenues came in at $698 million, up 14% from the year-ago quarter, attributable to 15% volume growth resulting from higher demand. Moreover, a seasonal sales pattern with second- quarter sales being higher than the first quarter due to a six-month dosing intervalalso benefited Prolia sales in the quarter.

Xgeva delivered revenues of $499 million, up 10% from the year-ago quarter mainly due to higher demand, which drove volumes.

Kyprolis recorded sales of $267 million, up 2% year over year driven primarily by 13% volume growth in the United States.

Blincyto sales increased 30% from the year-ago period to $78 million, reflecting rise in demand.

Repatha generated revenues of $152 million, up 3% year over year, as higher volume 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 $196 million, up 13% year over year. Nplate sales rose 12% to $201 million.

Parsabiv, launched in several markets including United States in 2018, recorded sales of $168 million in the second quarter, higher than $126 million in the previous quarter driven by higher demand.

Amgen’s new migraine drug, Aimovig recorded sales of $83 million in the quarter, higher than $59 million in the previous quarter driven by an increase in the percentage of paid volume as the company sees improvement in conversion of free-to-paid patients. Aimovig faces competition from other newly launched CGRP antibodies, Lilly’s LLY Emgality and Teva’s TEVA Ajovy.

The newly launched osteoporosis drug, Evenity recorded sales of $28 million in the quarter. In the United States, where Evenity was launched in April this year, sales were $3 million while international sales of $25 million came from Japan, the first country where Evenity was launched this year.

Amgen recorded biosimilar revenues of $82 million in the quarter, entirely from international markets compared with $55 million in the previous quarter. Amgen achieved several important milestones with its biosimilars portfolio in the past couple of years. It launched Amjevita (biosimilar of AbbVie’s Humira) and Kanjinti (a biosimilar of Roche’s Herceptin) in EU in 2018 and Kanjinti and Mvasi (biosimilar of Roche’s Avastin)in the United States earlier this month.

Amgen expects more biosimilars to gain approval this year and contribute 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 8% from the prior-year quarter to $244 million on lower volume due to increased competitive pressure.

Revenues of the other ESA, Epogen, declined 11% to $223 million due to lower selling prices as the category has become extremely competitive.

Neulasta revenues declined 25% from the year-ago period to $824 million due to lower selling prices and biosimilar competition.

Two companies, Mylan MYL and Coherus launched biosimilars of Neulasta (prefilled syringe) 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. 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.

Neupogen recorded 26% decline in sales to $75 million in the quarter due to biosimilar competition in the United States, which hurt demand and prices.

Enbrel delivered revenues of $1.36 billion, up 5% from the year-ago quarter, driven primarily by favorable changes in inventory along with a slight price increase, which offset the unfavorable impact of lower demand.

Sensipar/Mimpara revenues declined 71% to $122 million due to at-risk small-molecule generic launches. Other product sales rose 11% to $52 million.

Operating Margins Decrease

Adjusted operating margin declined 180 basis points (bps) to 53.3%. Adjusted operating expenses decreased 1% year over year in the second quarter. SG&A spend decreased 6% to $1.26 billion on cost control. R&D expenses rose 7% year over year to $906 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 for the second time this year based on its solid second-quarter performance. The company expects revenues in the range of $22.4-$22.9 billion versus $22.0-$22.9 billion expected previously. Adjusted earnings per share are anticipated in the range of $13.75-$14.30 versus $13.25 - $14.30 expected previously.

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

Operating margin is expected to be lower in the second half of the year due to unfavorable timing of expenses

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

Our Take

Amgen’s second-quarter results were strong as it beat estimates for both earnings and sales. Amgen’s shares were up more than 2% in after-hour trading on Tuesday following the better-than-expected results and the guidance increase. On the call, the company said that its KRAS inhibitor for solid tumors, AMG-510 has shown responses in patients with colorectal and appendiceal cancer, which could have also pushed share price higher. However, Amgen shares have declined 9.4% this year so far compared with 0.3% decrease registered by the industry during this period.

 

 

While Amgen’s newer drugs — Prolia, Xgeva, Blincyto, Kyprolis — will continue to drive sales, biosimilar and brand competition for its legacy products will create pressure on sales in the second half. Meanwhile, Amgen is rapidly advancing its pipeline and the approval of osteoporosis drug Evenity in April 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 the second half.

However, it faced a couple of pipeline setbacks this year. Earlier this month, it announced discontinuation of two pivotal late-stage studies evaluating CNP520 to prevent or delay the symptoms of Alzheimer's disease (AD) in a high-risk population. In June, Evenity was given a negative opinion by the Committee for Medicinal Products for Human Use in the EU.

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. price-consensus-eps-surprise-chart | Amgen Inc. Quote


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