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Why Is Amgen (AMGN) Down 4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Amgen (AMGN). Shares have lost about 4% in that time frame, underperforming 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 catalysts.

Amgen Beats on Q1 Earnings & Sales

Amgen’s first-quarter results were strong, beating estimates for both earnings and sales. Amgen maintained its previously-issued financial guidance for 2020.

Amgen reported first-quarter 2020 earnings of $4.17 per share, which beat the Zacks Consensus Estimate of $3.70. Earnings rose 17% year over year driven by higher profits and lower share count.

Total revenues of $6.16 billion in the quarter beat the Zacks Consensus Estimate of $6.0 billion. Total revenues rose 11% year over year.

Although Amgen saw minimal business disruption from COVID-19 in the first quarter, it did see some signs of business disruption in the first few weeks of April. On the call, the company said that decline in visits of patients to doctors clinics due to the lockdowns may reduce new patient starts for some of its products due to delays in diagnosis and treatment.

On the call, the company said that it did not experience any disruption in the supply chain in the quarter. Also, key late-stage trials including AMG510, tezepelumab, and omecamtiv mecarbil were not impacted by COVID-19 with readouts expected as scheduled this year. However, some early stage studies were interrupted and the company will re-start the studies as soon as possible.

Quarter in Detail

Total product revenues rose 12% from the year-ago quarter to $5.89 billion (U.S.: $4.28 billion; ex-U.S.: $1.62 billion). Increasing demand for Amgen’s newer drugs like Otezla and strong sales of biosimilar products were offset by the erosion of mature brands from biosimilar/new competition. Product sales growth was mostly driven by higher volumes (up 15%) as prices declined in the quarter.

Other revenues of $267 million declined 1.5% in the quarter.

Prolia revenues came in at $654 million, up 10% from the year-ago quarter. Amgen saw volume increases for the product in January and February, which declined sharply in March due to the coronavirus outbreak as Prolia requires in-office administration by a healthcare provider.

Xgeva delivered revenues of $481 million, up 2% from the year-ago quarter mainly due to higher demand, which drove volumes up 4% and, to a lesser extent, on higher selling price. Meanwhile, Amgen warned that sales of Xgeva may also be hurt due to disruptions in physician-patient interactions.

Kyprolis recorded sales of $280 million, up 14% year over year, driven primarily by 21% volume growth in the United States, which was driven by expanded use in second and third-line multiple myeloma.

Repatha generated revenues of $229 million, up 62% year over year, as higher volume (up 98%) was partially offset by lower prices due to Amgen’s efforts to improve access and affordability for the product. Repatha’s new-to-brand prescriptions rose 51% in the quarter. Amgen expects net selling price to remain stable in the remainder of the year

Vectibix revenues came in at $202 million, up 19% year over year. Nplate sales rose 15% to $218 million. Blincyto sales increased 36% from the year-ago period to $94 million. Sales of all three drugs were driven by higher demand.

Parsabiv recorded sales of $175 million, up 39% driven by higher demand, which offset the impact of lower selling prices.

Aimovig recorded sales of $71 million in the quarter, lower than $98 million in the previous quarter as higher volumes were offset by lower price as Amgen expanded patient access with CVS Health. Aimovig volumes rose 46% in the quarter. Aimovig’s new-to-brand prescriptions rose 19% in the quarter.

On the call, the company said that approximately 330,000 patients in the United States have been prescribed Aimovig since launch. Meanwhile, more than 33,000 physicians have prescribed Aimovig since launch. It commanded a 48% market share among CGRP antibodies at the end of the first quarter.

Evenity recorded sales of $100 million in the quarter compared with $85 million in the previous quarter, driven by strong uptake in both Japan and the United States where the product was launched last year. In the United States, sales were $37 million while international sales were $63 million.

Sales of Otezla were $479 million in the quarter, up 23% year over year driven by volume growth. Amgen said that COVID-19 may benefit future sales of Otezla as it provides a convenient oral formulation and is conducive to telemedicine.

Among biosimilars, Amjevita sales were $86 million in the quarter. Sales of Kanjinti and Mvasi were $119 million and $115 million in the quarter, compared with $103 million and $84 million, respectively, in the previous quarter.

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

Aranesp revenues rose 2% from the prior-year quarter to $414 million as higher unit demand and favorable changes in inventory offset the impact of lower net selling price.

Revenues of the other ESA, Epogen, declined 29% to $155 million due to lower selling prices and unfavorable changes in accounting estimates.

Neulasta revenues declined 40% from the year-ago period to $609 million due to the impact of biosimilar competition on demand and price. The first quarter of 2019 had benefited from a BARDA order.

Neupogen recorded 11% decline in sales to $65 million in the quarter. Enbrel delivered revenues of $1.15 billion, flat year over year as favorable changes in accounting estimates were offset by lower demand and selling prices.

Sensipar/Mimpara revenues declined 42% to $123 million due to several at-risk generic launches. Amgen lost patent protection for Sensipar in several ex-U.S. countries this year, which should result in a significant decline in ex-U.S. sales in 2020.

Other product sales rose 5% to $64 million.

Operating Margins Rise

Adjusted operating margin rose 150 basis points (bps) to 53.9%. Adjusted operating expenses rose 7% year over year in the quarter to $2.99 billion.

SG&A spend rose 12% to $1.29 billion due to Otezla-related commercial expenses. R&D expenses rose 8% year over year to $927 million as higher spending on Amgen’s oncology pipeline and costs related to Otezla were partially offset by cost recoveries from Amgen’s collaboration with BeiGene.

Adjusted tax rate was 12.8% for the quarter, a 1.8 points increase from the year-ago quarter.

Amgen repurchased 4.3 million shares worth $933 million in the quarter and has $5.5 billion remaining under its stock repurchase authorization.

To Study Otezla for Coronavirus

Amgen announced that it will begin clinical studies to evaluate Otezla as a potential immunomodulatory treatment in late-stage adult COVID-19 patients.

2020 Outlook

Amgen re-affirmed its previously issued financial guidance for 2020. It expects revenues in the range of $25.0 billion-$25.6 billion, which indicates an increase from 2019 levels.

Amgen expects to see a significant impact of the uncertainty related to COVID-19 in the second quarter, which it expects will stabilize and then improve in the second half of the year. Meanwhile, increased utilization of patient affordability programs and changes in segment mix due to increased unemployment could negatively impact U.S. net prices

Adjusted earnings per share are anticipated in the range of $14.85-$15.60.

Adjusted operating costs are expected to grow in a high single-digit percentage range year over year in 2020 versus prior expectation of a low double-digit percentage range. Adjusted tax rate is expected in the range of 13.5% to 14.5%.

Amgen plans to spend approximately $600 million for capital expenditures in 2020, less than $700 million guided previously. The company guided that it will buy back shares at the lower end of the previous guidance of $3 billion to $5 billion through the year.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -6.54% due to these changes.

VGM Scores

Currently, Amgen has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 #2 (Buy). We expect an above average return from the stock in the next few months.



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