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Amgen Bounces Back On Strong 2012 Performance

By: Investor's Business Daily
Posted: 9/14/2012 1:22:00 PM
Referenced Stocks: ABT;AMGN;JNJ;MRK;PFE

After spending the previous couple of years watching its financial results barely inch forward and its stock price go sideways,Amgen ( AMGN ) has found a higher gear in 2012.

The world's largest biotech company grew earnings at least 20% during the first two quarters of the year, ending a run of four straight quarters of low single-digit gains. It posted a double-digit rise in second-quarter sales -- the first time in years that's happened.

Meanwhile, Amgen's stock price spiked to its highest point since November 2005 after the company reported Q2 results in late July. Shares have continued to rise since then and currently trade near 83, just a couple dollars off the all-time high set seven years ago.

All in all, it's been a pretty nice comeback for a company that hasn't grown annual sales or earnings in double digits since 2006.

"The overall business is doing better than expected and we see several possible levers to pull to continue the turnaround," said Citibank analyst Yaron Werber.

Amgen discovers, develops, manufactures and markets drugs that treat cancer, nephrology and inflammation.

Top Seller

The company's top-selling drug during the second quarter was its Enbrel treatment for inflammatory conditions, which notched $1.06 billion in sales.

Neulasta, which is used to reduce the risk of infection in cancer patients who receive chemotherapy, also produced more than $1 billion in global sales during the quarter.

Other leading products include anemia treatments Aranesp and Epogen, both of which delivered Q2 sales in excess of $500 million.

All but Neulasta beat second-quarter sales projections, a big reason Amgen managed to deliver a much better than expected overall result.

In a note, JPMorgan analyst Geoff Meacham said the biggest upside surprises during the quarter came from Epogen and Enbrel.

"For Epogen, there were a number of factors that led to the beat," Meacham said. "The most important takeaways were ... low single-digit volume growth, and dosing appears to be stabilized over the last several months."

He attributed Enbrel's outperformance to "price increases and increases in inventory and demand."

The outlook for Enbrel should be helped on a couple of fronts. In February, the drug won a patent extension to 2029, meaning it won't have to worry about generic competition for another 17 years. In addition, a profit-sharing deal on Enbrel withPfizer ( PFE ) is due to end in October 2013.

While Enbrel faces increasing competition from products made byAbbott Labs ( ABT ),Merck ( MRK ) andJohnson & Johnson ( JNJ ), it still managed to post an 11% rise in second-quarter sales.

"(Amgen management) said that over the last year, Enbrel has been increasing its share among bio-naive patients, or those who are new to biologics," Zacks Equity Research noted in a report.

Amgen's overall revenue during the quarter rose 13% from the prior year to $4.48 billion, easily surpassing views for $4.08 billion. Earnings gained 34% to $1.83 a share, well above estimates for $1.54 a share.

The company raised its full-year earnings forecast to a range of $6.20 to $6.35 a share, up from previous guidance of $5.90 to $6.15 a share. It expects revenue of $16.9 billion to $17.2 billion, above views for $16.4 billion.

The quarter represented a good start for new Chief Executive Robert Bradway, who took over the post in May after previously serving as Amgen's chief operating officer.

"I am very pleased with the performance of the business," Bradway said in a statement. "I am excited about the growth opportunities in our research and development pipeline, particularly our biologic AMG 145 for (high blood cholesterol)."

Much of the excitement surrounding AMG 145 centers on a study released in March showing monthly injections of the drug cut levels of cholesterol by up to an additional 66% in patients already taking statins.

Those results could make AMG 145 a strong potential rival to a similar drug, dubbed REGN 727, being developed byRegeneron Pharmaceuticals (REGN).

During its Q2 conference call, Amgen announced that AMG 145 will enter Phase 3 development early next year.

R&D Spending

Much of the company's research and development spending over the near term will be devoted to AMG 145 as well as AMG 785, a treatment for postmenopausal osteoporosis that is already in Phase 3 trials.

Although most observers are upbeat about AMG 145's sales potential, the drug also faces challenges. In a report, analyst Alex To of Cross Current Research said the two biggest wild cards are how many patients will be willing to take an injectable drug to manage cholesterol, and how long it will take AMG 145 to get on the market.

Under one scenario, he says, Amgen won't be able to file for regulatory approval for AMG 145 until the second half of 2018.

"Under the best of circumstances the Food and Drug Administration and European Medicines Agency approve the drug on its first pass. (In that case) AMG 145 will reach the marketplace at the end of 2019," To noted. "How much valuation can we ascribe today to a drug that will launch at the very end of the decade?"

Regardless of how that pans out, most watchers see solid growth for Amgen, at least over the near term. Analysts polled by Thomson Reuters expect the company to grow its annual earnings 19% this year, 9% in 2013 and 16% in 2014.