Amgen (AMGN) Beats on Earnings & Sales in Q3, Raises View

Amgen Inc.AMGN reported third-quarter 2018 earnings of $3.69 per share, which beat the Zacks Consensus Estimate of $3.42. Earnings increased 13% year over year driven mainly by lower tax rate and share repurchases.

Total revenues of $5.90 billion in the quarter surpassed the Zacks Consensus Estimate of $5.80 billion and increased 2% year over year.

So far this year, Amgen's stock has risen 8.8% against 19.8% decrease of its industry .

Quarter in Detail

Total product revenues increased 1% from the year-ago quarter to $5.51 billion (U.S.: $4.26 billion; ex-U.S.: $1.25 billion) as increasing demand for newer products like Prolia, Kyprolis, Xgeva, Blincyto and Parsabiv was partially offset by lower sales of mature brands like Enbrel, Aranesp, Epogen, Neulasta and Neupogen due to competitive pressure.

Prolia revenues came in at $532 million, up 15% from the year-ago quarter, attributable to 16% volume growth resulting from higher demand and share gains in both the United States and international markets.

Xgeva delivered revenues of $433 million, up 12% from the year-ago quarter mainly due to higher demand, which drove volumes. This year, Xgeva gained approval in both United States and EU for the prevention of skeletal-related events in patients with multiple myeloma. The approval for the expanded patient population drove higher volumes of Xgeva this quarter.

Vectibix revenues came in at $181 million, up 8%, driven by higher demand, which made up for lower prices.

Kyprolis recorded sales of $232 million, up 12% year over year, driven primarily by robust uptake in outside U.S. markets. Early this month, Amgen gained FDA approval for a once-weekly dosing regimen of Kyprolis in combination with dexamethasone.

Blincyto sales increased 12% from the year-ago period to $58 million, reflecting rise in demand. In the third quarter Blincyto was approved in Japan and for pediatric use in EU.

Amgen's PCSK9 inhibitor, Repatha, generated revenues of $120 million, up 30% year over year as higher unit demand was offset by lower prices. Last week, Amgen announced its decision to cut the U.S. list price of Repatha by 60% to improve access and affordability of Repatha. Sales of the drug have suffered since launch due to payer restrictions. Though lower price may impact Repatha sales in the near term, management is optimistic to see better volume growth.

Parsabiv, launched in several markets including United States in the first quarter, recorded sales of $102 million in the third quarter, much higher than $73 million in the previous quarter.

Amgen's newly launched CGRP inhibitor for migraine prevention, Aimovig (erenumab) recorded sales of $22 million in the quarter. Aimovig was approved in the EU in July.

However, Amgen's mature drugs like Enbrel, Aranesp, Epogen, Neupogen and Neulasta are facing an array of branded and generic competitors. While Neupogen has been facing U.S. biosimilar competition for some time now, Neulasta began facing the same this year. Also biosimilar versions of Epogen and Sensipar may be launched anytime soon.

Revenues of Amgen's erythropoiesis-stimulating agent (ESA), Aranesp, declined 8% from the prior-year quarter to $477 million on lower demand primarily due to increased competitive pressure.

Revenues of the other ESA, Epogen, declined 5% to $252 million due to lower selling prices as the category has become extremely competitive. Also Pfizer's PFE Retacrit, the first biosimilar version of Epogen, was approved in May 2018 and may be launched soon. With the launch of Retacrit and other biosimilars, there could be a further decline in selling price.

Neulasta revenues declined 6% to $1.05 billion from the year-ago period on lower volumes and selling prices due to biosimilar competition in the United States. Mylan's MYL biosimilar version of Neulasta, Fulphila, which is priced at a discount of 33% to Neulasta's list price, was launched in July, which hurt sales of Neulasta in the third quarter. More biosimilars are expected to be launched by the end of next year, 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 a 38% decline in sales to $85 million due to biosimilar competition in the United States, which hurt demand and prices. Novartis' NVS generic arm Sandoz and Teva are marketing biosimilar versions of Neupogen. In July, Pfizer also gained FDA approval for its biosimilar version of Neupogen.

Enbrel delivered revenues of $1.29 billion, down 5% from the year-ago quarter due to lower prices and increased competition, which hurt demand. The adverse effect was somewhat offset by some favorable accounting adjustments.

Sensipar/Mimpara revenues declined 11% to $409 million hurt by Parsabiv launch, which is also marketed for secondary hyperparathyroidism. Sensipar also lost patent exclusivity in March 2018 and generics may be launched (at-risk) this year.

Other product sales rose 36% to $87 million. Other revenues of $394 million rose 23% in the quarter due to a milestone payment from partner Novartis for Aimovig.

Operating Margins Decrease

Adjusted operating margin declined 170 basis points (bps) to 53.9% due to higher operating costs.

SG&A spend increased 11% to $127 billion on higher investments to support new products as well as already marketed products. R&D expenses rose 6% year over year to $906 million.

Adjusted tax rate was 13% for the quarter, a 6.4 points decrease from the third quarter of 2017.

Amgen repurchased 8.7 million shares worth $1.7 billion in the third quarter and has $3.7 billion remaining under its stock repurchase authorization.

2018 Guidance

Amgen raised its sales and earnings guidance for 2018. The company now expects revenues in the range of $23.2-$23.5 billion compared with the previous prediction of $22.5-$23.2 billion. Adjusted earnings are now anticipated in the range of $14.00-$14.25 in 2018 compared with the previous projection $13.30-$14.00.

Hoping to achieve an improved cash position following the new tax law, Amgen plans to invest approximately $700 million this year in capital expenditures, lower than $750 expected previously.

Our Take

Amgen's third-quarter results were impressive as it beat estimates for both earnings and sales and also increased its guidance for the year.

Amgen's newer drugs - Prolia, Xgeva, Blincyto, Kyprolis - are performing well on the back of volume-driven growth. Amgen is also progressing with its pipeline and the approval of Aimovig was a huge boost. Amgen said on the investor call that the innovative migraine treatment is off to a "very strong start". It also boasts a strong biosimilar portfolio and launched Amjevita, its biosimilar version of Abbvie's blockbuster rheumatoid arthritis drug, Humira in several European countries this month. The company has eight additional biosimilar programs in development, which could be an important long-term growth driver for the company. However, declining sales of some of the old blockbuster drugs is a concern.

Zacks Rank

Amgen currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Amgen Inc. Price, Consensus and EPS Surprise

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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