Can Amgen (AMGN) Keep the Earnings Streak Alive in Q3?

We expect biotech major Amgen Inc.AMGN to beat expectations when it reports third-quarter 2018 results on Oct 30, after market close. Amgen delivered a positive earnings surprise of 8.81% last quarter.

Amgen shares have risen 8% in the past year against 20.7% decrease registered by the industry during this period.

Amgen's performance has been modest, with the company delivering a positive surprise in three out of the trailing four quarters. The average earnings beat over the last four quarters is 4.29%.

Amgen Inc. Price and EPS Surprise

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

Let's see how things are shaping up for the company this quarter.

Factors at Play

Amgen's newer products like Prolia, Kyprolis, Xgeva, Repatha and Blincyto are likely to perform well backed by higher demand. These are likely to make up for lower sales of mature brands like Enbrel, Aranesp, Epogen, Neulasta and Neupogen due to competitive pressure.

High demand and share gains in both the United States and international markets should drive sales of Prolia. In May/June, Prolia gained FDA as well as EU approval for its fifth indication - treatment of glucocorticoid-induced osteoporosis (GIOP) in men and women at high risk of fracture. This can drive sales of the drug in the third quarter. The Zacks Consensus Estimate for sales of Prolia in the third quarter is $554 million.

This year, Xgeva gained approval in both the United States and EU for the prevention of skeletal-related events in patients with multiple myeloma. The approval for the expanded patient population led to higher volumes of Xgeva in the second quarter, a trend we expect to continue in the third quarter.

Late in the third quarter Blincyto was approved in Japan and for the pediatric patient population in the United States. Though this label expansion may not add significantly to sales in the third quarter, it should boost sales of the drug fourth quarter onward.

Kyprolis sales are likely to be driven by increased demand and robust uptake in outside U.S. markets. On the second quarter call, Amgen had said it received reimbursement for Kyprolis in France, which should drive sales uptake in the country in the future quarters.

In mid-2018, Amgen gained regulatory approvals to include overall survival data from key studies in the labels of Kyprolis and Blincyto, which can drive sales of these products in the to-be-reported quarter.

The Zacks Consensus Estimate for sales of Blincyto and Kyprolis is $66 million and $262 million, respectively.

In the second quarter, Repatha sales rose significantly driven by higher unit demand, which made up from lower prices. However, on the call, Amgen said that it had concluded negotiations with several payers, including CVS and Anthem, which represent greater than 65% of Repatha's commercial revenues. This should improve patient access to Repatha, which can improve volumes.

However, Amgen also said that it had to increase rebates for Repatha in the competitive PCSK9 category, which will lower the net price of the product. This can hurt sales of the drug in the second half. It remains to be seen how the drug performs in the third quarter.

On Wednesday, Amgen announced its decision to cut the U.S. list price of Repatha by 60% to boost sales of the drug, which have suffered due to payer restrictions. A discussion on the impact of the reduced prices on profits of Amgen is expected on the third-quarter investor call. The Zacks Consensus Estimate for sales of Repatha is $176 million.

Amgen's newly launched secondary hyperparathyroidism treatment, Parsabiv performed well in the second quarter. We expect the drug to generate higher sales in the third quarter.

However, Amgen's mature drugs like Enbrel, Aranesp, Epogen, Neupogen and Neulasta are facing an array of branded and generic competitors. While Neupogen is already facing U.S. biosimilar competition, Neulasta, Epogen and Sensipar could start facing the same later this year. Mylan's MYL biosimilar version of Neulasta called Fulphila, which is priced at a discount of 33% to Neulasta's list price, was approved by the FDA in June and launched in July. This could lead to lower sales of Neulasta in the third quarter.

Pfizer's Retacrit, the first biosimilar version of Epogen, was approved in May 2018 and may be launched soon. Sensipar lost patent exclusivity in March 2018 and generics may to be launched (at-risk) later this year. Sensipar's sales are being cannibalized by Parsabiv, which is also marketed for secondary hyperparathyroidism.

Enbrel sales are expected to be hurt by lower selling prices and increased competition, which is hurting demand. Enbrel is one of the main drivers of Amgen's revenues. The Zacks Consensus Estimate for sales of Enbrel is $1.31 billion.

Investor focus on the call will be on management's comments on the launch uptake of its newly approved migraine drug, Aimovig. Aimovig/erenumab for prevention of migraine was approved and launched in the United States in second quarter of 2018. Though the company did not specify the sales number of Aimovig in the second quarter, it did say that the initial uptake of the drug has been robust. Aimovig was approved in the EU in September.

On the second-quarter call, Amgen warned that operating margin will be lower in the remaining quarters of 2018 due to the timing of expenses. R&D expenses, as a percentage of product sales, are expected to be comparable with 2017 levels in the second half. SG&A costs in the third and fourth quarters are expected to be consistent with the second-quarter levels.

Earnings Whispers

Our proven model shows that Amgen is likely to beat on earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($3.44 per share) and the Zacks Consensus Estimate ($3.42 per share) is +0.56%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Amgen has a Zacks Rank #2. The combination of Amgen's Zacks Rank #2 and positive ESP makes us confident of an earnings beat in the upcoming release.

Sell-rated stocks (Zacks Rank #4 or 5), on the other hand, should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Large pharma/biotech stocks that have both a positive ESP and a favorable Zacks Rank include:

Regeneron Pharmaceuticals, Inc. REGN has an Earnings ESP of +0.44% and a Zacks Rank of 3. The company is scheduled to report third-quarter earnings on Nov 6. You can see the complete list of today's Zacks #1 Rank stocks here .

Allergan, plc AGN has an Earnings ESP of +2.89% and a Zacks Rank of 3. The company is scheduled to report third-quarter earnings on Oct 30.

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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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