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Amgen (AMGN - Analyst Report) reported second quarter 2013 earnings of $1.88 per share, 17 cents above the Zacks Consensus Estimate and 3.3% above the year-ago earnings. Higher revenues (including a positive adjustment of $185 million), a lower tax rate and a lower share count contributed to the year-over-year increase in earnings. The Medicaid-related adjustment boosted second quarter 2013 earnings by 16 cents and mainly affected the revenues of Neupogen and the erythropoiesis-stimulating agent (ESA) franchise.

Total revenue increased 5% to $4,679 million in the second quarter of 2013, topping the Zacks Consensus Estimate of $4,480 million.

Including one-time items, second quarter earnings increased 2% to $1.65 per share.

The Quarter in Detail

Second quarter total product revenues increased 9% from the year-ago quarter to $4,595 million (U.S.: $3,561 million, ex-U.S.: $1,034 million).

While products like Enbrel, Neulasta, Xgeva and Prolia performed well, revenues benefited from a $185 million positive adjustment to previous estimates related to managed Medicaid rebates based on recent claims experience. 

Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp declined 2% from the year-ago quarter to $524 million (U.S.: $228 million; ex-U.S.: $296 million). The company noted a decline in demand in the U.S. due to dose reductions and in Europe due to competition and price cuts.

Amgen’s other ESA, Epogen, delivered sales of $502 million, down 4% from the year-ago quarter. However, revenues grew 15% sequentially benefiting from the Omontys product recall as well as the Medicaid rebate adjustment.

Worldwide revenues of Neulasta and Neupogen increased 7% to $1,444 million in the second quarter.

Enbrel delivered revenues of $1,157 million, up 9% from the year-ago quarter. Revenues were driven by price increases. The company has been taking steps to improve Enbrel’s performance which includes optimization of the sales force, higher direct-to-consumer advertising and increased focus on appropriate access.

Amgen said that while Enbrel continued to maintain share in rheumatology, higher competition led to a slight decrease in share in dermatology.

Second quarter 2013 Prolia revenues came in at $188 million, up 57% from the year-ago quarter. Revenues grew 32% on a sequential basis reflecting increased segment share driven by seasonality. Amgen has re-launched a DTC television campaign for Prolia and reported an improvement in repeat injection rates.

Meanwhile, Xgeva, which gained FDA approval in Nov 2010, delivered second quarter 2013 revenues of $249 million, up 39% from the year-ago quarter. Sales were up 12% on a sequential basis on increased segment share. Xgeva’s value share in the U.S. increased to 61% at the end of the second quarter. Even though generic versions of Novartis’ (NVS - Snapshot Report) Zometa have entered the market, Amgen said that generics are yet to have an impact on Xgeva sales.

Sensipar/Mimpara revenues increased 12% from the year-ago quarter to $259 million due to higher unit demand. Vectibix revenues came in at $93 million during the quarter, up 3% from the year-ago quarter.

While second quarter 2013 R&D expenses increased 17% from the year-ago period, SG&A expenses increased 3%. Higher Enbrel profit share expenses led to the increase.

Amgen did not repurchase any shares during the second quarter. The company expects its share buyback activities to slow down with a higher focus on increasing dividend meaningfully.

Earnings Guidance Up

Amgen said that it now expects revenues towards the upper end of its guidance range of $17.8 billion to $18.2 billion. The company raised its earnings outlook to $7.30 - $7.45 per share. Earlier, Amgen was expecting earnings to cross the midpoint of its previous guidance range of $7.05–$7.35 per share. The Zacks Consensus Estimate for earnings and revenues is currently $7.20 per share and $17.9 billion, respectively.

Our Take

At first glance, Amgen’s second quarter results look impressive with the company surpassing earnings and revenue estimates by a huge margin. However, revenues included a positive Medicaid adjustment impact of $185 million which boosted the bottom line by 16 cents. Earnings also benefited from a lower tax rate and share count. Shares were down in pre-market trading.

Amgen should be able to deliver on its long-term strategy based on expansion in key markets, launch of new manufacturing technologies, and pipeline development. However, nearer-term, we remain concerned about the performance of existing products. We expect 2013 and 2014 to be important years for Amgen with the company expected to report results on several key pipeline candidates.

Amgen reported positive data on its phase III oncology candidates, trebananib (recurrent ovarian cancer) and talimogene laherparepvec (malignant melanoma). Overall survival data on talimogene laherparepvec should be out in the first half of 2014. Amgen is also focusing on the lucrative biosimilars market and expects to launch six new biosimilars from 2017.

Amgen currently carries a Zacks Rank #2 (Buy). At present, companies like Biogen Idec (BIIB - Analyst Report) and Gilead Sciences, Inc. (GILD - Analyst Report) look attractive with both carrying a Zacks Rank #1 (Strong Buy).
 

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