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Amgen (AMGN - Analyst Report) reported third quarter 2013 earnings of $1.93 per share, 21 cents above the Zacks Consensus Estimate and 16.3% above the year-ago earnings. Higher revenues, a lower tax rate and a lower share count contributed to the year-over-year increase in earnings despite higher operating expenses.

Total revenue increased 10% to $4,748 million in the third quarter of 2013, topping the Zacks Consensus Estimate of $4,611 million. A $155 million order from the U.S. government for Neupogen drove the upside.

Including one-time items, third quarter earnings increased 27% to $1.79 per share.

The Quarter in Detail

Third quarter total product revenues increased 11% from the year-ago quarter to $4,647 million (U.S.: $3,625 million, ex-U.S.: $1,022 million) with products like Neupogen, Neulasta, Enbrel, Prolia and Xgeva driving growth.

Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp declined 10% from the year-ago quarter to $449 million (U.S.: $171 million; ex-U.S.: $278 million). Lower demand in the U.S. due to dose reductions and in Europe due to competition and price cuts will continue impacting sales in these regions.

Revenues of Amgen’s other ESA, Epogen, remained flat at $491 million. However, revenues slipped 2.2% sequentially reflecting a favorable Medicaid rebate adjustment in the second quarter of 2013.

Worldwide revenues of Neulasta and Neupogen increased 18% to $1,601 million in the third quarter. Neupogen sales were boosted by a U.S. government order worth $155 million.

Enbrel delivered revenues of $1,155 million, up 7% 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.

Third quarter 2013 Prolia revenues came in at $178 million, up 62% from the year-ago quarter. Revenues, however, declined 5% on a sequential basis due to seasonality.

Meanwhile, Xgeva delivered third quarter 2013 revenues of $261 million, up 30% from the year-ago quarter. Sales were up 5% on a sequential basis on increased segment share. Xgeva’s unit share in the U.S. was 42% despite the presence of generic versions of Novartis’ (NVS - Analyst Report) Zometa.

Sensipar/Mimpara revenues increased 7% from the year-ago quarter to $259 million due to higher unit demand. Vectibix revenues came in at $107 million during the quarter, up 22% from the year-ago quarter.

While third quarter 2013 R&D expenses increased 14% from the year-ago period, SG&A expenses increased 10%. Higher Enbrel profit share expenses and the U.S. healthcare reform federal excise fee led to the increase in SG&A spend.

Amgen did not repurchase any shares during the third quarter with $1.6 billion remaining under its share buyback program. Amgen expects its share buyback activities to slow down with a higher focus on increasing dividend meaningfully.

Amgen closed its acquisition of Onyx Pharma on Oct 1, 2013. The company said that Onyx’ oncology product, Kyprolis, posted sales of $65 million, up 6% sequentially.

Rev Guidance Up

Amgen said that it now expects earnings of $7.35 - $7.45 per share on revenues of $18.3 billion - $18.5 billion in 2013. Earlier, the company was guiding towards earnings of $7.30 - $7.45 per share and revenues towards the upper end of its guidance range of $17.8 billion to $18.2 billion. The new guidance includes the impact of the Onyx acquisition. The Zacks Consensus Estimate for earnings and revenues currently stands at $7.20 per share and $18.3 billion, respectively.

Our Take

Amgen’s third quarter results look impressive initially with the company surpassing earnings and revenue estimates by a huge margin. However, revenues surpassed expectations mainly due to a $155 million order from the U.S. government for Neupogen which may or may not recur in upcoming quarters.

Third quarter results looked very similar to the company’s second quarter results when a positive Medicaid adjustment impact of $185 million had boosted the top- and bottom-line.

Although Amgen raised its revenue guidance, we note that this includes the impact of the one-time boosts in the second and third quarters of 2013 and the Onyx acquisition.

Meanwhile, 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. We expect 2014 to be a catalyst-rich year for Amgen with the company expected to report results on several key pipeline candidates.

Important pipeline events include pivotal data on cholesterol management candidate, evolocumab (first quarter of 2014), overall survival data on oncology candidate, trebananib (second half of 2014), phase III data on psoriasis candidate, brodalumab, and data on Kyprolis from the ASPIRE and FOCUS studies.

At present, companies like Actelion (ALIOF) and Alexion Pharmaceuticals (ALXN - Analyst Report) look attractive. While Actelion is a Zacks Rank #1 (Strong Buy) stock, Alexion carries a Zacks Rank #2 (Buy).

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