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Why Is Amgen (AMGN) Up 1.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for Amgen (AMGN - Free Report) . Shares have added about 1.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Amgen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Amgen Second-Quarter Earnings & Sales Beat
Amgen reported second-quarter 2018 earnings of $3.83 per share, which comprehensively beat the Zacks Consensus Estimate of $3.52. Earnings increased 17% year over year driven by higher product sales, a lower tax rate and lower share count.
Total revenues of $6.06 billion in the quarter surpassed the Zacks Consensus Estimate of $5.72 billion and increased 4% year over year.
Quarter in Detail
Total product revenues increased 2% from the year-ago quarter to $5.68 billion (U.S.: $4.37 billion; ex-U.S.: $1.31 billion) as increasing demand for newer products like Prolia, Kyprolis, Xgeva, Repatha and Blincyto was partially offset by lower sales of mature brands like Enbrel, Aranesp, Epogen, Neulasta and Neupogen due to competitive pressure.
Other revenues of $380 million rose 61% year over year due to a milestone payment received from partner Novartis related to Aimovig.
Revenues of Aranesp declined 12% from the prior-year quarter to $472 million due to lower demand, primarily due to increased competitive pressure and lower selling prices.
Revenues of the other ESA, Epogen, declined 14% to $250 million due to competition and lower selling price owing to a newly negotiated contract with DaVita Inc.
Neulasta revenues rose 1% to $1.1 billion from the year-ago period as lower volumes were offset by higher selling prices and favorable changes in inventory. Increased competition from PD-1s and other new cancer therapies are hurting demand for Neulasta. However, the Neulasta Onpro kit (on-body injector) continues to perform well, commanding a market share of about 63% in the United States for all Neulasta sales. Amgen is optimistic that it will see an increase in global utilization of Onpro in 2018 with launches in several international markets.
Neupogen recorded a 26% decline in sales to $102 million due to biosimilar competition in the United States.
Enbrel delivered revenues of $1.30 billion, down 11% from the year-ago quarter due to increased competition, which hurt demand. Unfavorable changes in inventory levels also hurt Enbrel’s sales.
Prolia revenues came in at $610 million, up 21% from the year-ago quarter due to 16% volume growth resulting from higher demand and share gains in both the United States and international markets.
Xgeva delivered revenues of $452 million, up 14% 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.
Sensipar/Mimpara revenues declined 2% to $420 million hurt by unfavorable inventory changes as well as Parsabiv launch, which is also marketed for secondary hyperparathyroidism. A generic version of Sensipar is expected to be launched this year, which may hurt sales further
Vectibix revenues came in at $173 million, up 3%, driven by higher demand.
Kyprolis recorded sales of $263 million, up 25% year over year, driven by increased demand and robust uptake in outside U.S. markets.
On the call, the company said it received reimbursement for Kyprolis in France, which should drive sales uptake in the country in the next quarter.
Blincyto sales surged 40% from the year-ago period to $60 million, reflecting rise in demand
Repatha generated revenues of $148 million, up 78% year over year, driven by higher unit demand which made up from lower prices. On the call, the company said that it has concluded negotiations with several payers, including, CVS and Anthem, which represent greater than 65% of Repatha's commercial revenue. This should improve patient access to Repatha, which can improve volumes. However, Amgen also said that it had to increase rebates for Repatha in a competitive PCSK9 category, which will lower the net price of the product. This can hurt sales of the drug in the second half.
Other than continuing competitive dynamics for Enbrel, possible generic competition to Sensipar and Neulasta and new competition for Aranesp could be the potential headwinds in second half of 2018.
Parsabiv, launched in several markets including United States in the first quarter, recorded sales of $73 million in the quarter, much higher than $41 million in the previous quarter. On the call, the company said it is strong early adoption of Parsabiv.
Other product sales rose 23% to $75 million. Other product sales include sales of Aimovig. On the call, the company said that the initial uptake of the drug has been robust. Particularly, the company stressed that negotiations with payors are progressing well. The company has successfully completed contracts to attain coverage for just under 30% of lives.
Operating Margins Decrease
Adjusted operating margins declined 10 basis points (bps) to 55.1% due to higher operating costs.
SG&A spend increased 14% to $133 billion on higher investments to support growth products as well as investments in product launches. R&D expenses were almost flat at $850 million compared with the year-ago figure.
Adjusted tax rate was 14.2% for the quarter, a 3.2 points decrease from the second quarter of 2017 due to the favorable impact of U.S. corporate tax reform.
Amgen repurchased 18.2 million shares worth $3.2 billion in the second quarter and has $5.4 billion remaining under its stock repurchase authorization.
2018 Guidance
Amgen raised its sales and earnings guidance for 2018. Better-than-expected second-quarter results and an optimistic outlook for the rest of the year led to the increase in the earnings guidance.
The company now expects its revenues in the range of $22.5-$23.2 billion compared with the previous prediction of $21.9-$22.8 billion. Adjusted earnings are now anticipated in the range of $13.30-$14.00 in 2018 compared with the previous projection $12.80-$13.70.
Operating margin is expected to 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 to 2017 levels. SG&A costs in the third and fourth quarters are expected to be consistent with the second-quarter levels.
Adjusted tax rate is still estimated at approximately 13.5%-14.5%.
Hoping to achieve an improved cash position following the new tax law, Amgen plans to invest approximately $750 million this year in capital expenditures. In the second half of 2018, Amgen expects to buyback an additional stock worth $3 billion-$5 billion.
Update on Drug Pricing
In the wake of intense political scrutiny over the high cost of prescription medicines, like many other drug-biotech bigwigs, Amgen committed that it will not raise prices of any of its medicines through the rest of the year. Amgen’s global commercial operations chief, Tony Hooper said the company has not increased list prices of any of its medicines since President Trump’s blueprint was announced. In May, Amgen decided against executing list price increases that were planned for July.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Amgen has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Amgen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Amgen (AMGN) Up 1.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Amgen (AMGN - Free Report) . Shares have added about 1.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Amgen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Amgen Second-Quarter Earnings & Sales Beat
Amgen reported second-quarter 2018 earnings of $3.83 per share, which comprehensively beat the Zacks Consensus Estimate of $3.52. Earnings increased 17% year over year driven by higher product sales, a lower tax rate and lower share count.
Total revenues of $6.06 billion in the quarter surpassed the Zacks Consensus Estimate of $5.72 billion and increased 4% year over year.
Quarter in Detail
Total product revenues increased 2% from the year-ago quarter to $5.68 billion (U.S.: $4.37 billion; ex-U.S.: $1.31 billion) as increasing demand for newer products like Prolia, Kyprolis, Xgeva, Repatha and Blincyto was partially offset by lower sales of mature brands like Enbrel, Aranesp, Epogen, Neulasta and Neupogen due to competitive pressure.
Other revenues of $380 million rose 61% year over year due to a milestone payment received from partner Novartis related to Aimovig.
Revenues of Aranesp declined 12% from the prior-year quarter to $472 million due to lower demand, primarily due to increased competitive pressure and lower selling prices.
Revenues of the other ESA, Epogen, declined 14% to $250 million due to competition and lower selling price owing to a newly negotiated contract with DaVita Inc.
Neulasta revenues rose 1% to $1.1 billion from the year-ago period as lower volumes were offset by higher selling prices and favorable changes in inventory. Increased competition from PD-1s and other new cancer therapies are hurting demand for Neulasta. However, the Neulasta Onpro kit (on-body injector) continues to perform well, commanding a market share of about 63% in the United States for all Neulasta sales. Amgen is optimistic that it will see an increase in global utilization of Onpro in 2018 with launches in several international markets.
Neupogen recorded a 26% decline in sales to $102 million due to biosimilar competition in the United States.
Enbrel delivered revenues of $1.30 billion, down 11% from the year-ago quarter due to increased competition, which hurt demand. Unfavorable changes in inventory levels also hurt Enbrel’s sales.
Prolia revenues came in at $610 million, up 21% from the year-ago quarter due to 16% volume growth resulting from higher demand and share gains in both the United States and international markets.
Xgeva delivered revenues of $452 million, up 14% 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.
Sensipar/Mimpara revenues declined 2% to $420 million hurt by unfavorable inventory changes as well as Parsabiv launch, which is also marketed for secondary hyperparathyroidism. A generic version of Sensipar is expected to be launched this year, which may hurt sales further
Vectibix revenues came in at $173 million, up 3%, driven by higher demand.
Kyprolis recorded sales of $263 million, up 25% year over year, driven by increased demand and robust uptake in outside U.S. markets.
On the call, the company said it received reimbursement for Kyprolis in France, which should drive sales uptake in the country in the next quarter.
Blincyto sales surged 40% from the year-ago period to $60 million, reflecting rise in demand
Repatha generated revenues of $148 million, up 78% year over year, driven by higher unit demand which made up from lower prices. On the call, the company said that it has concluded negotiations with several payers, including, CVS and Anthem, which represent greater than 65% of Repatha's commercial revenue. This should improve patient access to Repatha, which can improve volumes. However, Amgen also said that it had to increase rebates for Repatha in a competitive PCSK9 category, which will lower the net price of the product. This can hurt sales of the drug in the second half.
Other than continuing competitive dynamics for Enbrel, possible generic competition to Sensipar and Neulasta and new competition for Aranesp could be the potential headwinds in second half of 2018.
Parsabiv, launched in several markets including United States in the first quarter, recorded sales of $73 million in the quarter, much higher than $41 million in the previous quarter. On the call, the company said it is strong early adoption of Parsabiv.
Other product sales rose 23% to $75 million. Other product sales include sales of Aimovig. On the call, the company said that the initial uptake of the drug has been robust. Particularly, the company stressed that negotiations with payors are progressing well. The company has successfully completed contracts to attain coverage for just under 30% of lives.
Operating Margins Decrease
Adjusted operating margins declined 10 basis points (bps) to 55.1% due to higher operating costs.
SG&A spend increased 14% to $133 billion on higher investments to support growth products as well as investments in product launches. R&D expenses were almost flat at $850 million compared with the year-ago figure.
Adjusted tax rate was 14.2% for the quarter, a 3.2 points decrease from the second quarter of 2017 due to the favorable impact of U.S. corporate tax reform.
Amgen repurchased 18.2 million shares worth $3.2 billion in the second quarter and has $5.4 billion remaining under its stock repurchase authorization.
2018 Guidance
Amgen raised its sales and earnings guidance for 2018. Better-than-expected second-quarter results and an optimistic outlook for the rest of the year led to the increase in the earnings guidance.
The company now expects its revenues in the range of $22.5-$23.2 billion compared with the previous prediction of $21.9-$22.8 billion. Adjusted earnings are now anticipated in the range of $13.30-$14.00 in 2018 compared with the previous projection $12.80-$13.70.
Operating margin is expected to 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 to 2017 levels. SG&A costs in the third and fourth quarters are expected to be consistent with the second-quarter levels.
Adjusted tax rate is still estimated at approximately 13.5%-14.5%.
Hoping to achieve an improved cash position following the new tax law, Amgen plans to invest approximately $750 million this year in capital expenditures. In the second half of 2018, Amgen expects to buyback an additional stock worth $3 billion-$5 billion.
Update on Drug Pricing
In the wake of intense political scrutiny over the high cost of prescription medicines, like many other drug-biotech bigwigs, Amgen committed that it will not raise prices of any of its medicines through the rest of the year. Amgen’s global commercial operations chief, Tony Hooper said the company has not increased list prices of any of its medicines since President Trump’s blueprint was announced. In May, Amgen decided against executing list price increases that were planned for July.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Amgen has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Amgen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.