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Amgen (AMGN - Analyst Report) reported first quarter earnings per share of $1.59, 16 cents above the Zacks Consensus Estimate and 20.5% above the year-ago period. A lower tax rate, lower share count and higher revenues contributed to the year-over-year increase in earnings.

Total revenue increased 9.2% to $4,048 million in the first quarter of 2012. Revenues comfortably surpassed the Zacks Consensus Estimate of $3,936 million. However, revenues included a $50 million payment received from AstraZeneca (AZN - Analyst Report) for their inflammation collaboration and a $22 million milestone payment from Astellas for the approval of AMG 223 (a phosphate binder for patients on dialysis with chronic kidney disease) in Japan.

The Quarter in Detail

First quarter total product sales increased 8% to $3,901 million. US product revenues increased 8% during the quarter to $2,997 million. Meanwhile, international product revenues increased 8% to $904 million.

Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp fell 11% to $518 million (US: $202 million, down 19%; ex-US: $316 million, down 4%).

US sales were down mainly due to a decline in demand that was partially offset by a price increase. The decline reflected segment contraction due to changes in the product label and the reimbursement environment. International sales were affected by a decline the average net sales price. The company expects practice patterns to stabilize by mid-2012.

Revenues of Amgen’s other ESA, Epogen, fell 17% to $446 million, reflecting a 30% decline in unit demand. The decrease in demand was mainly due to lower dose utilization. The decline reflected the impact of the implementation of the ESRD bundling strategy in 2011 and label changes in June 2011.

Sales declined 8% on a sequential basis as well. We note that a new competitor, Affymax’ Omontys (peginesatide), has entered the dialysis market.

Worldwide revenues of Neulasta and Neupogen grew 9% to $1,344 million in the first quarter. An increase in average net sales price and unit demand boosted US revenues to $1,053 million, up 13%. International revenues, however, continued to decline with sales coming in at $291 million, down 4%. Sales were impacted by lower average net sales price and a decline in Neupogen units due to competition from biosimilars.

Enbrel, which is facing increased competition in the dermatology market, posted revenues of $938 million, up 7%. Higher average net sales price drove the upside. The company said that over the last one year, it has been increasing its share among bio-naïve (patients new to biologics) patients, especially in the rheumatology space. Enbrel’s competitors include Abbott Labs’ (ABT - Analyst Report) Humira, Merck/Johnson & Johnson’s (MRK - Analyst Report)/(JNJ - Analyst Report) Remicade and Johnson & Johnson’s Stelara among others.

With Amgen and Pfizer’s (PFE - Analyst Report) collaboration set to expire in late 2013, the companies intend to consolidate US field sales activities under Amgen from July 23, 2012. The consolidated sales force will target both the rheumatology and dermatology segments.

First quarter 2012 Prolia sales came in at $88 million, up slightly from fourth quarter 2011 sales of $81 million. Amgen launched a DTC TV campaign this year which should drive sales further.

Meanwhile, Xgeva, which gained FDA approval on November 18, 2010, delivered first quarter sales of $153 million, up from the $134 million, $100 million and $73 million reported in the fourth, third and second quarters of 2011, respectively. Sales were driven by overall segment growth and increased segment share. Xgeva gained EU approval on July 15, 2011.

Combined Prolia and Xgeva sales lagged expectations for the first quarter of 2012.

Sensipar/Mimpara revenues increased 17% to $219 million in the reported quarter. Global demand helped drive Vectibix revenues to $90 million during the quarter, up 20%.

While Amgen recorded a 3% increase in R&D expenses during the quarter, SG&A expenses increased 5%. Costs increased due to higher marketing spend, higher Enbrel profit share expenses, expansion of international operations and phase III clinical programs.

Amgen recently initiated a phase III study with AMG 785 for the treatment of postmenopausal osteoporosis and expects to commence phase III studies with brodalumab (AMG 827) this year.

Guidance Maintained

Amgen maintained its guidance for 2012. The company expects earnings in the range of $5.90 - $6.15 per share on revenues of $16.1 - $16.5 billion. The Zacks Consensus Estimate currently stands towards the lower end of the earnings guidance at $5.94 per share. Meanwhile, the Zacks Consensus Estimate for revenues is $16.2 billion.

Amgen intends to continue buying back shares in 2012. The company repurchased about 21 million shares for $1.4 billion in the first quarter of 2012 and has about $3.6 billion remaining under its current share buyback program.

The company is also working on growing its presence in international markets. Amgen, in fact, signed a deal recently to acquire 95.6% of the shares of Turkish company, Mustafa Nevzat Pharmaceuticals for $700 million. With this acquisition, Amgen will expand its presence in Turkey and other rapidly growing important markets. This deal is a step towards achieving Amgen’s target of having a presence in 75 countries by 2015 – the company currently has a presence in 54-56 countries.

Mustafa Nevzat’s 2011 revenues came in at $200 million, growing in double-digits (at local currencies) over a 5-year period.

Neutral on Amgen

We currently have a Neutral recommendation on Amgen. Although first quarter results were well above expectations, it remains to be seen whether the performance is sustainable. We note that despite the huge beat, the company maintained its guidance. Amgen’s ESA franchise is under pressure and we expect sales to continue declining. With several key products expected to lose patent protection in the next few years, Amgen has a lot riding on Prolia/Xgeva’s successful commercialization. Share repurchases and cost control should help the company achieve at least the lower end of its guidance range. Amgen carries a Zacks #2 Rank (short-term ‘Buy’ rating).

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