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Amgen (AMGN) Down 6.4% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Amgen Inc. (AMGN - Free Report) . Shares have lost about 6.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Amgen Second-Quarter Earnings and Sales Top

Amgen reported second-quarter 2017 earnings of $3.27 per share, which beat the Zacks Consensus Estimate of $3.09 by 5.8% and increased 15% from the year-ago period. Better revenues and lower operating costs drove the bottom line. A lower tax rate and share count also pulled up profits.

Total revenue rose 2% to $5.81 billion in the quarter, beating the Zacks Consensus Estimate of $5.67 billion by 2.5%. An unfavorable impact of foreign exchange hurt sales by 1% in the quarter.

While U.S. revenues rose 2% and ex-U.S. sales grew 8%, excluding currency headwinds.

Quarter in Detail

Total product revenue rose 2% from the year-ago quarter to $5.57 billion (U.S.: $4.39 billion; ex-U.S.: $1.19 billion) as strong demand for newer products like Prolia, Xgeva, Kyprolis, Repatha and Blincyto somewhat made up for lower sales of mature brands like Enbrel, Epogen, Neulasta and Neupogen due to competitive pressure.

Revenues of Amgen’s erythropoiesis-stimulating agent (ESA), Aranesp, rose 6% from the year-ago quarter to $535 million due to volume growth. However, volumes in the quarter benefited from the favorable timing of tenders in some outside U.S. markets compared to the year-ago quarter.

Revenues of the other ESA, Epogen, declined 12% to $292 million due to lower selling price owing to a recently negotiated contract with DaVita Inc.

Neulasta revenues declined 5% to $1.09 billion from the year-ago period due to lower unit demand following competition from PD-1s and other new cancer therapies. Neupogen recorded a 30% decline in sales to $137 million due to biosimilar competition in the U.S. Zarxio, Sandoz’s biosimilar version of Neupogen, was launched in the U.S. in Sep 2015 and is hurting sales.

The company expects Neulasta and Neupogen sales to be hurt by competitive dynamic through the rest of 2017. However, management did specify on the call, that “no new U.S. biosimilar competition” is expected this year. This suggests that Neulasta and Epogen may not start facing any biosimilar competition in the U.S. this year, contrary to previous expectations.

Two companies looking to launch generic versions of Neulasta and one company looking to launch generic version of Epogen have received complete response letter from the FDA for their respective applications, which can delay their launch.

However, the Neulasta Onpro kit (on-body injector) continues to perform well commanding a market share of about 55% in the U.S. for all Neulasta sales.

Enbrel delivered revenues of $1.47 billion, down 1% from the year-ago quarter due to increased competition, which offset favorable changes in inventory and price.

However, in the quarter, the company said that an improvement in the underlying segment performance was witnessed in the second quarter compared to the first. Market volume growth improved in the rheumatology/dermatology segments in the second quarter compared with the first quarter with Enbrel experiencing relatively stable unit share in these markets.

Prolia revenues came in at $505 million, up 15% from the year-ago quarter due to higher demand. The osteoporosis drug witnessed market share gains in both the U.S. and international markets.

Meanwhile, Xgeva delivered revenues of $395 million, up 4% from the year-ago quarter mainly due to higher demand. The company expects the multiple myeloma indication to be added to Xgeva’s label in 2018, which will expand the eligible patient population and should boost sales.

Sensipar/Mimpara revenues increased 10% to $427 million due to higher price increases.

Vectibix revenues came in at $168 million, up 5%, driven by higher demand.

Kyprolis recorded sales of $211 million, up 23% year over year driven by higher demand and robust uptake from outside U.S. launches.

In the quarter, Amgen submitted regulatory applications in the U.S. and EU to include overall survival data from the ENDEAVOR study on the label of Kyprolis. The study demonstrated that a combination of Kyprolis plus dexamethasone reduced the risk of death by 21% and improved overall survival by about eight months when compared to Velcade plus dexamethasone

This overall survival data, if approved, can help drive usage and boost sales of Kyprolis.

Amgen also announced final data from the phase III ASPIRE study of Kyprolis in Jul 2017, which showed that a triple combination regimen of Kyprolis plus Revlimid (lenalidomide) and dexamethasone (KRd ) reduced the risk of death by 21% and improved survival by about eight months in patients with relapsed multiple myeloma compared to Revlimid and dexamethasone (Rd).

Blincyto sales surged 43% from the year-ago period to $43 million, reflecting higher demand. In Jul 2017, the FDA approved the inclusion of overall survival data from the TOWER study on the label of Blincyto to convert the accelerated approval to a full approval. The addition of the data should help boost sales.

Repatha generated revenues of $83 million, higher than $49 million in the first quarter driven by higher demand.

Repatha holds 58% share of the PCSK9 segment in the U.S. and Europe with share trends improving sequentially in both the markets in the second quarter. Meanwhile, in the U.S., the new-to-brand share for Repatha was 70% in the second quarter. Management said that the presentation of the outcomes study data had a positive impact on Repatha share trends.

Other revenues grew 10% to $236 million driven by higher Ibrance royalty revenues, offset partially by lower Nexavar royalty revenues.

Operating Margins Increase

Adjusted operating margins rose 380 basis points (bps) to 55.2% due to lower operating costs, reflecting continued benefits from transformation and process improvement efforts.

R&D expenses declined 3% in the quarter due to lower late-stage pipeline related costs. SG&A spend declined 7% due to the Oct 2016 expiration of Enbrel residual royalty payments, which offset investments to support new product launches.

Amgen bought back shares worth $1 billion in the quarter. At the end of the second quarter, Amgen had $2.5 billion remaining under its $5 billion stock repurchase plan.

2017 Guidance

While Amgen slightly cut the lower end of the previously issued sales outlook, it raised the earnings guidance to account for strong first-half profits.

The company expects total revenue in the range of $22.5 billion to $23.0 billion compared with $22.3 billion to $23.1 billion expected previously. Adjusted earnings are now expected in the range of $12.15 to $12.65 in 2017 compared with $12.00 to $12.60 per share, expected previously.

Operating expenses are expected to be higher in the second half.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower. While looking back an additional 30 days, we can see even more upward momentum. There have been three moves higher in the last two months.

Amgen Inc. Price and Consensus

VGM Scores

At this time, Amgen's stock has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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