A month has gone by since the last earnings report for Amgen Inc. (AMGN - Free Report) . Shares have added about 3.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is AMGN 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 First-Quarter Earnings & Sales Beat
Amgen reported first-quarter 2018 earnings of $3.47 per share, which beat the Zacks Consensus Estimate of $3.23 by 7.4%. Earnings increased 10% year over year driven by higher product sales, seasonally low expenses in Q1, a lower tax rate and lower share count.
Total revenues of $5.55 billion in the quarter marginally surpassed the Zacks Consensus Estimate of $5.46 billion. The top line also registered an increase of 2% year over year.
Quarter in Detail
Total product revenues increased 3% from the year-ago quarter to $5.34 billion (U.S.: $4.15 billion; ex-U.S.: $1.20 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.
Revenues of Amgen’s erythropoiesis-stimulating agent (ESA), Aranesp, declined 11% from the prior-year quarter to $454 million due to lower demand, primarily due to increased competitive pressures.
Revenues of the other ESA, Epogen, declined 10% to $244 million due to lower selling price owing to a newly negotiated contract with DaVita Inc.
Neulasta revenues declined 5% to $1.16 billion from the year-ago period due to lower demand and unfavorable comparisons to last year’s first quarter. Increased competition from PD-1s and other new cancer therapies is hurting demand for Neulasta. However, the Neulasta Onpro kit (on-body injector) continues to perform well, commanding a market share of about 62% in the United States for all Neulasta sales. Amgen is optimistic that it will see more global utilization of Onpro in 2018.
Neupogen recorded a 30% decline in sales to $103 million due to biosimilar competition in the United States.
Enbrel delivered revenues of $1.11 billion declined 6% from the year-ago quarter due to lower selling prices and increased competition, which hurt demand. Unfavorable comparisons to last year’s first quarter, which benefited from favorable changes in accounting estimates, also hurt Enbrel sales.
Prolia revenues came in at $494 million, up 16% from the year-ago quarter due to higher demand. The osteoporosis drug witnessed continued growth in new patient starts and strong repeat injection rates, which drove year-over-year growth.
Xgeva delivered revenues of $445 million, up 11% from the year-ago quarter mainly due to higher demand.
Sensipar/Mimpara revenues rose 18% to $497 million, mainly riding on higher demand and some inventory build probably due to a shift in reimbursement from U.S. Medicare Part D to Part B at the beginning of 2018.
Vectibix revenues came in at $169 million, up 15%, driven by higher demand.
Kyprolis recorded sales of $222 million, up 17% year over year, driven by increased demand and a robust uptake from outside U.S. markets. In Europe, the majority of sales came from triplet regimens and Kyprolis continues to take market share from Velcade.
Blincyto sales surged 44% from the year-ago period to $49 million, reflecting rise in demand
Repatha generated revenues of $123 million compared with $98 million in the previous quarter driven by volume growth. On the call, the company said that access to Repatha for high risk cardiovascular patients has improved over the past few months with the outcomes data included on the Repatha label.
Other revenues declined 20.4% to $211 million due to lower milestone payment received than the first quarter of 2017.
Parsabiv, launched in several markets including the United States, recorded sales of $41 million in the quarter. On the call, the company said that in the United States, Parsabiv has witnessed a solid uptake in the midsized dialysis providers.
Operating Margins Decrease
Adjusted operating margins declined 70 basis points (bps) to 56.9% due to higher operating costs.
SG&A spend increased 6% to $1.1 billion on higher investments to support growth products as well as the pre-launch preparations for Aimovig and bio similar products. R&D expenses were almost flat at $739 million compared with the year-ago figure.
The adjusted tax rate was 13.7% for the quarter, a 4.8 point decrease from the first quarter of 2017.
Amgen repurchased 56.4 million shares worth $10.8 billion in the first quarter and plans to repurchase between $2 billion and $4 billion of stock in the second quarter.
Amgen raised the lower end of its sales and earnings guidance for 2018. Better-than-expected first-quarter earnings and a revised tax outlook led to the increase in the earnings guidance.
The company now expects its revenues in the range of $21.9-$22.8 billion compared with the previous prediction of $21.8-$22.8 billion. Adjusted earnings are now anticipated in the range of $12.80-$13.70 in 2018 compared with the previous projection $12.60-$13.70.
The guidance assumes the approval and launch of migraine candidate, Aimovig and Amgevita in 2018. Also, management seems quite confident that Repatha will become an important growth driver for the company with the inclusion of outcomes data on its label. Nonetheless, other than continuing competitive dynamics for Enbrel, possible generic competition to Sensipar and new competition for Neulasta and Aranesp could be the new challenges in 2018 and are accounted for in the 2018 revenue guidance.
Operating margin is expected to be between 52% and 54% in 2018. Operating margin is expected to be lower in the remaining quarters of 2018 due to the timing of expenses. Operating expenses, as a percent of products sales, were seasonally low in the first quarter and the ratio is expected to be higher in the remaining quarters of the year and normalize to around 2017 levels.
Adjusted tax rate is now estimated at approximately 13.5%-14.5%, lower than the past range of 14-15%, reflecting the impact of the latest tax reform.
Hoping to achieve an improved cash position following the new tax law, Amgen plans to invest approximately $750 million this year in capital expenditures.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been four revisions higher for the current quarter compared to five lower.
Amgen Inc. Price and Consensus
At this time, AMGN has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. 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 equally suitable for value and growth investors than momentum investors.
Estimates have been trending downward for the stock and the magnitude of these revisions looks promising. Notably, AMGN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.