A month has gone by since the last earnings report for Amgen (AMGN - Free Report) . Shares have added about 4.5% 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 its most recent earnings report in order to get a better handle on the important drivers.
Amgen Beats on Earnings & Sales in Q3, Raises View
Amgen reported third-quarter 2018 earnings of $3.69 per share, which beat the Zacks Consensus Estimate of $3.42. Earnings increased 13% year over year driven mainly by lower tax rate and share repurchases.
Total revenues of $5.90 billion in the quarter surpassed the Zacks Consensus Estimate of $5.80 billion and increased 2% year over year.
Quarter in Detail
Total product revenues increased 1% from the year-ago quarter to $5.51 billion (U.S.: $4.26 billion; ex-U.S.: $1.25 billion) as increasing demand for newer products like Prolia, Kyprolis, Xgeva, Blincyto and Parsabiv was partially offset by lower sales of mature brands like Enbrel, Aranesp, Epogen, Neulasta and Neupogen due to competitive pressure.
Other revenues of $394 million rose 23% in the quarter due to a milestone payment from partner Novartis for Aimovig.
Prolia revenues came in at $532 million, up 15% from the year-ago quarter, attributable to 16% volume growth resulting from higher demand and share gains in both the United States and international markets. However, sales were hurt by seasonality.
Xgeva delivered revenues of $433 million, up 12% 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.
Vectibix revenues came in at $181 million, up 8%, driven by higher demand, which made up for lower prices.
Kyprolis recorded sales of $232 million, up 12% year over year, driven primarily by robust uptake in outside U.S. markets.
Blincyto sales increased 12% from the year-ago period to $58 million, reflecting rise in demand.
Repatha generated revenues of $120 million, up 35% year over year as higher unit demand was offset by lower prices.
Sales of the drug have suffered since launch due to payer restrictions. On the call, the company said that despite its efforts to improve access to Repatha, patients still face significant hurdles due to high co-pay expenses. In October, Amgen announced its decision to cut the U.S. list price of Repatha by 60% to improve access and affordability of Repatha. Though lower price may impact Repatha sales in the near term, management is optimistic about better volume growth.
Parsabiv, launched in several markets including United States in the first quarter, recorded sales of $102 million in the third quarter, much higher than $73 million in the previous quarter.
Aimovig (erenumab) recorded sales of $22 million in the quarter. On the conference call, the company said that Aimovig is off to a strong start and 100,000 patients have started treatment with Aimovig since launch through 12,000 different prescribers. Regarding competitive pressure from Teva’s and Lilly’s CGRPs, which were also approved this year, management sounded confident in its ability to compete with Aimovig's differentiated product profile. Aimovig was approved in the EU in July.
Revenues of Amgen’s erythropoiesis-stimulating agent (ESA), Aranesp, declined 8% from the prior-year quarter to $477 million on lower demand primarily due to increased competitive pressure.
Revenues of the other ESA, Epogen, declined 5% to $252 million due to lower selling prices as the category has become extremely competitive. With the potential launch of Pfizer’s Retacrit, a biosimilar version of Epogen, and other biosimilars, there could be a further decline in selling price.
Neulasta revenues declined 6% to $1.05 billion from the year-ago period on lower volumes and selling prices due to biosimilar competition in the United States.
Also, increased competition from PD-1s and other new cancer therapies are hurting demand for the class of medicines to which Neulasta belongs. However, the Neulasta Onpro kit (on-body injector) continues to perform well, commanding a market share of more than 60% in the United States for all Neulasta sales.
Neupogen recorded a 38% decline in sales to $85 million due to biosimilar competition in the United States, which hurt demand and prices.
Enbrel delivered revenues of $1.29 billion, down 5% from the year-ago quarter due to lower prices and increased competition, which hurt demand. The adverse effect was somewhat offset by some favorable accounting adjustments.
Sensipar/Mimpara revenues declined 11% to $409 million hurt by Parsabiv launch, which is also marketed for secondary hyperparathyroidism.
Other product sales rose 36% to $87 million.
Operating Margins Decrease
Adjusted operating margin declined 170 basis points (bps) to 53.9% due to higher operating costs.
SG&A spend increased 11% to $127 billion on higher investments to support new products as well as already marketed products. R&D expenses rose 6% year over year to $906 million.
Adjusted tax rate was 13% for the quarter, a 6.4 points decrease from the third quarter of 2017.
Amgen repurchased 8.7 million shares worth $1.7 billion in the third quarter and has $3.7 billion remaining under its stock repurchase authorization.
Amgen raised its sales and earnings guidance for 2018 driven by a better-than-expected performance in the third quarter and an optimistic outlook for the fourth quarter. The company now expects revenues in the range of $23.2-$23.5 billion compared with the previous prediction of $22.5-$23.2 billion. The high end of the guidance assumes that no Sensipar generics are launched this year.
Adjusted earnings are now anticipated in the range of $14.00-$14.25 in 2018 compared with the previous projection of $13.30-$14.00.
Other revenues are expected to grow 15% year over year in 2018.
Operating costs in the fourth quarter are expected to increase in the range of 12 sequentially
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 $700 million this year in capital expenditures, lower than $750 expected previously.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Amgen has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, 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.
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.