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Amgen (AMGN) Up 11.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Amgen (AMGN - Free Report) . Shares have added about 11.2% 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 catalysts.

Amgen Q2 Earnings & Sales Beat, New Drugs Shine

Amgen reported second-quarter 2019 earnings of $3.97 per share, which beat the Zacks Consensus Estimate of $3.58. Earnings increased 4% year over year helped by a lower share count.

Total revenues of $5.87 billion in the quarter beat the Zacks Consensus Estimate of $5.68 billion. However, total revenues declined 3% year over year.

Quarter in Detail

Total product revenues decreased 2% from the year-ago quarter to $5.57 billion (U.S.: $4.14 billion; ex-U.S.: $1.43 billion) as increasing demand for newer products was offset by the erosion of mature brands from biosimilar competition. Product sales growth was mostly driven by higher volumes as prices were lower for several drugs.

Other revenues of $297 million declined 21.8% in the quarter due to lower milestone payments than the prior-year quarter.

Prolia revenues came in at $698 million, up 14% from the year-ago quarter, attributable to 15% volume growth resulting from higher demand. Moreover, a seasonal sales pattern with second-quarter sales being higher than the first quarter due to a six-month dosing interval also benefited Prolia sales in the quarter.

Xgeva delivered revenues of $499 million, up 10% from the year-ago quarter mainly due to higher demand, which drove volumes.

Kyprolis recorded sales of $267 million, up 2% year over year driven primarily by 13% volume growth in the United States.

Blincyto sales increased 30% from the year-ago period to $78 million, reflecting rise in demand.

Repatha generated revenues of $152 million, up 3% year over year, as higher volume was offset by lower prices. Repatha volumes grew 59% globally and 66% in the United States.

Vectibix revenues came in at $196 million, up 13% year over year. Nplate sales rose 12% to $201 million.
Parsabiv, launched in several markets including United States in 2018, recorded sales of $168 million in the second quarter, higher than $126 million in the previous quarter. The increase was driven by higher demand in midsize dialysis centers, offset partially by lower prices.

Amgen’s new migraine drug, Aimovig recorded sales of $83 million in the quarter, higher than $59 million in the previous quarter driven by an increase in the percentage of paid volume as the company sees improvement in conversion of free-to-paid patients.

On the call, the company said that approximately 225,000 new patients in the United States have been prescribed Aimovig since launch, suggesting that there remains growth potential.

Evenity recorded sales of $28 million in the quarter. In the United States, where Evenity was launched in April this year, sales were $3 million while international sales of $25 million came from Japan, the first country where Evenity was launched this year.

Amgen recorded biosimilar revenues of $82 million in the quarter, entirely from international markets compared with $55 million in the previous quarter.

However, Amgen’s mature drugs like Enbrel, Aranesp, Epogen, Neupogen and Neulasta are facing an array of branded and generic competitors.

Aranesp revenues declined 8% from the prior-year quarter to $436 million on lower volume due to increased competitive pressure.

Revenues of the other ESA, Epogen, declined 11% to $223 million due to lower selling prices as the category has become extremely competitive.

Neulasta revenues declined 25% from the year-ago period to $824 million due to lower selling prices and biosimilar competition. However, the Neulasta Onpro kit (on-body injector) continues to perform well.

Neupogen recorded 26% decline in sales to $75 million in the quarter due to biosimilar competition in the United States, which hurt demand and prices.

Enbrel delivered revenues of $1.36 billion, up 5% from the year-ago quarter, driven primarily by favorable changes in inventory along with a slight price increase, which offset the unfavorable impact of lower demand.

Sensipar/Mimpara revenues declined 71% to $122 million due to at-risk small-molecule generic launches.

Other product sales rose 11% to $79 million.

Operating Margins Decrease

Adjusted operating margin declined 180 basis points (bps) to 53.3%. Adjusted operating expenses decreased 1% year over year in the second quarter.

SG&A spend decreased 6% to $1.26 billion on cost control. R&D expenses rose 7% year over year to $906 million due to higher spending on early-stage oncology pipeline.

Adjusted tax rate was 15.3% for the quarter, a 1.1 points increase from the year-ago quarter.

Amgen repurchased 13.1 million shares worth $2.3 billion in the second quarter and has $4.7 billion remaining under its stock repurchase authorization.

2019 Guidance

Amgen raised the lower end of its previously issued sales and earnings guidance for 2019 for the second time this year based on its solid second-quarter performance. The company expects revenues in the range of $22.4-$22.9 billion versus $22.0-$22.9 billion expected previously. Adjusted earnings per share are anticipated in the range of $13.75-$14.30 versus $13.25 - $14.30 expected previously.

Operating costs in 2019 are expected to be flat from 2018 level on an absolute basis. R&D costs are expected to rise in single-digit percentage terms in 2019. However, SG&A expenses are expected to decline as launch expenses normalize.

Operating margin is expected to be lower in the second half of the year due to the unfavorable timing of expenses. Adjusted tax rate is expected in the range of 14% to 15%.

Amgen still plans to invest approximately $700 million in capital expenditures in 2019.

Amgen believes that higher sales of newer products should make up for the evolving competitive dynamics associated with Neulasta and other legacy products. However, recently launched products including Aimovig, Repatha and biosimilars and international expansion provide incremental growth opportunities.

Update on AMG-510

On the call, the company said that its KRAS inhibitor for solid tumors, AMG-510 has shown responses in patients with colorectal and appendiceal cancer. Amgen also said it is enrolling patients in a NSCLC cohort in combination with a PD-1 inhibitor. It plans to initiate a registration enabling phase II study soon.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Amgen has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Amgen has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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