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Amgen (AMGN) Beats on Q3 Earnings, Ends Neuroscience R&D

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Amgen (AMGN - Free Report) reported third-quarter 2019 earnings of $3.66 per share, which beat the Zacks Consensus Estimate of $3.51. Earnings declined 1% year over year due to lower revenues and operating profits.

Total revenues of $5.74 billion in the quarter beat the Zacks Consensus Estimate of $5.63 billion. However, total revenues declined 3% year over year.

Amgen shares have risen 7.3% this year so far against 1.5% decrease registered by the industry during this period.



Quarter in Detail

Total product revenues decreased 1% from the year-ago quarter to $5.46 billion (U.S.: $4.03 billion; ex-U.S.: $1.43 billion) as increasing demand for newer products like Prolia and strong performance of the newly launched biosimilar products — Kanjinti and Mvasi in the United States — was offset by the erosion of mature brands from biosimilar competition. Product sales growth was mostly driven by higher volumes (up 3%) as prices were lower for several drugs. Net selling prices declined 4% year over year in the quarter, which resulted in the decline in total revenues.

Other revenues of $274 million declined 30.5% in the quarter due to a milestone payment received in the prior-year quarter

Prolia revenues came in at $630 million, up 18% from the year-ago quarter, driven by volume increases resulting from new patient growth as well as strong repeat rates.

Xgeva delivered revenues of $476 million, up 10% from the year-ago quarter mainly due to higher demand, which drove volumes.

Kyprolis recorded sales of $266 million, up 15% year over year driven primarily by 12% volume growth in the United States.

Blincyto sales increased 47% from the year-ago period to $85 million, reflecting rise in demand.

Repatha generated revenues of $168 million, up 40% year over year, as higher volume was offset by lower prices.

Sales of Amgen’s PCSK9 inhibitor, Repatha have suffered since launch due to payer restrictions. Despite Amgen’s efforts to improve access to Repatha, patients face significant hurdles due to high co-pay expenses. In response, Amgen announced a cut in the U.S. list price of Repatha by 60% to improve access and affordability of Repatha.

Vectibix revenues came in at $196 million, up 8% year over year. Nplate sales rose 10% to $195 million.

Parsabiv, launched in several markets including the United States in 2018, recorded sales of $157 million, which was lower than $168 million in the previous quarter. While Parsabiv sales are gaining from higher demand, sales declined sequentially as trends were impacted by purchasing patterns, which included a larger purchase in the second quarter.

Amgen’s new migraine drug, Aimovig recorded sales of $66 million in the quarter, lower than $83 million in the previous quarter due to unfavorable changes in accounting estimates for sales discounts in prior periods.

Newly launched osteoporosis drug, Evenity recorded sales of $59 million in the quarter compared with $28 million in the previous quarter. In the United States, where Evenity was launched in April this year, sales were $12 million while international sales were $47 million.

Amgen recorded biosimilar revenues of $173 million in the quarter, much higher than $82 million in the previous quarter driven by the launches of Kanjinti (a biosimilar of Roche’s Herceptin) and Mvasi (biosimilar of Roche’s (RHHBY - Free Report) Avastin)in the United States in July 2019. Total sales comprised sales of $81 million in the United States and $92 million in international markets. In EU, Amgen markets Amjevita (biosimilar of AbbVie’s Humira) and Kanjinti since 2018.

Amgen expects more biosimilars to gain approval this year and contribute to total revenues, especially as drug pricing issues increase demand for lower cost treatment options.

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

Aranesp revenues declined 5% from the prior-year quarter to $452 million on lower volume due to increased competitive pressure.

Revenues of the other ESA, Epogen, declined 15% to $215 million due to lower selling prices as the category has become extremely competitive.

Neulasta revenues declined 32% from the year-ago period to $711 million due to lower selling prices and biosimilar competition.

Neupogen recorded 36% decline in sales to $54 million in the quarter due to unfavorable changes in accounting estimates and biosimilar competition in the United States, which hurt demand and prices.

Enbrel delivered revenues of $1.37 billion, up 6% from the year-ago quarter, driven primarily by favorable changes in inventory along with a slight price increase, which offset the 2% decline in volumes due to continued competition.

Sensipar/Mimpara revenues declined 73% to $109 million due to at-risk small-molecule generic launches. Other product sales rose 25% to $85 million.

Operating Margins Decrease

Adjusted operating margin declined 280 basis points (bps) to 51.1%. Adjusted operating expenses were flat year over year in the third quarter. SG&A spend decreased 5% to $1.21 billion on cost control. R&D expenses rose 8% year over year to $977 million due to higher spending on Amgen’s early- and late-stage oncology pipeline.

2019 Guidance Upped

Amgen slightly raised its previously issued sales guidance while increasing the earnings range significantly. The company expects revenues in the range of $22.8-$23 billion versus $22.4-$22.9 billion expected previously. Adjusted earnings per share are anticipated in the range of $14.20-$14.45 versus $13.75-$14.30 expected previously. The guidance excludes the impact of the Otezla acquisition.

In August, Amgen entered into an agreement to acquire global commercial rights to Celgene’s blockbuster psoriasis drug, Otezla, which the latter has to divest to complete its impending merger with Bristol-Myers (BMY - Free Report) . Amgen agreed to pay Celgene $13.4 billion in cash or approximately $11.2 billion net of anticipated future cash tax benefits for Otezla and certain related assets and liabilities. The acquisition of Otezla is expected to close before the end of the fourth quarter of the year.

Operating costs in 2019 are expected to be up slightly from 2018 level on an absolute basis versus prior expectation of remaining flat. Research and development costs are expected to rise in high single-digit percentage terms in 2019. However, SG&A expenses are expected to decline as launch expenses normalize. Adjusted tax rate is expected in the range of 14% to 15% (maintained).

Amgen plans to invest approximately $650 million in capital expenditures in 2019 versus prior expectation of $700 million.

Ends Neuroscience Research Efforts

On the call, the company announced that it is discontinuing its early neuroscience research efforts with the exception of programs centered on neuro inflammation. Amgen chief executive officer, Bob Bradway, said that the company wants to focus its research efforts in therapeutic areas like cardiovascular disease, inflammatory disease and oncology, where it thinks it can be successful. We remind investors that in July, Amgen and partner Novartis discontinued two pivotal late-stage studies evaluating CNP520 to prevent or delay the symptoms of Alzheimer's disease in a high-risk population.

Our Take

Amgen’s third-quarter results were strong as it beat estimates for both earnings and sales.

While Amgen’s newer drugs — Prolia, Xgeva, Parsabiv, Blincyto, Kyprolis — will continue to drive sales, biosimilar and brand competition for its legacy products will continue to create pressure on sales. However, recently launched products including Aimovig and Evenity, biosimilars and international expansion provide incremental growth opportunities. Amgen boasts a strong biosimilars pipeline, which can drive long-term growth. Amgen is also progressing with its pipeline while regularly pursuing “external opportunities”, such as the pending acquisition of Otezla. The acquisition is expected to significantly strengthen its inflammation portfolio and boost long-term growth.

Amgen currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amgen Inc. Price, Consensus and EPS Surprise


Amgen Inc. Price, Consensus and EPS Surprise

Amgen Inc. price-consensus-eps-surprise-chart | Amgen Inc. Quote

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