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Tax Benefit Boosts Amgen Earnings

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Amgen (AMGN - Free Report) reported first quarter 2013 earnings of $1.95 per share, 20 cents above the Zacks Consensus Estimate and 22.6% above the year-ago earnings. Tax benefits and a lower share count contributed to the year-over-year increase in earnings. The company recorded a net tax benefit of $13 million in the first quarter of 2013.

Total revenue increased 4.7% to $4,238 million in the first quarter of 2013, missing the Zacks Consensus Estimate of $4,365 million.

Including one-time items, first quarter earnings increased 27% to $1.88 per share.

The Quarter in Detail

First quarter total product revenues increased 6.4% from the year-ago quarter to $4,151 million (US: $3,172 million, ex-US: $979 million).

Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp fell 10% from the year-ago quarter to $468 million (US: $168 million; ex-US: $300 million). Revenues declined 4% on a sequential basis. The company noted a sequential decline in overall demand.

Amgen’s other ESA, Epogen, delivered sales of $435 million, down 2% from the year-ago quarter. Revenues declined 9% sequentially.

Worldwide revenues of Neulasta and Neupogen remained flat at $1,338 million in the first quarter.

Enbrel delivered revenues of $1,039 million, up 11% from the year-ago quarter. Revenues were driven by higher average net sales price and a favorable change in accounting estimates. This was partially offset by wholesaler inventory reduction and a small decline in units. The company has been taking steps to improve Enbrel’s performance which includes optimization of the sales force, higher direct-to-consumer advertising and increased focus on appropriate access.

First quarter 2013 Prolia revenues came in at $142 million, up 61% from the year-ago quarter. Revenues, however, declined 8% on a sequential basis due to seasonality. Amgen, however, noted 30% global growth in sales over the last six weeks compared to the previous ten weeks and has re-launched a DTC television campaign for Prolia.

Meanwhile, Xgeva, which gained FDA approval in Nov 2010, delivered first quarter 2013 revenues of $223 million, up 46% from the year-ago quarter. Sales were up 4% on a sequential basis. Xgeva’s value share in the US increased to 59% at the end of the first quarter. Even though generic versions of Novartis’ (NVS - Free Report) Zometa have entered the market, Amgen said that the generics are yet to have an impact on Xgeva sales. However, there could be some choppiness in the market in the next 6 – 12 months with the entry of additional generic competition and reimbursement considerations.

Sensipar/Mimpara revenues increased 21% from the year-ago quarter to $264 million due to higher unit demand and a favorable change in accounting estimates. Vectibix revenues came in at $87 million during the quarter, down 3% from the year-ago quarter.

While first quarter 2013 R&D expenses increased 18% from the year-ago period, SG&A expenses increased 8%. Higher Enbrel profit share expenses led to the increase.

Amgen bought back 9 million shares during the reported quarter for $0.8 billion. Going forward, the company expects its share buyback activities to slow down with a higher focus on increasing dividend meaningfully.

Rev Guidance Maintained

Following the release of first quarter results, Amgen maintained its 2013 revenue guidance of $17.8 billion to $18.2 billion. The company, however, said that it expects earnings to cross the midpoint of its guidance range of $7.05–$7.35 per share. The Zacks Consensus Estimate for earnings and revenues currently stand at $7.10 per share and $17.9 billion, respectively.

Our Take

Amgen’s first quarter results were disappointing where revenues are concerned with quite a few products exhibiting a sequential decline in sales. Although the company’s first quarter earnings were well above expectations, we note that earnings benefited from a lower tax rate and share count.

Amgen should be able to deliver on its long-term strategy based on expansion in key markets, launch of new manufacturing technologies, and pipeline development. However, nearer-term, we remain concerned about the performance of existing products. We expect 2013 and 2014 to be important years for Amgen with the company expected to report results on several key pipeline candidates.

Amgen expects to report progression-free survival results on its phase III oncology candidate, trebananib (recurrent ovarian cancer) in mid-2013. Meanwhile, overall survival data on another oncology candidate, talimogene laherparepvec, should be out later this year. Amgen, which is also focusing on the lucrative biosimilars market and expects to launch six new biosimilars from 2017, is planning to initiate a pivotal study for its biosimilar version of Herceptin in the second quarter.

Amgen currently carries a Zacks Rank #3 (Hold). At present, biotech companies like Cleveland BioLabs, Inc. and Athersys, Inc. (ATHX - Free Report) look attractive with both carrying a Zacks Rank #1 (Strong Buy).

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