Amgen (AMGN) Q4 Earnings & Sales Lag, 2018 Sales View Soft

Biotech major Amgen Inc. (NASDAQ:AMGN) reported fourth-quarter 2017 earnings of $2.89 per share, which missed the Zacks Consensus Estimate of $3.04 by 4.9%. Earnings were flat year over year as lower sales and higher operating costs offset the benefit of a lower tax rate.

Including a $6.1 billion charge related to U.S. tax reform, fourth-quarter 2017 loss per share was $5.89 against earnings of $2.59 per share in the fourth quarter of 2016.

Total revenues of $5.80 billion in the quarter missed the Zacks Consensus Estimate of $5.86 billion. Revenues declined 3% year over year.

Quarter in Detail

Total product revenues declined 2% from the year-ago quarter to $5.57 billion (U.S.: $4.35 billion; ex-U.S.: $1.22 billion) as increasing demand for newer products like Prolia, Kyprolis, Xgeva and Blincyto was not enough to make up for lower sales of some of Amgen’s largest products like Enbrel, Aranesp, Epogen, Neulasta and Neupogen due to competitive pressure.

Revenues of Amgen’s erythropoiesis-stimulating agent (ESA), Aranesp, declined 7% from the year-ago quarter to $491 million due to lower demand and unfavorable changes in currency rates.

Revenues of the other ESA, Epogen, declined 15% to $270 million due to lower selling price owing to a newly negotiated contract with DaVita Inc.

Neulasta revenues were flat at $1.14 billion from the year-ago period as lower demand was offset by changes in accounting estimates.

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 60% in the United States for all Neulasta sales.

Please note that Neulasta and Epogen could start facing biosimilar competition in the United States this year, which will hurt sales further.

Neupogen recorded a 27% decline in sales to $126 million due to biosimilar competition in the United States. Zarxio, Sandoz’s (Novartis’ (NYSE:NVS) generic arm) biosimilar version of Neupogen, was launched in the United States in September 2015 and is hurting sales.

Enbrel delivered revenues of $1.42 billion, down 13% from the year-ago quarter due to lower selling prices and increased competition, which hurt demand. Amgen launched the Enbrel AutoTouch, an autoinjector device in November last year.

Prolia revenues came in at $574 million, up 24% 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.

Meanwhile, Xgeva delivered revenues of $391 million, up 4% from the year-ago quarter mainly due to higher demand and favorable changes in inventory levels.

Earlier this year, Amgen gained FDA approval for an expanded label for Xgeva to include prevention ofskeletal-related events (SREs) inpatients with multiple myeloma. Until now Xgeva was only approved for the prevention of SREs in solid tumors in patients with bone metastases. The approval for the expanded patient population may drive sales of Xgeva in future quarters.

Sensipar/Mimpara revenues were flat at $411 million as higher price increases were offset by unfavorable inventory changes.

Vectibix revenues came in at $159 million, up 11%, driven by higher demand.

Kyprolis recorded sales of $227 million, up 24% year over year driven by higher demand and robust uptake from outside U.S. markets.

Amgen’s regulatory application in the United States to include overall survival data from the ENDEAVOR study on the label of Kyprolis was granted approval by the FDA earlier this month. Also, earlier this week Amgen announced that the Committee for Medicinal Products for Human Use (CHMP) has given a positive opinion recommending addition of ENDEAVOR on Kyprolis label in the EU. The study demonstrated that a combination of Kyprolis plus dexamethasone led to superior overall survival when compared to Takeda’s Velcade plus dexamethasone. This overall survival data, if approved, can help drive usage and boost sales of Kyprolis.

Blincyto sales surged 59% from the year-ago period to $46 million, reflecting higher demand.

Amgen’s PCSK9 inhibitor, Repatha generated revenues of $98 million compared with $89 million in the third quarter.

Uptake of the drug, which gained FDA approval in August 2015, has not been very encouraging so far due to pricing and re-imbursement issues/payer restrictions. Sanofi (NYSE:SNY) and partner Regeneron Pharmaceuticals also faced similar issues with their PCSK9 inhibitor, Praluent. The priority for Amgen right now is to improve patient access to Repatha.

In December, Amgen gained FDA approval to include a new indication - risk reduction of major cardiovascular events data – on Repatha’s label based on data from the phase III cardiovascular outcomes study, FOURIER.

This makes Repatha the first PCSK9 inhibitor to prevent heart attacks, strokes and coronary revascularizations in adults with established cardiovascular disease. With the cardiovascular indication approved to be included in Repatha’s label, patient access to Repatha is expected to improve.

Operating Margins Decrease

Adjusted operating margins declined 460 basis points (bps) to 45.9% due to higher operating costs and $79 million in expenses related to Hurricane Maria recovery efforts.

R&D expenses declined 3% in the quarter due to lower late-stage pipeline related costs and lower payments for in-licensing transactions. SG&A spend increased 8% due to higher investments to support new product launches, which partially offset the impact of October 2016 expiration of Enbrel residual royalty payments.

This month, Amgen’s board of directors approved a new share buyback plan of $10 billion, bringing the total existing share repurchase authorization to $14.4 billion.

2017 Results

Full-year 2017 sales of $22.85 billion missed the Zacks Consensus Estimate of $22.90 billion. Revenues were within the guidance range of $22.7 billion to $23.0 billion. Sales declined 1% year over year.

Adjusted earnings for 2017 were $12.58 per share, also missing the Zacks Consensus Estimate of $12.69 per share. Earnings were within the guidance range of $12.50 to $12.70. Earnings rose 8% year over year.

2018 Guidance

The company expects total revenues in the range of $21.8 billion to $22.8 billion, which fell short of the Zacks Consensus Estimate of $22.90 billion. Adjusted earnings are now expected in the range of $12.60 to $13.70 in 2018. The Zacks Consensus Estimate was pegged at $12.65 per share.

Adjusted tax rate is expected to be approximately 14%-15%, much lower than 18% in 2017 reflecting the impact of tax reform.

On expectation of an improved cash position following the tax reform, Amgen plans to invest approximately $3.5 billion over the next five years in capital expenditures. Approximately 75% of this investment will be made in the United States including setting up a new drug substance manufacturing plant in the country.

Our Take

Amgen had a rather poor quarter as it missed expectations for both earnings and sales and also issued a lower-than-expected sales guidance for 2018. Shares lost 1.7% in after-market trading in response. However, in the past year, Amgen’s shares have returned 10.7%, better than the 4.6% increase registered by the industry.

Though Amgen’s newer products – Prolia, Xgeva, Vectibix, Nplate and Sensipar – are all performing well, their volume growth is not enough to offset the decline in mature brands like Enbrel due to competitive pressure. However, Amgen is also progressing with its pipeline and expects approval and launch of migraine candidate, Aimovig this year. Also, Amgevita, Amgen’s biosimilar version of AbbVie’s (NYSE:ABBV) blockbuster rheumatoid arthritis drug, Humira is expected to be launched in Europe later this year. Parsabiv, a specialty product for kidney disease, was launched in the United States last month. 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.

Amgen carries a Zacks Rank #3 (Hold). 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. Quote

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