Amgen (AMGN) Down 4.5% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Amgen Inc. AMGN. Shares have lost about 4.5% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 Q1 Earnings Top, Sales Miss, Shares Decline
Amgen reported first-quarter 2017 earnings of $3.15 per share which beat the Zacks Consensus Estimate of $3.00 by 5% and increased 9% from the year-ago period. Lower operating costs, tax rate and a lower share count offset a weak top-line performance to drive the bottom line.
Total revenue declined 1% to $5.46 billion in the first quarter of 2017, missing the Zacks Consensus Estimate of $5.68 billion by 3.8%. Excluding the impact of foreign exchange, sales were flat year over year.
While U.S. revenues declined 1%, ex-U.S. sales grew 3%, excluding currency headwinds.
Quarter in Detail
Total product revenue declined 1% from the year-ago quarter to $5.2 billion (U.S.: $4.10 billion; ex-U.S.: $1.10 billion) as strong demand for newer products like Prolia, Xgeva, and Kyprolis was offset by lower sales of mature brands like Enbrel, Aranesp, Epogen, Neulasta and Neupogen.
Revenues of Amgen’s erythropoiesis-stimulating agent (ESA), Aranesp, declined 4% from the year-ago quarter to $511 million as higher unit demand in the U.S was offset by currency headwinds and lower inventory and selling price.
Revenues of the other ESA, Epogen, declined 10% to $270 million due to lower selling price due to a recently negotiated contract with DaVita Inc.
Neulasta revenues rose 2% to $1.21 billion from the year-ago period as a favorable accounting benefit and a higher price offset the lower unit demand. However, the Neulasta Onpro kit (on-body injector) continues to perform well, commanding a market share of more than 50% in the U.S. for all Neulasta sales.
The company expects Neulasta to face biosimilar competition in the U.S. from the fourth quarter of 2017.
Neupogen recorded a 31% decline in sales to $148 million due to a biosimilar competition in the U.S. Zarxio, Sandoz’s biosimilar version of Neupogen, was launched in the U.S. in Sep 2015 and is hurting sales.
Neupogen is expected to face continued competitive pressure in 2017 from the existing and potentially new biosimilars.
Enbrel delivered revenues of $1.18 billion, down 15% from the year-ago quarter due to increased competition and lower rheumatology/dermatology market growth. Enbrel’s market share in both rheumatology and the dermatology segments declined sequentially in the first quarter. Lower inventory levels also hurt Enbrel sales in the quarter.
On the call, the company said that Enbrel’s unit growth in rheumatology appeared to slow from 9% in 1Q16 to 2% in 1Q17, and from 25-9% in the dermatology segment for the same period. On the call, management maintained that volume trends this year will be similar to 2016 levels.
Prolia revenues came in at $425 million, up 21% from the year-ago quarter due to higher demand.
Meanwhile, Xgeva delivered revenues of $402 million, up 6% from the year-ago quarter mainly due to higher demand.
Sensipar/Mimpara revenues increased 15% to $421 million due to higher price and volume growth.
Vectibix revenues came in at $147 million, up 2%, driven by higher demand which offset the negative impact of foreign currency.
Kyprolis posted sales of $190 million, up 23% year over year, driven by higher demand. At the call, the company said that in the second-line multiple myeloma market, despite triplet regimens being used in approximately one-third of patients, Kyprolis gained 50% market share for new patient starts.
Meanwhile, a combination of Kyprolis plus dexamethasone showed a superior overall survival in the ENDEAVOR study, when compared to the Velcade plus dexamethasone. The ENDEVOR data strengthens Kyprolis’s position for doublet use. With doublet regimens being used by the other two-thirds of second-line patients, this overall survival data should help drive usage and boost sales.
Blincyto sales surged 26% from the year-ago period to $34 million due to higher demand.
Repatha generated revenues of $49 million, lower than $58 million in the fourth quarter of 2016. At the call, management said that Repatha’s sequential performance was hurt by a booking of a Middle East tender in the previous quarter, which was not repeated in the first quarter of 2017.
Operating Margins Increase
Adjusted operating margins rose 300 basis points (bps) to 57.6% due to lower operating costs, reflecting continued benefits from transformation and process improvement efforts.
R&D expenses declined 13% in the quarter due to lower late-stage pipeline related costs. A collaboration payment made in the first quarter of 2016 related was absent this quarter, resulting in lower R&D costs. SG&A spend declined 6% due to the Oct 2016 expiration of Enbrel residual royalty payments, which offset investments to support new product launches.
Amgen bought back shares worth $555 million in the quarter. At the end of the first quarter, Amgen had $3.5 billion remaining under its $5 billion stock repurchase plan.
2017 Guidance
While Amgen retained the previously issued sales outlook, it raised the earnings guidance to account for first-quarter earnings beat.
The company expects total revenue in the range of $22.3 billion to $23.1 billion, same as the previous guidance. However, adjusted earnings are now expected in the range of $12.00 to $12.60 in 2017 compared with $11.80 to $12.60 per share, expected previously.
Meanwhile, operating margins are expected to be lower in the rest of the quarters this year due to the timing of expenses.