Amgen (AMGN) reported second quarter earnings per share of $1.34, 5 cents above the Zacks Consensus Estimate of $1.29 and 5.5% above the year-ago earnings. Total revenue, however, increased only 2.5% to $3,804 million. Revenues were slightly above the Zacks Consensus Estimate of $3,735 million.
US sales declined 2% during the quarter to $2,787 million. Sales were adversely impacted by $45 million due to the implementation of health care reform provisions. Meanwhile, international sales, which increased 3% to $826 million, were boosted by $11 million due to the favorable impact of foreign exchange (Fx) fluctuation.
Revenue by Products
Second quarter total product sales declined 1% to $3,613 million. Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp declined 13% to $603 million (US - $267 million, down 21%; ex-US - $336 million, down 5%). US sales were down mainly due to a decline in demand reflecting the negative impact, primarily in the supportive cancer care setting, of additional product label changes, which occurred in August 2008 and a slight loss of market share. International sales were also impacted by a decline in demand. Aranesp revenues could fall further due to the implementation of a Risk Evaluation and Mitigation Strategy (REMS) for the oncology setting.
Revenues of Amgen’s other ESA Epogen grew 3% to $657 million, reflecting an increase in demand due to patient growth, partially offset by a lower dose utilization. Wholesaler stocking also boosted sales.
Worldwide revenues of Neulasta and Neupogen grew 1% to $1,174 million in the second quarter, driven by an increased demand for Neulasta. US revenues increased 2% to $868 million mainly due to wholesaler stocking that was partially offset by a decline in demand. International revenues increased 1% to $306 million, mainly due to a favorable Fx impact of $5 million that was partially offset by a slight decrease in demand.
A decline in share driven by increased competition in the dermatology market led to a 2% decline in Enbrel revenues, which came in at $877 million.
Sensipar revenues increased 3% to $172 million in the reported quarter mainly due to an increased demand, which was partially offset by wholesaler de-stocking in the US. Recent launches of Vectibix in Europe helped drive Vectibix revenues to $72 million during the quarter.
Label expansion into second and first-line metastatic colorectal cancer should help drive Vectibix’s future growth. Amgen has submitted an application for this indication in the EU. Meanwhile, Vectibix’s recent approval in Japan for the treatment of unresectable, advanced or recurrent colorectal cancer with wild-type KRAS should help boost Vectibix sales.
Expenses during the Quarter
While Amgen recorded a 2.3% decline in R&D expenses during the quarter, SG&A expenses increased 8.6%. We expect R&D expenses to increase in the second half of the year as the company progresses with its pipeline candidates.
SG&A expenses increased primarily due to higher spending for activities in preparation and anticipation of the approval of Prolia, higher staff-related costs and litigation expenses. These were partially offset by expense recoveries related to the GlaxoSmithKline (GSK) collaboration for Prolia and lower expenses associated with the Pfizer (PFE) profit sharing arrangement for Enbrel.
We expect SG&A expenses to increase further with the company focusing on promotional activities for Prolia.
Prolia Launch in Progress
Amgen launched Prolia in both the EU and the US in the second quarter of 2010. The company said that it has already received reimbursement authorization in Germany. Reimbursement authorization in other EU countries should follow as the year progresses. Amgen expects to gain reimbursement authorization in Australia in 2011. Prolia sales for the second quarter of 2010 were $3 million.
Revenue Guidance Tweaked
Amgen revised its guidance for 2010 to reflect the impact of the weaker Euro on revenues. While earnings per share guidance remain unchanged with the company expecting earnings to come in toward the lower end of $5.05 to $5.25, revenues are now expected to come in below $15.1 billion. Amgen was previously expecting revenues toward the lower end of $15.1 billion to $15.5 billion range. The health care reform is estimated to impact sales by $200 million to $250 million in 2010.
Amgen said that it repurchased about 10 million shares for $0.6 billion during the second quarter. Amgen currently has about $3.7 billion remaining under its share buyback program.
Neutral on Amgen
We currently have a Neutral recommendation on Amgen, which is supported by a Zacks # 3 Rank (Hold). We expect investors’ focus to remain on the successful launch and commercialization of Prolia. Prolia will compete primarily with Merck’s (MRK) Fosamax, GlaxoSmithKline’s Boniva, Eli Lilly’s (LLY) Evista and Forteo for a share of the osteoporosis market. The FDA approval of Prolia for the treatment of bone metastases to reduce skeletal related events in patients with cancer later this year (FDA action date: Nov 18) would be a major boost for the stock.
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