Amgen Beats, Guides In Line - Analyst Blog

Amgen (AMGN) reported fourth quarter earnings per share of $1.15, 9 cents above the Zacks Consensus Estimate of $1.06 and 11.7% above year-ago earnings. Higher revenues, a lower tax rate and lower share count helped drive fourth quarter results.

Full year earnings increased 5.8% to $5.12 per share, beating the Zacks Consensus Estimate of $5.01.

Total revenues increased 1% to $3,841 million in the fourth quarter of 2010. Revenues were slightly above the Zacks Consensus Estimate of $3,803 million. Full year revenues increased 3% to $15,053 million, slightly above the Zacks Consensus Estimate of $15,007 million.

US sales declined 0.5% during the quarter to $2,869 million. Sales were adversely impacted by $65 million due to the implementation of health care reform provisions. Meanwhile, international sales increased 3% to $891 million. Foreign exchange (Fx) fluctuation negatively impacted sales by $26 million during the fourth quarter.

The Quarter in Detail

Fourth quarter total product sales increased 0.5% to $3,760 million. Revenues of Amgen's erythropoiesis-stimulating agent (ESA) Aranesp declined 2% to $633 million (US: $285 million, down 1%; ex-US: $348 million, down 3%). US sales were down mainly due to 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 fell 16% to $591 million, reflecting a decline in demand and unfavorable changes in wholesaler inventories and accounting estimates. The decrease in demand was mainly due to lower dose utilization despite a growth in patient population. Sales could decline further due to the impact of the implementation of the ESRD bundling strategy earlier this year.

Worldwide revenues of Neulasta and Neupogen grew 3% to $1,237 million in the fourth quarter. An increase in average net sales price and favorable changes in wholesaler inventories boosted US revenues to $914 million, up 4%. International revenues, however, remained flat at $323 million.

Despite a decline in share driven by increased competition in the dermatology market, Enbrel revenues increased 3% to $939 million due to an increase in average net sales price. Enbrel is mainly facing competition from Johnson & Johnson's (JNJ) Stelara.

Sensipar/Mimpara revenues increased 10% to $188 million in the reported quarter mainly due to increased international demand. Increasing demand in international markets helped drive Vectibix revenues to $79 million during the quarter, up 20%.

Label expansion into second and first-line metastatic colorectal cancer should help drive Vectibix' future growth. Amgen is currently seeking approval for this indication. Meanwhile, Vectibix' approval in Japan for the treatment of unresectable, advanced or recurrent colorectal cancer with wild-type KRAS should help boost Vectibix sales.

While Amgen recorded a 5% decline in R&D expenses during the quarter, SG&A expenses declined 1.5%.

Prolia/Xgeva Update

Amgen launched Prolia in both the EU and the US in the second quarter of 2010. Prolia sales for the fourth quarter of 2010 were $20 million, up from $10 million in the third quarter of 2010.

The company reported that about 9,000 physicians have ordered or prescribed Prolia in the US with 40% of these physicians having placed additional orders. About two-thirds of Amgen's targeted rheumatologists have prescribed Prolia. Medicare Part D coverage for Prolia, expected later in the first quarter of 2011, and launches  in additional countries should help drive sales. Amgen expects to launch Prolia in 19 markets in 2011.

Meanwhile, Xgeva, which gained FDA approval on November 18, 2010, is off to a strong start with sales coming in at $8 million. Amgen said that Xgeva is seeing usage among both oncologists and urologists. Xgeva is currently under regulatory review in the EU and other countries.

Amgen expects to seek approval for Xgeva for use in prostate cancer patients in the first half of 2011. The company intends to file on the basis of data from the ‘147 study. Approval for this indication would boost sales significantly.

Guides In Line for 2011

Amgen provided revenue and earnings guidance for 2011. The company expects earnings in the range of $5.00 to $5.20 per share on revenues of $15.1 billion to $15.5 billion. The health care reform is estimated to impact sales by $400 million to $500 million in 2011. 2010 revenues were affected by $198 million due to the health care reform.

The Zacks Consensus Estimate for 2011 is already in the guidance range at $5.15 per share and $15.2 billion.

Amgen expects to invest more in research and development in 2011. This includes plans for a higher number of phase III programs and a step up in its discovery research investment.

Besides reporting fourth quarter results, Amgen announced that it entered into a definitive acquisition agreement with Group Inc. whereby Amgen will acquire BioVex Group Inc. With this acquisition, Amgen will gain access to OncoVEX (GM-CSF), a phase III vaccine that is being developed for the treatment of melanoma and head and neck cancer.

The deal, which is scheduled to close in the first quarter of 2011, is valued at up to $1 billion. While $425 million will be paid in cash at the time of closing, the remaining amount will be paid on the achievement of certain regulatory and sales milestones.

Neutral on Amgen

We currently have a Neutral recommendation on Amgen. We expect investor focus to remain on the successful commercialization of Prolia/Xgeva, which is the future of Amgen.

 
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