Amgen Beats but Tones Down Outlook - Analyst Blog

Amgen (AMGN) reported first quarter earnings per share of $1.28, 5 cents above the Zacks Consensus Estimate of $1.23 and well above the year-ago earnings of $1.07. Total revenues increased 9% to $3,592 million with US and international sales increasing 7% and 16%, respectively.
 
US sales were adversely impacted by $33 million due to the implementation of health care reform provisions. Meanwhile, international sales were boosted by $39 million due to the favorable impact of foreign exchange (Fx) fluctuation.
 
Revenue by Products
 
Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp remained unchanged at $627 million (US - $268 million, down 8%; ex-US - $359 million, up 7%). 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 decrease in average net sales price.
 
Aranesp revenues could decline in 2010 following the implementation of a Risk Evaluation and Mitigation Strategy (REMS) for the product, potentially in the first half of 2010.
 
Meanwhile, revenues of Amgen’s other ESA Epogen grew 10% to $623 million reflecting an increase in demand, which was supported by patient growth and increased dose utilization.
 
Worldwide revenues of Neulasta and Neupogen grew 10% to $1,179 million in the first quarter, driven by increased demand for Neulasta. US revenues increased 8% to $862 million. International revenues increased 14% to $317 million, mainly due to higher demand driven by conversion of Neupogen to Neulasta, expansion into new territories, and favorable Fx impact of $16 million.
 
Although Enbrel revenues increased 6% to $804 million, primarily due to a price increase that was partially offset by a decline in share driven by increased competition in the dermatology market. However, we note that revenues declined on a sequential basis.
 
Sensipar revenues increased 21% to $179 million in the reported quarter mainly due to increased international demand and favorable changes in wholesaler inventories in the US. Recent launches of Vectibix in Europe helped drive Vectibix revenues to $67 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
 
Both R&D and SG&A expenses at Amgen increased during the quarter. The 2% increase in R&D spend was mainly due to higher staff-related costs and lower expense recoveries from ongoing collaborations. This was partially offset by lower clinical trial costs primarily for denosumab.
 
SG&A expenses increased 13% during the quarter primarily due to increased spending for activities in preparation and anticipation of approval and launch of Prolia, higher expenses associated with the Pfizer (PFE) profit sharing arrangement for Enbrel, higher staff-related costs and litigation expenses. These were partially offset by expense recoveries related to the GlaxoSmithKline (GSK) collaboration for Prolia.
 
We expect SG&A expenses to increase further once Prolia is approved as the company starts spending on promotional activities for the product.
 
Guidance Revised to Reflect Health Care Reform Impact
 
Like several other pharma and biotech companies, Amgen revised its guidance for 2010 to reflect the impact of US health care reform. Amgen now expects earnings per share to come in towards the lower end of its previously issued guidance of $5.05 to $5.25.  Revenues are also expected to come in towards the lower end of Amgen’s earlier guidance of $15.1 - $15.5 billion.
 
The health care reform is estimated to impact sales by $200 million - $250 million in 2010. 
 
Operating expenses are expected to increase in the mid single digit range as the year progresses mainly due to the anticipated global launch of Prolia.
 
Our Take
 
We currently have a Neutral recommendation on Amgen. We expect investor focus to remain on the potential approval and launch of Prolia (denosumab), which received a complete response letter from the U.S. Food and Drug Administration (FDA) in 2009. Amgen has submitted the information requested by the FDA for the postmenopausal osteoporosis (PMO) indication and a final response should be out by July 25. EU approval for Prolia could also come in the second quarter of 2010.

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