(AMGN) Amgen Beats The Street – Raises Guidance

Amgen (AMGN) continued its strong performance in 2012 with second quarter earnings coming in at $1.82 per share, 31 cents above the Zacks Consensus Estimate and 34.8% above the year-ago period. Higher revenues and a lower share count contributed to the year-over-year increase in earnings.

Total revenue increased 13% to $4,477 million in the second quarter of 2012. Revenues comfortably surpassed the Zacks Consensus Estimate of $4,082 million. However, second quarter 2012 revenues included $206 million recognized by Amgen under its amended agreement with Takeda for oncology candidate, motesanib.

The Quarter in Detail

Second quarter total product sales increased 8% to $4,200 million (US: $3,255 million, ex-US: $945 million).

Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp fell 8% to $536 million (US: $215 million, down 11%; ex-US: $321 million, down 7%).

US sales were down mainly due to a decline in demand that was partially offset by a price increase and a change in accounting estimates. International sales were affected by a decline in average net sales price.

Revenues of Amgen’s other ESA, Epogen, fell 3% to $525 million. The decrease in demand was mainly due to lower dose utilization. The decline reflected the impact of the implementation of the ESRD bundling strategy in 2011 and label changes in June 2011. However, Epogen sales increased 18% on a sequential basis mainly due to customer and wholesaler buying patterns. Amgen reported 2% growth in underlying unit demand.

We note that a new competitor, Affymax’ (AFFY) Omontys (peginesatide), has entered the dialysis market. Amgen said that the impact of new competition on Epogen sales was limited. Epogen sales, however, are expected to remain volatile due to the overall market dynamics.

Worldwide revenues of Neulasta and Neupogen grew 2% to $1,347 million in the second quarter. An increase in average net sales price and unit demand boosted US revenues to $1,062 million, up 6%. International revenues, however, continued to decline with sales coming in at $285 million, down 13%. Sales were impacted by lower average net sales price and a decline in Neupogen units due to competition from biosimilars.

Enbrel, which is facing increased competition in the dermatology market, posted revenues of $1,058 million, up 11%. Higher average net sales price, increase in unit demand and wholesaler inventories drove the upside. The company said that over the last one year, it has been increasing its share among bio-naïve (patients new to biologics) patients. Enbrel’s competitors include Abbott Labs’ (ABT) Humira, Merck/Johnson & Johnson’s (MRK/JNJ) Remicade and Johnson & Johnson’s Stelara among others.

With Amgen and Pfizer’s (PFE) collaboration for Enbrel set to expire in late 2013, Amgen has completed the consolidating of US field sales activities under its wing. The consolidated sales force is targeting both the rheumatology and dermatology segments. Amgen has also expanded DTC advertising and is working on ensuring appropriate access.

Second quarter 2012 Prolia sales came in at $120 million, up from first quarter 2012 sales of $88 million. Sales were driven by increased segment share as well as growth in the overall skeletal-related events segment. Amgen launched a DTC TV campaign this year which should drive sales further.

Meanwhile, Xgeva, which gained FDA approval in November 2010, delivered second quarter 2012 sales of $179 million, up from the $153 million, $134 million, and $100 million reported in the last three quarters. Sales were driven by overall segment growth. Xgeva gained EU approval in July 2011.

Sensipar/Mimpara revenues increased 17% to $232 million in the reported quarter. Higher demand helped drive Vectibix revenues to $90 million during the quarter, up 11%.

While second quarter 2012 R&D expenses remained flat, SG&A expenses increased 8%. SG&A spend increased due to higher Enbrel profit share expenses and expansion of international operations.

Amgen is currently conducting phase III studies with AMG 785 for the treatment of postmenopausal osteoporosis and expects to commence phase III studies with AMG145 (LDL cholesterol reduction) early next year.

Guidance Up

Based on its strong performance in the first half of 2012 results, Amgen raised its guidance for 2012. The company now expects earnings in the range of $6.20 – $6.35 per share on revenues of $16.9 – $17.2 billion. Earlier, the company had guided towards earnings of $5.90 – $6.15 per share on revenues of $16.1 – $16.5 billion. The Zacks Consensus Estimate stands well below the new guidance at $6.08 per share. The Zacks Consensus Revenue Estimate of $16.4 billion is also below the new guidance range.

Earnings guidance reflects the up-front and milestone payments received from Takeda, AstraZeneca (AZN) and Astellas Pharma in the first half of 2012. Meanwhile, the company expects R&D costs to increase in the second half of the year as it accelerates its late-stage development plans for AMG 785 and AMG 145.

Amgen repurchased about 17 million shares for $1.2 billion in the second quarter of 2012.

We are encouraged by the company’s first half 2012 performance. Enbrel should continue performing well and Xgeva/Prolia should continue responding positively to the company’s increased marketing efforts like DTC advertising. Amgen’s late-stage pipeline is also moving along.

We currently have a Neutral recommendation on Amgen, which carries a Zacks #3 Rank (short-term ‘Hold’ rating).
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