Amgen (AMGN) Up 1.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Amgen (AMGN). Shares have added about 1.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Amgen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Amgen Q3 Earnings Top, Prolia, Biosimilars Drive Sales

Amgen reported third-quarter 2020 earnings of $4.37 per share, which beat the Zacks Consensus Estimate of $3.75. Earnings rose 19% year over year driven by higher revenues.

Total revenues of $6.42 billion beat the Zacks Consensus Estimate of $6.38 billion. Total revenues rose 12% year over year.

On the call, the company said that it experienced continued recovery from peak impact of the COVID-19 pandemic as physician interaction and prescription trends improved in the third quarter. However, though physician-patient interaction and prescription volumes improved in the third quarter versus the second quarter, it was still below pre-COVID-19 levels.

Quarter in Detail

Total product revenues rose 12% from the year-ago quarter to $6.1 billion (U.S.: $4.62 billion; ex-U.S.: $1.49 billion). Higher sales of Prolia, Xgeva, Otezla and biosimilar products were offset by lower sales of some drugs due to COVID-19 and the erosion of mature brands from biosimilar/new competition.

Product sales growth was mostly driven by higher volumes (up 18%) as prices were lower for several drugs.

Other revenues of $319 million rose 16.4% year over year.

Performance of Key Drugs

Prolia revenues came in at $701 million, up 11% from the year-ago quarter driven by volume growth. Volumes of the drug improved as patients returned to treatment after sales were hurt by fewer patient visits in the second quarter as Prolia treats the most at-risk COVID-19 patients. COVID-19 has caused a change in historical quarterly trends for Prolia. Prolia witnesses higher revenues in the second and the fourth quarters of a year due to its six-month dosing regimen. Given the negative impact of the pandemic in the second quarter and the six-month dosing regimen of Prolia, year-over year growth rates in the fourth quarter are expected to be lower than pre-COVID growth trends. Also, the recent increase in infection rates could result in a delay in Prolia treatments and hurt sales of the drug in the fourth quarter.

Xgeva delivered revenues of $481 million, up 1% from the year-ago quarter due to a recovery in patients returning to treatment.

Kyprolis recorded sales of $260 million, down 2% year over year, hurt by lower volumes due to fewer new patient starts amid COVID-19.

Repatha generated revenues of $205 million, up 22% year over year, as higher volume was partially offset by unfavorable changes to estimated sales deductions and lower prices due to Amgen’s efforts to improve access and affordability for the product.

Vectibix revenues came in at $193 million, down 2% year over year. Nplate sales rose 9% to $212 million. Blincyto sales increased 5% from the year-ago period to $89 million.

Parsabiv recorded sales of $183 million, up 17% driven by higher demand, which offset the impact of lower selling prices. However, U.S. sales were hurt toward the end of the third quarter in anticipation of changes in reimbursement rules for the drug     with the trend expected to continue in the fourth quarter.

Aimovig recorded sales of $105 million in the quarter, up 59% year over year driven by higher volumes and the impact of unfavorable changes to estimated sales deductions in the prior year. The net price decline was minimal in the quarter. Aimovig commands 46% share of total prescription of the CGRP class of medicines and 38% of new prescriptions.

New osteoporosis drug, Evenity recorded sales of $59 million in the quarter compared with $101 million in the previous quarter as higher sales in the United States were offset by lower sales in Japan. Sales declined in Japan due to inventory drawdown by partner Astellas following large purchases in the first half.

Sales of Otezla were $538 million in the quarter as prescription volume growth was offset by the impact of lower inventory levels and unfavorable changes in sales reductions.

Biosimilar generated revenues of $480 million in the quarter supported by share gains of oncology biosimilars, Kanjinti and Mvasi. Sales of Kanjinti and Mvasi were $167 million and $231 million in the quarter, compared with $123 million and $172 million respectively, in the previous quarter. Amjevita sales were $80 million in the quarter, up 31% year over year. However, competition for Kanjinti and Mvasi in the U.S. market is expected to intensify with multiple competing biosimilars entering the market in the near term.

Most of the mature drugs like Enbrel, Aranesp, Epogen, Neupogen and Neulasta declined due to an array of branded and generic competitors. Enbrel revenues of $1.33 billion declined 3% year over year due to lower demand, loss of market share as well as slower growth pace in the rheumatoid arthritis market related to COVID.

Aranesp revenues declined 15% from the prior-year quarter to $384 million. Revenues of the other ESA, Epogen, declined 31% to $149 million. Neulasta revenues declined 22% from the year-ago period to $555 million. Neupogen recorded 20% increase in sales to $65 million in the quarter. Sensipar/Mimpara revenues declined 64% to $39 million.

Other product sales declined 2% to $83 million.

Operating Margins Rise

Adjusted operating margin rose 100 basis points (bps) to 52.1%. Adjusted operating expenses rose 10% year over year in the quarter to $3.24 billion.

SG&A spend rose 10% to $1.33 billion due to Otezla-related commercial expenses. R&D expenses rose 6% year over year to $1.04 billion as higher spending on sotorasib and biosimilars and costs related to Otezla were partially offset by cost recoveries from Amgen’s collaboration with BeiGene.

Adjusted tax rate was 13.5% for the quarter, a 1.7 point decrease from the year-ago quarter.

Amgen repurchased 3.0 million shares worth $752 million in the quarter and has $4.2 billion remaining under its stock repurchase authorization.

2020 Outlook

Amgen narrowed its revenue guidance range from $25.0 billion-$25.6 billion to $25.1 billion-$25.5 billion.

Adjusted earnings per share guidance was raised from a range of $15.10 to $15.75.to $15.80 to $16.15 per share.

Amgen expects fluctuations in quarterly revenues and earnings due to uncertainty created by the recent resurgence of COVID-19 infections globally. The surgent in infection rates could be a potential headwind in the fourth quarter and some spillover into 2021, especially for Prolia due to disruptions in physician–patient interactions.

Adjusted operating costs are expected to grow in a high single-digit percentage range year over year in 2020. Operating expenses are expected to increase 20% sequentially in the fourth quarter as customer-facing commercial activity levels increase and pipeline activities recover from COVID-19 related slowdowns. Adjusted tax rate is expected in the range of 13% to 14% (previously 13.5% to 14.5%).

Amgen plans to spend approximately $600 million for capital expenditures in 2020. The company guided that it will buy back shares at the lower end of the previous guidance of $3 billion to $5 billion through the year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.08% due to these changes.

VGM Scores

At this time, Amgen has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Amgen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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