Why Is Amgen (AMGN) Down 11.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Amgen (AMGN). Shares have lost about 11.7% in that time frame, underperforming the S&P 500.

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

Amgen Beats on Q4 Earnings & Sales

Amgen reported fourth-quarter 2019 earnings of $3.64 per share, which beat the Zacks Consensus Estimate of $3.44. Earnings rose 6% year over year as lower revenues and higher R&D costs were offset by a lower share count.

Total revenues of $6.2 billion in the quarter beat the Zacks Consensus Estimate of $6.0 billion. However, total revenues declined 1% year over year.

Quarter in Detail

Total product revenues decreased 2% from the year-ago quarter to $5.88 billion (U.S.: $4.37 billion; ex-U.S.: $1.51 billion). Increasing demand of Amgen’s growth and launch drugs like Prolia, Repatha,  Aimovig, Parsabiv and others and strong sales of  biosimilar products and in ex-U.S. markets was offset by the erosion of mature brands from biosimilar/new competition. Product sales growth was mostly driven by higher volumes (up 3%) as prices were lower for several drugs. Net selling prices declined 4% year over year in the quarter, which resulted in decline in total revenues.

Other revenues of $316 million rose 38% in the quarter.

Prolia revenues came in at $752 million, up 15% from the year-ago quarter, driven by volume increases resulting from new patient growth as well as strong repeat rates.

Xgeva delivered revenues of $489 million, up 7% from the year-ago quarter mainly due to higher demand, which drove volumes up 4% and, to a lesser extent, higher selling price.
 
Kyprolis recorded sales of $266 million, up 6% year over year, driven primarily by 12% volume growth in the United States.

Blincyto sales increased 27% from the year-ago period to $80 million.

Repatha generated revenues of $200 million, up 26% year over year, as higher volume was partially offset by lower prices.

Vectibix revenues came in at $182 million, up 8% year over year. Nplate sales rose 15% to $210 million.

Parsabiv recorded sales of $179 million, up 49% as higher demand offset the impact of lower selling prices.

Aimovig recorded sales of $98 million in the quarter, higher than $66 million in the previous quarter as higher demand was partially offset by unfavorable changes in accounting estimates. Aimovig volumes rose 27% in the quarter.

On the call, the company said that approximately 300,000 patients in the United States have been prescribed Aimovig since launch. Meanwhile, more than 33,000 physicians have prescribed Aimovig since launch. It commanded a 48% market share among CGRP antibodies at the end of the fourth quarter.

Evenity recorded sales of $85 million in the quarter compared with $59 million in the previous quarter, driven by strong uptake in both Japan and the United States where the product has been launched. In the United States, where Evenity was launched in April 2019, sales were $27 million while international sales were $58 million.

Amgen recorded total biosimilars revenues of $258 million in the quarter. Amjevita sales were $71 million in the quarter. Sales of Kanjinti and Mvasi were $103 million and $84 million, respectively. On the call, Amgen mentioned that it now faces additional biosimilar competition for Kanjinti and Mvasi and expects other players to enter the market in 2020 increasing competition and pricing pressure.

Sales of Otezla were $178 million for the approximately five weeks post-closing on Nov 21.

However, Amgen’s mature drugs like Enbrel, Aranesp, Epogen, Neupogen and Neulasta are facing an array of branded and generic competitors.

Aranesp revenues declined 10% from the prior-year quarter to $427 million on lower volume due to increased competitive pressure. Meanwhile, lower net selling price as well as unfavorable changes in inventory hurt sales.

Revenues of the other ESA, Epogen, declined 20% to $210 million due to lower selling prices and demand with the category becoming extremely competitive.

Neulasta revenues declined 43% from the year-ago period to $665 million due to the impact of biosimilar competition on demand and price.

Neupogen recorded 17% decline in sales to $62 million in the quarter. Enbrel delivered revenues of $1.35 billion, up 2% from the year-ago quarter, driven primarily by favorable changes in inventory along with a slight price increase, which offset volume declines due to continued competition.

Sensipar/Mimpara revenues declined 76% to $107 million due to several at-risk generic launches. Other product sales rose 19% to $87 million. In 2020, Amgen lost patent protection for Sensipar in several ex-U.S. countries, which should result in a significant decline in ex-U.S. sales in 2020.

Other product sales rose 19% to $87 million.

Operating Margins Decrease

Adjusted operating margin declined 70 basis points (bps) to 44.6%. Adjusted operating expenses rose 2% year over year in the quarter to $3.58 billion.

SG&A spend decreased 2% to $1.5 billion on cost control, which offset the impact of Otezla related expenses. R&D expenses rose 11% year over year to $1.29 due to higher spending on Amgen’s early- and late-stage oncology pipeline.

Adjusted tax rate was 14.9% for the quarter, a 1.6 points increase from the year-ago quarter.

Amgen repurchased 5.1 million shares worth $1.1 billion in the fourth quarter and has $6.5 billion remaining under its stock repurchase authorization.

2019 Results

Full-year 2019 sales declined 2% to $23.36 billion, beating the Zacks Consensus Estimate of $23.18 billion. Sales slightly topped the guided range of $23.1-$23.3 billion. Product sales declined 1%.

Adjusted earnings for 2019 of $14.82 per share were also above the Zacks Consensus Estimate of $14.63 as well as the guided range of $14.50 -$14.70. Earnings rose 3% year over year.

2020 Outlook

Amgen issued its financial guidance for 2020. It expects revenues in the range of $25.0 billion-$25.6 billion, which indicates an increase from 2019 levels. In 2020, Amgen’s base business, excluding Otezla, is expected to remain stable over 2019, with the addition of Otezla providing positive sales growth.

In 2020, while Amgen’s growth products like Prolia, Evenity, Repatha, Aimovig, Otezla and the biosimilar products are expected to drive sales, increasing competition for its legacy products will continue to create pressure on sales.

Importantly, Amgen's net selling price for its drugs fell 5% globally in 2019 and is expected to decline in 2020 at a low to mid-single digit rate.

Adjusted earnings per share are anticipated in the range of $14.85-$15.60. Adjusted operating costs are expected to grow in a low double-digit percentage range year over year in 2020. Adjusted tax rate is expected in the range of 13.5% to 14.5%

Amgen plans to spend approximately $700 million for capital expenditures in 2020.

Q1 Outlook

Historically, the first quarter represents the lowest product sales quarter for Amgen. Accordingly, as a percent of the full year, Amgen expects product sales for the first quarter to look similar to the percentage seen in the first quarter of 2019, which was 23.8%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Amgen has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 this revision has been net zero. 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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