Amgen (AMGN) reported first quarter earnings per share of $ 1.32, 3 cents above the Zacks Consensus Estimate of $ 1.29 and 3.1% above year-ago earnings. Higher revenues, a lower tax rate and lower share count helped drive first quarter results. Including one-time items, earnings increased 2% to $ 1.20 in the first quarter of 2011.
Total revenues increased 3.2% to $ 3,706 million in the first quarter of 2011. Revenues topped the Zacks Consensus Estimate of $ 3,662 million.
US revenues increased 4% during the quarter to $ 2,778 million. Meanwhile, international revenues dropped 1% to $ 840 million. Foreign exchange (Fx) fluctuation negatively impacted revenues during the first quarter. While Xgeva was off to a strong start, Epogen performance disappointed.
The Quarter in Detail
First quarter total product sales increased 2.6% to $ 3,618 million. Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp fell 7% to $ 580 million (US: $ 250 million, down 7%; ex-US: $ 330 million, down 8%). US sales were down mainly due to a decline in demand that was partially offset by a price increase. International sales were affected by a decline in demand as well as prices. Aranesp revenues were also impacted by the implementation of a Risk Evaluation and Mitigation Strategy (REMS) in the US.
Revenues of Amgen’s other ESA Epogen fell 14% to $ 535 million, reflecting a decline in demand partially offset by a price increase. 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. We expect dose utilization to continue declining in the mid-teens in 2011.
Worldwide revenues of Neulasta and Neupogen grew 4% to $ 1,232 million in the first quarter. An increase in average net sales price and demand boosted US revenues to $ 930 million, up 8%. International revenues, however, declined 5% to $ 302 million mainly due to the impact of biosimilar competition being faced by Neupogen.
Despite a decline in share driven by increased competition in the dermatology market, Enbrel revenues increased 9% to $ 875 million due to an increase in average net sales price and demand. Enbrel’s competitors include Abbott’s (ABT) Humira, Merck/Johnson & Johnson’s (MRK/JNJ) Remicade and Johnson & Johnson’s Stelara among others.
Sensipar/Mimpara revenues increased 4% to $ 187 million in the reported quarter. Increasing demand in international markets helped drive Vectibix revenues to $ 75 million during the quarter, up 12%.
Label expansion into second and first-line metastatic colorectal cancer should help drive Vectibix’ future growth. Amgen is currently seeking approval for this indication.
While Amgen recorded a 14% increase in R&D expenses during the quarter, SG&A expenses increased 16%. Costs increased during the first quarter due to the impact of the new US Healthcare Reform Excise Fee, Prolia and Xgeva launch efforts and phase III clinical programs.
Prolia/Xgeva Update
Amgen launched Prolia in both the EU and the US in the second quarter of 2010. The Prolia ramp remained slow with first quarter sales coming in at $ 27 million, up from $ 20 million in the fourth quarter of 2010.
Primary care physicians made up two-thirds of the physicians prescribing Prolia and accounted for 60% of Prolia usage. Retail access through Part D, launches in additional countries and direct-to-consumer (DTC) promotional efforts should drive Prolia sales in the second half of 2011.
Meanwhile, Xgeva, which gained FDA approval on November 18, 2010, is off to a strong start with sales coming in at $ 42 million, up from the $ 8 million reported in the fourth quarter of 2010. Amgen said that Xgeva is seeing usage among both oncologists and urologists. Amgen reported that about two-thirds of Xgeva patients were treatment-experienced with the balance being treatment-naïve. While 45% usage was in breast cancer patients, prostate cancer usage was 19%.
In the prostate cancer setting, three quarters of patients received Xgeva through hospitals and oncology clinics. Urologists accounted for the balance one-fourth. With urology accounting for 5% of Xgeva sales in the first quarter, there is ample scope for Amgen to expand use in this segment.
The reimbursement scenario for Xgeva is encouraging with all Medicare carriers confirming Part D coverage. Xgeva is currently under regulatory review in the EU and other countries.
Maintains 2011 Guidance
Following the release of first quarter results, Amgen reiterated its 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 Earnings Estimate currently stands at $ 5.04. The Zacks Consensus Revenue Estimate for 2011 is $ 15.2 billion.
Amgen did not repurchase any shares during the first quarter and has $ 2.2 billion left in its share repurchase program. We expect further insight into the company’s capital allocation plans (including dividend plans) at the company’s Business Review meeting on April 21.
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. The company is moving three phase II candidates into phase III development in 2011. The company expects R&D costs to be about 18-20% of revenues in 2011.
Besides reporting first quarter results, Amgen and UCB (UCBJF) announced positive top-line results on phase II candidate AMG 785/CDP7851. Results were presented from a phase II study comparing AMG 785/CDP7851 to placebo in postmenopausal women with low bone mineral density (BMD) for the treatment of postmenopausal osteoporosis (PMO).
AMG 785/CDP7851 met its primary endpoint and showed a significant increase in lumbar spine BMD at month 12 compared to placebo. AMG 785/CDP7851 also compared positively with the two active comparators, Eli Lilly’s (LLY) Forteo (teriparatide) and Merck’s Fosamax (alendronate).
Neutral on Amgen
We currently have a Neutral recommendation on Amgen, supported by a Zacks #3 Rank (short-term “Hold” rating). We expect investor focus to remain on the successful commercialization of Prolia/Xgeva, which is the future of Amgen.
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