We expect biotech major Amgen Inc. AMGN to beat expectations when it reports fourth-quarter and full-year 2017 results on Feb 1, after the market closes. Amgen delivered a positive earnings surprise of 5.83% in the last quarter.
Amgen shares are up 26.9% in the past year. This compares favorably with the 11.8% increase registered by the industry during this period.
Amgen’s performance has been pretty impressive, with the company delivering positive surprises consistently. The average earnings beat over the last four quarters is 5.25%.
Let’s see how things are shaping up for the company this quarter.
Factors at Play
Amgen’s newer products like Prolia, Xgeva, Kyprolis, Vectibix and Blincyto are expected to deliver the goods backed by higher demand. However, sales of mature brands like Aranesp, Enbrel, Epogen, Neulasta and Neupogen are expected to be lower due to competitive pressure.
Neulasta demand is being hurt by competition from PD-1s and other new cancer therapies. Neupogen sales are also being hurt by biosimilar competition in the United States mainly from Zarxio, Sandoz’s biosimilar version of Neupogen
We expect Neulasta and Neupogen sales to continue to be hurt by competitive dynamics in the fourth quarter. Meanwhile, Neulasta and Epogen are expected to start facing biosimilar competition in the United States this year.
Enbrel sales are expected to continue to be hurt by increased pricing and competitive pressures. Enbrel is one of the main drivers of Amgen’s revenues. The company launched Enbrel Mini with AutoTouch, a new auto injector device for Enbrel in the United States in November, which is likely to provide some support to fourth-quarter sales.
Meanwhile, operating expenses are expected to be higher in the fourth quarter than the prior quarter, reflecting the typical pattern of the business as well as costs related to recovery efforts following Hurricane Maria. Amgen expects to record $75 million to $100 million in expenses related to Hurricane Maria recovery efforts in the fourth quarter, which will reduce earnings per share by 8-11 cents.
Investor focus on the call will be on management’s comments about the initial impact of inclusion of cardiovascular outcomes data on the label of its PCSK9 inhibitor, Repatha. In December 2017, Amgen gained FDA approval to include a new indication – risk reduction of major cardiovascular events data – on Repatha’s label based on data from the phase III cardiovascular outcomes study (FOURIER). This makes Repatha the first PCSK9 inhibitor to prevent heart attacks, strokes and coronary revascularizations in adults with established cardiovascular disease. With the cardiovascular indication approved to be included in Repatha’s label, Amgen believes that patient access to Repatha should improve. Please note that uptake of Repatha, which gained FDA approval in August 2015, has not been very encouraging so far due to pricing and re-imbursement issues/payer restrictions.
Earnings Whispers
Our proven model shows that Amgen is likely to beat on earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate ($3.06 per share) and the Zacks Consensus Estimate ($3.04 per share) is +0.55%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Amgen has a Zacks Rank #3. The combination of Amgen’s Zacks Rank #3 and positive ESP makes us confident of an earnings beat in the upcoming release.
Sell-rated stocks (Zacks Rank #4 or 5), on the other hand, should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Some other stocks in the biotech sector that have both a positive ESP and a favorable Zacks Rank are:
Alexion Pharmaceuticals, Inc. ALXN with an Earnings ESP of +3.45% and a Zacks Rank #3. The company is scheduled to release results on Feb 8.
Emergent BioSolutions Inc. EBS with an Earnings ESP of +22.65% and a Zacks Rank #3. The company is expected to results next month.
Scheduled to release results on Feb 15, Incyte Corporation INCY has an Earnings ESP of +1.39% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
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