Amgen (AMGN) reported second quarter earnings per share of $1.35, 5 cents above the Zacks Consensus Estimate and 0.7% above the year-ago earnings. Total revenues increased 4% to $3,959 million in the second quarter of 2011. Revenues topped the Zacks Consensus Estimate of $3,778 million.
US revenues increased 7% during the quarter to $2,975 million. Meanwhile, international revenues increased 11% to $918 million. Foreign exchange (Fx) fluctuation boosted revenues by $34 million during the second quarter.
The Quarter in Detail
Second quarter total product sales increased 8% to $3,893 million. Revenues of Amgen’s erythropoiesis-stimulating agent (ESA) Aranesp fell 3% to $585 million (US: $241 million, down 10%; ex-US: $344 million, up 2%).
US sales were down mainly due to a decline in demand that was partially offset by a price increase. International sales were boosted by favorable foreign exchange fluctuation.
Revenues of Amgen’s other ESA Epogen fell 17% to $543 million, reflecting a decline in demand. The decrease in demand was mainly due to lower dose utilization despite a growth in patient population. The decline reflected the impact of the implementation of the ESRD bundling strategy earlier this year.
We expect dose utilization to continue declining in 2011. The potential implementation of label changes and reimbursement changes proposed by the Centers for Medicare & Medicaid Services could lead to a 20 – 25% decline in dose utilization.
Worldwide revenues of Neulasta and Neupogen grew 13% to $1,326 million in the second quarter. An increase in average net sales price and demand boosted US revenues to $999 million, up 15%. International revenues increased 7% to $327 million including a $14 million favorable impact of foreign currency fluctuation.
Despite a decline in share driven by increased competition in the dermatology market, Enbrel revenues increased 9% to $956 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 16% to $199 million in the reported quarter. Increasing demand in international markets helped drive Vectibix revenues to $81 million during the quarter, up 13%.
Label expansion into second and first-line metastatic colorectal cancer should help drive Vectibix’ future growth. Amgen is looking to gain approval for this indication.
While Amgen recorded a 25.9% increase in R&D expenses during the quarter, SG&A expenses increased 14.8%. Costs increased during the second quarter due to the impact of the new US Healthcare Reform Excise Fee, Prolia and Xgeva launch efforts, expansion of international operations and phase III clinical programs. The company expects R&D costs to be towards the upper end of 18-20% of revenues in 2011.
Prolia/Xgeva Update
Amgen launched Prolia in both the EU and the US in the second quarter of 2010. Second quarter sales were $44 million, up significantly from first quarter sales of $27 million.
Meanwhile, Xgeva, which gained FDA approval on November 18, 2010, is off to a strong start with sales coming in at $73 million, up from the $42 million reported in the first quarter of 2011. Sales were driven by overall segment growth and increased segment share.
2011 Guidance Updated
Following the release of second quarter results, Amgen updated its revenue and earnings guidance for 2011. The company expects earnings towards the upper end of its guidance range of $5.00 to $5.20 per share. Revenues are expected towards the higher end of Amgen's guidance range 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.
Amgen repurchased 13 million shares during the second quarter and has $6.4 billion left in its share repurchase program. Moreover, a quarterly dividend of 28 cents per share was declared.
Neutral on Amgen
We currently have a Neutral recommendation on Amgen. We expect investor focus to remain on the successful commercialization of Prolia/Xgeva, which is the future of Amgen.
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