It has been about a month since the last earnings report for Amgen (AMGN). Shares have added about 6.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Q1 Earnings & Sales Top
Amgen reported first-quarter 2022 earnings of $4.25 per share, which beat the Zacks Consensus Estimate of $4.22. Earnings rose 15% year over year, driven by higher revenues and lower share count.
Total revenues of $6.24 billion beat the Zacks Consensus Estimate of $6.06 billion. Total revenues rose 6% year over year, driven by growth in product sales and higher Other Revenue.
Total product revenues rose 2% from the year-ago quarter to $5.73 billion (U.S.: $4.04 billion; ex-U.S.: $1.69 billion). Higher volumes were offset by lower selling prices of several drugs and currency headwinds.
Volume-driven growth of Repatha, Prolia, and Evenity drove the top line in the quarter. However, pricing pressure and increased competition continue to hurt sales of some drugs as well as biosimilar products.
The pandemic hurt sales globally in the first two months of the quarter, However, demand patterns improved in the United States in March and April with the impact of the pandemic in the United States receding.
Sales of products like Otezla and Enbrel are historically lower in the first quarter relative to subsequent quarters in a year due to the impact of benefit plan changes, insurance re-verification and increased co-pay expenses as U.S. patients work through deductibles.
Volumes rose 9% in the quarter offset by a 7% lower net selling price. Foreign exchange movement hurt sales by 2% in the quarter. Favorable changes to estimated sales deductions benefited sales by 2^ in the first quarter.
Other revenues of $507 million rose 64% year over year, aided by Amgen’s COVID-19 antibody manufacturing collaboration.
Performance of Key Drugs
Prolia revenues came in at $852 million, up 12% from the year-ago quarter, driven by double-digit volume growth as new and repeat patient volumes improved.
Evenity recorded sales of $170 million in the quarter, up 59% year over year driven by strong volume growth.
Xgeva delivered revenues of $502 million, up 7% from the year-ago quarter due to favorable changes to estimated sales deductions and higher prices, which offset the impact of lower volumes.
Kyprolis recorded sales of $287 million, up 14% year over year.
Repatha generated revenues of $329 million, up 15% year over year, as higher volume was partially offset by lower prices. Increased rebates to support broad Medicare Part D and commercial patient access in the United States and the inclusion of Repatha in China’s National Reimbursement Drug List led to lower prices in the quarter.
Vectibix revenues came in at $201 million, up 5% year over year. Nplate sales rose 17% to $266 million. Blincyto sales increased 29% from the year-ago period to $138 million.
Aimovig recorded sales of $101 million in the quarter, up 53% year over year due to favorable changes to estimated sales deductions and higher net selling price, which offset the impact of lower volumes.
Sales of Otezla were $451 million in the quarter, down 5% due to lower net selling price and lower inventory levels, which offset the impact of higher volumes. Though sales were lower in the first quarter due to wholesalers and specialty pharmacies reducing inventory levels and price declines, Amgen expects continued strong volume growth and lower year-over-year price erosion in the remaining quarters of the year. A broader adoption of Otezla because of the drug’s broad label across severity of psoriasis is expected to drive volume growth.
Amgen’s newly approved drug, Lumakras (sotorasib) recorded sales of $62 million in the quarter compared with $45 million in the previous quarter.
More than 1,500 oncologists have prescribed Lumakras to approximately 2,500 patients in both academic and community settings. KRAS testing of metastatic NSCLC patients stands at approximately 80%. In ex-U.S. markets, Lumykras is currently approved in 40 countries.
Newly approved asthma drug, Tezspire (tezepelumab) recorded sales of $7 million in the quarter. Tezspire was approved in the United States in December 2021.
In biosimilars, sales of Kanjinti were $96 million, down 40% year over year due to lower volumes and pricing as a result of increased competition.
Sales of Mvasi were $244 million in the quarter, down 17% year over year due to declines in net selling price on increased competition that was partially offset by higher volume growth. Sales of Kanjinti and Mvasi are expected to continue to decline in the remaining quarters of 2022 due to price erosion and volume declines.
Amjevita (biosimilar of Humira) sales were $108 million in the quarter, up 2% year over year driven by volume growth, which was partially offset by lower net selling price due to increased competitive pressure.
In 2022, volume growth of biosimilars is expected to be offset by lower pricing due to increased competition and average sales price erosion. However, biosimilar revenues are expected to return to growth with the launch of Amjevita (Humira biosimilar) in 2023.
Total sales of mature drugs like Enbrel, Parsabiv, Neupogen, Aranesp, Epogen and Neulasta declined 12% in the quarter due to an array of branded and generic competitors. Enbrel revenues of $862 million declined 7% year over year due to lower inventory and price. Volumes were flat in the quarter.
Operating Margins Rise
The adjusted operating margin rose 360 basis points (bps) to 54.8%. Adjusted operating expenses rose 2% to $3.1 billion, driven by investments in the pipeline, product launches and digitalization costs. SG&A spending declined 1% to $1.2 billion. R&D expenses declined 1% year over year to $934 million.
Adjusted tax rate was 14.1% for the quarter, a 0.5-point increase from the year-ago quarter.
Amgen repurchased 24.6 million shares worth $6.3 billion in the quarter, including shares received and retired under the company’s Accelerated Stock Repurchase (ASR) agreement entered in February 2022 to repurchase an aggregate of up to $6 billion of the company’s common stock.
2022 Outlook
Amgen maintained its previously issued revenue and adjusted earnings guidance in the range of $25.4 billion to $26.5 billion and $17.00 per share to $18.00 per share, respectively.
Amgen expects other revenues to be in the range of $1.4 billion to $1.7 billion in 2022. Adjusted cost of sales as a percent of product sales is expected to be 15.5% to 16.5% in 2022. Adjusted R&D costs are expected to decrease in the range of 4% to 6% year over year in 2022. SG&A spend is expected to be flat year over year as a percentage of product sales. Total operating expenses are expected to decline year over year at a low double-digit rate. Amgen expects operating margin as a percentage of product sales to be roughly 50% in 2022.
Currency headwinds are expected to hurt adjusted earnings by approximately 2% or 35 cents in 2022.
The adjusted tax rate is expected to be in the range of 13.5%-14.5% while capital expenditures are expected to be approximately $950 million. The company expects to buy back shares in the range of $6.0 billion to $7.0 billion in 2022.
Tax Notice from IRS
The Internal Revenue Service (IRS) issued a deficiency notice to Amgen, proposing some adjustments for the 2010-15 period in April 2022, primarily related to the allocation of profits between U.S. entities and Puerto Rico. The notice aims to increase Amgen’s taxable income for the 2013-2015 period that will result in an additional federal tax of approximately $5.1 billion-plus interest. The IRS additionally proposed penalties of approximately $2 billion for the period 2013 to 2015. The IRS is also currently auditing the 2016 to 2018 period, which means additional deficiencies or penalties could be levied.
Amgen believes the adjustments and penalties proposed by IRS are without merit and said that it will vigorously contest them. Amgen looks to file a petition in US Tax Court.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Amgen has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. 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 B. 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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