If there was any doubt that Amgen (AMGN) is still a powerhouse biopharma name (and there wasn’t much, if any), it was wiped away on Wednesday by the company’s third-quarter results.
Numbers came in far better than expected thanks to a huge increase in sales of rheumatoid arthritis drug Enbrel, and the outlook for 2016 suggested more solid growth was in store for the long haul … and Amgen typically guides conservatively.
The stock responded bullishly after-hours, advancing about 2% above Wednesday’s closing level. Yet, thanks to a shaky 2015 thus far, there’s still time and room to step into an AMGN trade at a decent price.
Amgen Earnings
Last quarter, Amgen earned an operating profit of $2.72 per share on $5.72 billion in revenue. Analysts were only calling for a profit of $2.38 per share of AMGN, and sales of $5.32 billion. In the same quarter a year earlier, Amgen earned $2.30 per share on a top line of $5.03 billion.
The 14% improvement in year-over-year sales was the strongest quarterly sales growth owners of Amgen stock have seen the company produce in years.
CEO Robert A. Bradway noted of the numbers:
“We delivered record revenues, adjusted earnings and cash flow in the third quarter, while improving our operating margins and investing in six exciting new product launches. With several innovative medicines still in development, we are well on the way to achieving our long-term objectives for shareholders and patients alike.”
Driving the bulk of the growth was arthritis drug and flagship product, Enbrel. Enbrel sales grew 30% on a year-over-year basis, to $1.46 billion … about one-fourth of Amgen’s top line. Neulasta sales were up 6%, reaching $1.37 billion.
Looking Ahead
In light of Q3’s numbers, Amgen is now looking for a bottom line of $9.95 to $10.10 per share for 2015, and revenue somewhere between $21.4 billion and $21.6 billion. The company had previously forecast earnings of between $9.55 and $9.80 per share of AMGN, on sales between $21.1 billion and $21.4 billion. Analysts were collectively expecting revenue of $21.25 billion and earnings of $9.76 per share of Amgen stock.
As for 2016, the company now foresees revenue rolling in between $21.7 billion and $22.3 billion, which should produce a per-share profit between $10.35 and $10.75.
It’s an encouraging outlook, though it does raise questions. Namely, two of its better-selling drugs — Neupogen and Enbrel — are due to face generic competition in the near future.
White blood-cell booster Neupogen drove $218 million in sales last quarter, down 5% from the same quarter a year earlier. However, biosimilar drug Zarxio (the first such drug approved in the U.S.) from Novartis (NVS) was launched in early September and already poses a significant threat to a not-entirely insignificant Neupogen.
The threat of a biosimilar version of Enbrel is clearly bigger, even if less certain.
Amgen contends it has renewed patent protection on Enbrel that will last through 2029. Novartis, however, disagrees, and is looking forward to hearing from the FDA regarding a generic version of Enbrel (called etanercept) sometime in the middle of the year. In all likelihood, the matter will ultimately be decided in a courtroom.
Whether or not Enbrel is able to fend off a biosimilar version of Enbrel now or later, though, may not matter; the U.S. court system is unlikely to be sympathetic to Amgen for much longer, as it becomes clearer the company is taking advantage of a complicated patent system just to stifle patient alternatives.
Bottom Line for AMGN Stock
Even with the prospect of two possible generic drugs on the verge of taking a bite out of revenue, Amgen has a solid enough — and deep enough — pipeline to offset any headwinds. In fact, it has a total of 12 drugs in phase 3 trials, plus six more of its own biosimilars in the works.
In that light, the forward-looking P/E of 9.7 for AMGN can be viewed as a bargain … though not a bargain the market is likely to let last very long.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
