Morningstar | Amgen's Flat 1Q Slightly Below Our Expectations; Shares Fairly Valued as Oncology Catalysts Approach
We're maintaining our $205 fair value estimate for Amgen following first-quarter results that were slightly disappointing, in our view, with a large Neulasta sale and Enbrel adjustments partly masking further underlying weakness in these key, older franchises. Mediocre sales for migraine drug Aimovig in the first quarter also appeared to be affected by price discounts and discontinuations, as well as competition in the migraine market, and we're maintaining our below-consensus estimates for the drug. That said, cholesterol-lowering drug Repatha's 81% volume growth was impressive, and once aggressive price cuts from last fall are annualized, we expect growth for this franchise to increase. In addition, Amgen is rapidly advancing its oncology portfolio, with data from BCMA bispecific AMG 420 and KRAS-targeted small molecule AMG 510 expected at ASCO in June, and we now include a placeholder for potential sales of the BCMA and KRAS programs in our model. Overall, we think Amgen's newer products are countering the hit from biosimilar competition, allowing the firm to maintain a stable wide moat.Amgen saw flat first-quarter revenue of $5.6 billion as osteoporosis drug Prolia, Repatha, and cancer drug Kyprolis all yielded double-digit growth to counter biosimilar pressure on Neulasta (down 12%) and anemia drugs Aranesp and Epogen (down 9% and 10%, respectively) as well as at-risk generic pressure on Sensipar (down 57%). Non-GAAP earnings per share grew 3%, largely due to share repurchases, as operating margin fell 450 basis points. The 200-basis-point gross margin hit appears to be a result of price reductions due to biosimilar competition, and Amgen isn't slowing its investment in oncology, with 16% research and development expense growth in the quarter despite flat sales. Management narrowed its top- and bottom-line guidance for the year, favoring the higher end of guidance, and our updated estimates imply performance near the midpoint of this new range.
For a complete review of Amgen's pipeline and currently marketed portfolio, please see "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."
Amgen is a biotechnology company that discovers, develops, manufactures and delivers human therapeutics. The company's products include: Enbrel? (etanercept), which is used in indications for the treatment of adult patients with moderately to severely active rheumatoid arthritis, patients with chronic moderate-to-severe plaque psoriasis who are candidates for systemic therapy or phototherapy and patients with active psoriatic arthritis; and Prolia? (denosumab), which is used for the treatment of postmenopausal women with osteoporosis at high risk of fracture or multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy.
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