We expect biotech major Amgen Inc. AMGN to beat expectations when it reports first-quarter 2017 results on Apr 26 after the market closes. Amgen had delivered a positive earnings surprise of 4.33% in the last quarter.
Amgen’s shares were up 10.8% so far this year. This compares favorably with the 2.3% increase registered by the Zacks classified Biomed/Genetics industry during this period.
Amgen’s performance has been pretty impressive, with the company reporting positive surprises consistently. The average earnings beat over the last four quarters is 7.38%.
Let’s see how things are shaping up for the company this quarter
Factors at Play
Amgen’s growth products like Prolia, Xgeva, Vectibix, Nplate, Sensipar, should continue to perform well. While new patient adoption and repeat injections should drive Prolia, Xgeva should benefit from its superior clinical profile versus competition. Parsabiv (etelcalcetide), for the treatment of secondary hyperparathyroidism (SHPT), was approved in the U.S in Feb 2017 and in EU in Nov 2016 and should bring in some sales in the quarter.
However, volume growth of recently launched products may not be enough to offset the decline in mature brands
The presence of biosimilar competition and slowdown in sales of mature products is putting pressure on the top line. Epogen, Neulasta and Neupogen sales are expected to continue to be hurt by biosimilar competition in the EU. Note that Neupogen sales are also being hurt by biosimilar competition in the U.S. mainly from Zarxio, Sandoz’s biosimilar version of Neupogen, which was launched in the U.S. in Sep 2015. Neulasta and Epogen could start facing biosimilar competition in the U.S. this year, though no biosimilars were launched in the to-be-reported quarter.
Meanwhile, though blockbuster Enbrel sales rose in the fourth quarter of 2016 it was only due a large inventory build benefit. The benefit will reverse this quarter. Enbrel is facing increasing competition in the dermatology segment, which will hurt sales. Meanwhile, minimal sales price increases and stiff competition is expected to hurt Enbrel sales this year.
Uptake of Amgen’s PCSK9 inhibitor Repatha, which gained FDA approval in Aug 2015, has not been very encouraging so far due to pricing and re-imbursement issues/payer restrictions.
A phase III cardiovascular outcomes study (FOURIER) on Repatha reported positive data in the first quarter of 2017. The outcomes data (FOURIER) is the key to the commercial success of Repatha as it would broaden the use of the drug. Though data from the study looks good, it is not very clear if payers will be willing to improve access to Repatha based on this data. We expect management to throw light on Repatha’s prospects based on FOURIER data at the conference call.
The bottom line will continue to be driven by the company’s overall cost-cutting efforts and share buyback. The company’s restructuring plan should make it leaner and more cost efficient.
What Our Model Indicates
Our proven model shows that Amgen is likely to beat on earnings because it has the right combination of two key ingredients, a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate ($3.07 per share) and the Zacks Consensus Estimate ($3.01 per share), is +1.99%. 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 Zacks Rank #3 and a positive ESP makes us confident of an earnings beat at Amgen 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
Other stocks in the large cap pharmaceuticals sector that have both a positive ESP and a favorable Zacks Rank are:
Celldex Therapeutics, Inc. CLDX has an Earnings ESP of +7.14% and a Zacks Rank #3. The company is expected to release results early next month.
Scheduled to release results on May 2, Gilead Sciences, Inc. GILD has an Earnings ESP of +4.63% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intercept Pharmaceuticals, Inc. ICPT has an Earnings ESP of +9.13% and a Zacks Rank #3. The company is expected to release results early next month.
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