What's in the Cards for Amgen (AMGN) this Earnings Season?

Biotech major Amgen Inc. AMGN will report third-quarter 2017 results on Oct 25 after the market closes. Amgen delivered a positive earnings surprise of 5.83% in the last quarter.

Amgen shares are up 25.9% so far this year. This compares favorably with the 12.1% increase registered by the 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 5.85%.

Let’s see how things are shaping up for the company this quarter.

Factors at Play

Amgen’s newer products like Prolia, Xgeva, Kyprolis, and Blincyto, should continue to perform well backed by higher demand, thus making up for lower sales of mature brands like Enbrel, Epogen, Neulasta and Neupogen due to competitive pressure.

Neulasta demand is being hurt due to competition from PD-1s and other new cancer therapies

Neupogen sales are also being hurt by biosimilar competition in the United States mainly from Zarxio, Sandoz’s biosimilar version of Neupogen, which was launched in September 2015.

Neulasta and Neupogen sales are expected to be hurt by competitive dynamics in the third and fourth quarters. The Zacks Consensus Estimate for Neulasta and Neupogen are $1.10 billion and $133 million, respectively for the third quarter/

However, management mentioned on the Q2 call that, “no new U.S. biosimilar competition” is expected this year. This suggests that Neulasta and Epogen may not start facing any biosimilar competition this year, contrary to previous expectations.

Three companies - Mylan/Biocon, Novartis NVS, and Coherus - looking to launch generic versions of Neulasta and one company looking to launch generic version of Epogen have received complete response letter from the FDA for their respective applications, which can delay their launch.

The bottom line will continue to be driven by the company’s overall cost-cutting efforts and share buyback. The company’s restructuring plan will likely make it leaner and more cost efficient.

Investor focus will remain on the performance of the company’s PCSK9 inhibitor, Repatha. Uptake of Repatha, which gained FDA approval in August 2015, has not been very encouraging so far due to pricing and re-imbursement issues/payer restrictions. However, in the second quarter, Repatha revenues improved sequentially driven by higher demand. Management said that the presentation of the outcomes study data (FOURIER) had a positive impact on Repatha share trends. It remains to be seen if the positive trends continue in the third quarter.

Earnings Whispers

Our proven model does not conclusively show that Amgen is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Its Earnings ESP is -0.37% as the Most Accurate estimate stands at $3.07 while the Zacks Consensus Estimate is pegged higher at $3.08. You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

Zacks Rank: Amgen’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

 

Amgen Inc. Price and EPS Surprise

Amgen Inc. Price and EPS Surprise | Amgen Inc. Quote

Stocks to Consider

 

Some stocks in the Biomed/Genetics sector that have both a positive ESP and a favorable Zacks Rank are:

Celgene Corporation CELG with an Earnings ESP of +0.93% and a Zacks Rank #3. The company is scheduled to release results on Oct 26.

Also scheduled to release results on Oct 26, Alexion Pharmaceuticals, Inc. ALXN has an Earnings ESP of +1.26% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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