We expect biotech major Amgen Inc. AMGN to beat expectations when it reports second-quarter 2018 results on Jul 26, after market close. Amgen delivered a positive earnings surprise of 7.43% in the last quarter.

Amgen shares have risen 9.5% in the past year against the 2.4% decrease registered by the industry during this period.

Amgen’s performance has been modest, with the company delivering a positive surprise in three out of the trailing four quarters. The average earnings beat over the last four quarters is 3.54%.

 

Amgen Inc. Price and EPS Surprise

 

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

 

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

 

Factors at Play

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

Continued growth in new patient starts and strong repeat injection rates should drive sales of Prolia. In the quarter, Prolia gained FDA as well as EU approval for its fifth indication – treatment of glucocorticoid-induced osteoporosis (GIOP) in men and women at high risk of fracture. This can drive sales of the drug in the soon-to-reported quarter. The Zacks Consensus Estimate for sales of Prolia in the second quarter is $558 million.

In the quarter, Amgen gained regulatory approvals to include overall survival data from key studies in the labels for Kyprolis and Blincyto, which can drive sales of these products in the second quarter. Also, Blincyto was approved for a new indication – minimal residual disease (MRD)-positive B-cell precursor acutelymphoblastic leukemia (“ALL”) – in the quarter. This can add to the drug’s sales in to-be reported quarter. The Zacks Consensus Estimate for sales of Blincyto and Kyprolis are $56 million and $248 million, respectively.

Also, this year, Xgeva gained approval in both United States and EU for the prevention of skeletal-related events in patients with multiple myeloma. The label extension can boost sales of the drug. The Zacks Consensus Estimate for sales of Xgeva is $428 million.

Volume trends for Repatha may maintain the encouraging trend witnessed in the last reported quarter. On the first-quarter call, the company said that access to Repatha for high risk cardiovascular patients had improved in the last few months with the FOURIER outcomes data included on the Repatha label. Management seemed quite confident that Repatha will become an important growth driver for the company with the inclusion of FOURIER outcomes data on its label. Investors will be keen to know if sales of Repatha continue to improve with the inclusion of the outcomes data on its label.  In May, Amgen gained approval from the European Commission (EC) to include FOURIER data on the European label of Repatha. The Zacks Consensus Estimate for sales of Repatha is $156 million.

Neulasta demand is being hurt due to competition from PD-1s and other new cancer therapies. Neupogen sales are being hurt by biosimilar competition in the United States mainly from Zarxio, Sandoz’s (generic arm of Novartis [NVS]) biosimilar version of Neupogen

We expect Neulasta and Neupogen sales to continue to be hurt by competitive dynamic in the second quarter. Meanwhile, Neulasta and Epogen are expected to start facing biosimilar competition in the United States this year. Also Sensipar sales could decline sharply in the second quarter as the drug lost patent exclusivity in March and generics could pose competition.

Enbrel sales are expected to be hurt by lower selling prices and increased competition, which is hurting demand. Enbrel is one of the main drivers of Amgen’s revenues. The Zacks Consensus Estimate for sales of Enbrel is $1.32 billion.

Investor focus on the call will be on management’s comments on the launch preparations for newly approved migraine drug, Aimovig. Aimovig was approved by the FDA in mid-May. Aimovig is under review in the EU.

On the first-quarter call, management had said that operating margin will  be lower in the remaining quarters of 2018 due to the timing of expenses. The company clarified that operating expenses, as a percent of products sales, were seasonally low in the first quarter and the ratio could be higher in the remaining quarters of the year. Accordingly, we expect higher SG&A costs in the quarter.

Earnings Whispers

Our proven model shows that Amgen is likely to beat on earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate ($3.57 per share) and the Zacks Consensus Estimate ($3.52 per share) is +1.46%. 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 Amgen’s Zacks Rank #3 and positive ESP makes us confident of an earnings beat 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

Biotech stocks that have both a positive ESP and a favorable Zacks Rank include:

Alexion Pharmaceuticals, Inc. ALXN, scheduled to release results on Jul 26, has an Earnings ESP of +0.62% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gilead, Inc. GILD has an Earnings ESP of +0.15% and a Zacks Rank #2. The company is slated to release results on Jul 25.

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