12:00 AM
 | 
Apr 27, 2009
 |  BioCentury  |  Finance

Ebb & Flow

Last Thursday's 1Q earning miss by Amgen Inc. (NASDAQ:AMGN) was widely anticipated, according to buysiders surveyed by Ebb & Flow, which explains why the shares didn't fall on the news. Indeed, the price bounced on Friday as those in the know took advantage of the fact that the shares looked cheap despite the company's revenue problems.

In February and early March, the company's share price declined with the broader market and the AMEX Biotechnology Index, putting it off 20% for the year by March 9. But as the market and the BTK clawed back some of those losses in recent weeks, Amgen's shares remained off 24% for the year.

"The quarter was largely known to be a sloppy one," noted Kurt von Emster of venBio. "The company had telegraphed the weakness for Aranesp this past quarter, so it was not too out of left field."

Some sellside analysts hadn't changed their models, however, so Amgen's adjusted diluted EPS of $1.08 for the quarter missed the Street's estimate by $0.07. Revenues came in at $3.3 billion, rather than the $3.6 billion consensus estimate.

Sales of Aranesp darbepoetin alfa for anemia were $626 million in 1Q09, down 18% from $761 million in 1Q08. Amgen said sales continued to be negatively affected by label changes in the U.S. for all erythropoiesis-stimulating agents (ESAs).

Enbrel etanercept sales were down 20% to $758 million in North America. On the earnings call, Chairman, President and CEO Kevin Sharer attributed the soft sales to several factors, including the economic downturn in which "patients are sometimes postponing doctor visits, not always taking medicines on a prescribed schedule, and . . . are finding the copays difficult to afford." That has eroded the whole anti-TNF segment, he said.

Enbrel sales also had a $120 million one-time bump in the prior-year quarter as Amgen changed the way it sells the product, creating a high baseline for comparison in 1Q09. The company had been selling Enbrel directly to healthcare providers; now it sells the drug through wholesalers, who acquired inventory in 1Q08.

Accounting for the Enbrel wholesaler change, the strength of the dollar and the divestment of three small products in 4Q08, the 8% year-over-year revenue decline narrows to 3%, CFO Robert Bradway said on the call.

Future imperfect

Nevertheless, according to Oliver Marti of Columbus Circle Investors, Amgen's "base business - EPO, G-CSF and Enbrel - are weak franchises, and will continue to deteriorate."

Evan McCulloch of Franklin Templeton concurred: "I don't think revenues have hit bottom," he told Ebb & Flow.

To maintain EPS, Amgen has been cutting back. It trimmed operating expenses by 10% year-over-year to $2 billion. Thus, despite lowering its 2009 revenue guidance to $14.4-$14.8 billion from $14.8-$15.2 billion, the company reiterated its adjusted EPS guidance of $4.55-$4.75.

David Farhadi of Fred Alger Management thinks there may be more adjustments to come. "The company lowered guidance, but if the economy remains the way it is, they may have to lower guidance again. Also, the REMS program for Aranesp has yet to be instituted. When it is, usage will fall again."

The biotech is working on a risk evaluation and mitigation strategy (REMS) for Aranesp at FDA's request.

On the other hand, several investors suggested that buyers were looking past the difficult earnings data.

"Many people were waiting to buy after they reported the 'tough' quarter, since the denosumab data later this year can drive the stock into 2010," von Emster said.

Marti agreed: "Investors see a positive risk/reward in the mid-$40s on denosumab."

Amgen has an Oct. 19 PDUFA date for denosumab...

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