Amgen (AMGN) continued its strong performance in 2012 with third quarter earnings coming in at $1.66 per share, 23 cents above the Zacks Consensus Estimate and 19.4% above the year-ago period. Higher revenues, cost discipline and a lower share count contributed to the year-over-year increase in earnings. Total revenue increased 9.5% to $4,319 million in the third quarter of 2012. Revenues comfortably surpassed the Zacks Consensus Estimate of $4,199 million. Key growth drivers included Enbrel, Xgeva, Sensipar, Vectibix and Nplate. Third quarter 2012 revenues included a milestone payment received on the initiation of a phase III psoriasis study for rilotumumab.

The Quarter in Detail

Third quarter total product sales increased 8.4% to $4,201 million (US: $3,248 million, ex-US: $953 million).

Revenues of Amgen's erythropoiesis-stimulating agent (ESA) Aranesp fell 17% to $497 million (US: $178 million; ex-US: $319 million). Amgen reported a 3% sequential decline in unit demand resulting from a loss of share in the US oncology segment.

Revenues of Amgen's other ESA, Epogen, increased 3% to $491 million. Lower customer discounts and a favorable change in accounting estimates contributed to the increase despite a reduction in dose utilization. However, sales declined 6% sequentially due to customer buying patterns and competition. We note that a new competitor, Affymax' (AFFY) Omontys (peginesatide), has entered the dialysis market.

Worldwide revenues of Neulasta and Neupogen grew 1% to $1,355 million in the third quarter.

Enbrel, which is facing increased competition in the dermatology market, posted revenues of $1,079 million, up 17%. Higher average net sales price and increase in unit demand drove revenues. The company said that it has been increasing its share among bio-naïve (patients new to biologics) patients. Enbrel's competitors include Abbott Labs' (ABT) Humira, Merck/Johnson & Johnson's (MRK/JNJ) Remicade and Johnson & Johnson's Stelara among others.

With Amgen and Pfizer's (PFE) collaboration for Enbrel set to expire in late 2013, Amgen has completed the consolidation of US field sales activities under its wing. The consolidated sales force is targeting both the rheumatology and dermatology segments. Amgen has also expanded DTC advertising and is working on ensuring appropriate access.

Third quarter 2012 Prolia sales came in at $110 million, down from second quarter 2012 sales of $120 million. Sales were affected by unfavorable wholesaler inventory and lower demand due to seasonality.

Meanwhile, Xgeva, which gained FDA approval in November 2010, delivered third quarter 2012 sales of $201 million, up from the $179 million, $153 million, and $134 million reported in the last three quarters. Sales were driven by overall segment growth. Xgeva gained EU approval in July 2011 and has a 25% share in EU markets where the company has access. However, with Novartis' (NVS) Zometa slated to lose patent protection, there could some choppiness in the market with the entry of generic competition and reimbursement considerations.

Sensipar/Mimpara revenues increased 18% to $243 million in the reported quarter. Vectibix revenues came in at $88 million during the quarter, up 11%.

While third quarter 2012 R&D expenses increased 11%, SG&A expenses remained flat. Higher Enbrel profit share expenses were offset by favorable changes to the estimated US healthcare reform federal excise fee and foreign exchange rates.

Amgen is currently conducting phase III studies with romosozumab (AMG 785) for the treatment of postmenopausal osteoporosis and expects to commence phase III studies with AMG145 (LDL cholesterol reduction) early next year.

Amgen bought back 10 million shares during the reported quarter for $800 million.

Guidance Up Again

Encouraged by the strong business momentum, Amgen raised its guidance once again for 2012. The company now expects earnings in the range of $6.50 - $6.60 per share on revenues of $17.2 billion - $17.3 billion. Earlier, Amgen had guided towards earnings of $6.20 - $6.35 per share on revenues of $16.9 - $17.2 billion.

We currently have a Neutral recommendation on Amgen, which carries a Zacks #3 Rank (short-term 'Hold' rating). We are encouraged by the company's performance so far in 2012. Enbrel should continue performing well. Amgen's late-stage pipeline is also moving along.



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