Amgen 1Q numbers - in with the new

We are deep into quarterly US earnings season now, and what an exciting time it is! It's great to get detailed updates from all of our core Vestact portfolio holdings, and to see the market reactions.

Amgen is one of the world's leading pharmaceutical companies. It is based in California and was founded in 1980. Its 20,000 employees discover, develop, manufacture and deliver innovative human therapeutics. It focuses on these six areas: cardiovascular disease, oncology, bone health, neuroscience, nephrology and inflammation.

Once new drugs have been trialled on actual patients and found to be effective, they are registered with the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA). The typical patent protection period is 20 years. Of course, blockbuster drugs can be hit by generic competition once they come off patent. So Amgen's broad portfolio of older and newer products is important to reduce risk and stabilise earnings.

The group has a presence in approximately 100 countries worldwide, including South Africa. Interestingly Amgen's CEO Robert Bradway was not a research scientist. He was a healthcare investment banker with Morgan Stanley until he joined Amgen in 2006. He took on finance and strategy roles until his appointment as group CEO in 2011.



The quarterly results were solid. Revenue of $5.55 billion was above consensus. Earnings per share came in at $3.47 which was above consensus of $3.41. Here are the highlights.

The very important new-generation cholesterol drug Repatha posted quarterly sales of $123 million. Amgen's challenge is to persuade health insurers to pay for this expensive drug. Its efficacy is well-established, especially for patients who do not respond to conventional cholesterol (statin) drugs.

Arthritis drug Enbrel is a big current contributor which has declining sales. Those fell 6% year-on-year to $1.1 billion driven by lower demand, as anticipated.

Osteoporosis drug Prolia sales were $494 million for the quarter, with growth driven by new patient starts across all geographies.

Sensipar, a drug for people who are on long-term dialysis for kidney disease, had sales of $497 million in the quarter.

Bone cancer drug Xgeva sales increased 11 percent to $445 million on solid demand growth.

Cancer drug Kyprolis quarterly sales increased by 17% year on year to $222 million, with growth driven by higher demand in markets outside of the US.

Blood stimulant drug Neulasta is another older product. Its sales declined 5% year on year to $1.2 billion, but it beat consensus estimates.

Amgen is working on three important new product launches in 2018. Parsabiv (similar to Sensipar) is off to a solid start with the initial contribution from small to mid-size dialysis clinics. Migraine drug Aimovig is looking very promising. Amgevita (a biosimilar of arthritis drug Humira) looks set to sell well in the EU (October launch expected).

Amgen has the balance sheet to do big mergers, but it is not going crazy. I think that they could snap up a few promising small-cap biotechs with interesting drugs under development in the months ahead.

Goldman Sachs are buy-rated on Amgen with a 12-month price target of $215. My own target is a good deal higher. At its current share price of $174.83 it's on a very low price to earnings ratio of 13.2. In my view, its likely to deliver much higher earnings growth than the market expects, from its new drugs. It's a strong buy!