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Amgen's Losses Stabilise in Q1, But Challenges Lie Ahead
25 Apr 08
Strong sales of Enbrel helped counteract heavy losses from Aranesp, but Amgen urgently needs more revenue from new drugs.
Global Insight Perspective | | Significance | Amgen's first-quarter product sales were down by 0.8% y/y at US$3.5 billion, while operating profit managed to gain 5.3% y/y, reaching US$1.4 billion. | Implications | Sales were once again negatively affected by lower demand for anaemia drigs Aranesp and Epogen, following tougher restrictions on prescribing and reimbursement. However, strong sales of Enbrel and other drugs did manage to offset these losses to a considerable extent. | Outlook | Amgen is sticking to its full-year guidance, which sees 2008 sales potentially dropping by nearly US$2 billion compared with 2007. The outcome of Phase III trials on osteoporosis drug denosumab as well as the marketing application for thrombocytopaenia drug Nplate will be crucial determining factors for Amgen's financial performance this year. |
U.S. biotech Amgen has started the year with a downturn of nearly 1% in quarterly sales, which stood at US$3.5 billion at the end of March. This was driven by a 3.3% year-on-year (y/y) contraction in sales in the United States, which totalled US$2.8 billion, although a 10% y/y increase to US$749 million in international turnover helped stabilise losses to a certain extent. Operating costs were mainly down y/y, with spending on R&D coming in some 18.4% lower y/y at US$694 million. One exception to this rule was Amgen's spending on sales, general and administrative (SG&A) costs, where a 13.5% y/y increase to US$874 million was noted. Amgen explained that this was largely down to higher profit share expenses for commercial partner Wyeth (U.S.), following strong sales of rheumatoid arthritis drug Enbrel (etanercept). Despite the dip in sales, Amgen still managed to grow its profits over the quarter. Calculated by Global Insight as turnover minus cost of sales, R&D and SG&A spending, the group's operating profit rose by 5.3% y/y to stand at US$1.4 billion. Amgen's operating margin also grew during the first three months of the year, gaining 2.3 percentage points and tipping the scales at a robust 40.2%. Amgen: Financial Results, Q1 2008 (US$ mil.) | | | Q1 2008 | % Change Y/Y | Total Revenues | 3,613 | -2.0 | Product Sales | 3,537 | -0.8 | U.S. | 2,788 | -3.3 | International | 749 | 10.0 | Cost of Sales | 546 | -7.8 | Research and Development | 694 | -18.4 | Sales, General and Administrative | 874 | 13.5 | Operating Income* | 1,423 | 5.3 | R&D as a % of Sales | 19.6 | 4.3 pp lower | Operating Margin | 40.2 | 2.3 pp higher | * Calculated by Global Insight as product sales minus cost of sales, R&D and SG&A spending.
Source: Amgen |
Amgen's CEO, Kevin Sharer, described the biotech's first-quarter product sales as "mixed", and the term is certainly apt. Continued heavy losses in U.S. sales of anaemia drugs Aranesp (darbepoetin alfa; down 38.1% y/y) and Epogen (epoetin alfa; down 11.4% y/y) were once again due to lower demand following prescribing limits and reimbursement cuts for erythropoiesis stimulating agents (ESAs). Adding to these losses was the disappointing performance of colorectal cancer drug Vectibix (panitumumab), which saw turnover plunge by 37.3% y/y at US$32 million. Vectibix was first approved by the FDA in September 2006, but soon ran into difficulty after a clinical trial was halted due to poor patient survival times (see United States: 23 March 2007: Poor Patient Survival Levels See Amgen Call Time on Vectibix Colon-Cancer Study). The fallout has had a devastating effect on Vectibix's sales, with losses posted regularly since the second quarter of 2007. However, Amgen finally managed to gain regulatory approval for Vectibix in Europe towards the end of last year, and sales of the treatment there brought in some US$2 million during the first quarter of 2008. Other products fared considerably better than Amgen's leading ESAs over January-March; Neulasta's international sales were up by an impressive 28.1% y/y, while Enbrel saw strong double-digit gains in both the U.S. (up 30.4% y/y to US$904 million) and international markets (up 27% y/y to US$47 million). Hyperparathyroidism treatment Sensipar (cinacalcet HCl) also continued its positive growth trend over the quarter, with U.S. sales reaching US$93 million and international turnover standing at US$40 million. Amgen: Product Sales, Q1 2008 (US$ mil.) | Brand | Q1 2008 | % Change Y/Y | Aranesp (U.S.) | 405 | -38.1 | Aranesp (International) | 356 | -2.7 | Epogen (U.S.) | 554 | -11.4 | Neulasta (U.S.) | 569 | -0.7 | Neulasta (International) | 187 | 28.1 | Neupogen (U.S.) | 223 | 9.3 | Neupogen (International) | 107 | 12.6 | Enbrel (U.S.) | 904 | 30.4 | Enbrel (International) | 47 | 27.0 | Sensipar (U.S.) | 93 | 20.8 | Sensipar (International) | 40 | 42.9 | Vectibix (U.S.) | 32 | -37.3 | Vectibix (International) | 2 | N/A | Other Product Sales (U.S.) | 8 | 14.2 | Other Product Sales (International) | 10 | 11.1 | Total Product Sales | 3,537 | -0.8 | Source: Amgen |
Outlook and Implications Amgen's somewhat shaky start to the year has been factored into the full-year 2008 financial guidance released back in January, which anticipates that continued weakness in sales of ESAs will contribute to revenues in the US$14.2-14.6 billion range—lower than the US$14.8-billion group revenues seen in 2007. The U.S. biotech giant has also been making efforts to contain its operational costs (see United States: 16 August 2007: Cuts to Staff, Production, R&D as Amgen Goes into Survival Mode), and this is also expected to play an important role in pushing the company forward. Challenges ahead for 2008 include the outcome of proposed labelling changes to ESA by the U.S. FDA (see United States: 14 March 2008: FDA Advisors Recommend Anaemia Drugs Restrictions), which could result in yet more prescribing restrictions on Aranesp and Epogen. Meanwhile, more Phase III trials are anticipated for denosumab, which has already shown clinical promise in treating osteoporosis and will now also enter late-stage development for preventing skeletal-related events in patients with breast cancer. More Phase III trials on Vectibix as a first-line and second-line treatment for colorectal cancer are also on the way, with patient enrolment already completed. Finally, Amgen will be hoping that the FDA's recent delay in deciding on approval for thrombocytopaenia drug Nplate (romiplostim) will not affect the drug's marketing potential (see United States: 11 April 2008:Three-Month Delay for Amgen as FDA Extends Nplate Risk-Management Review). Nplate's Prescription Drug User Fee Act (PDUFA) action date—when approval should be decided—has been set for 23 July.
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