"Like clockwork, Amgen just finds a way," Piper Jaffray's Christopher Raymond headlined his hot comment on second-quarter earnings from Amgen Inc. Numbers from the Thousand Oaks, Calif-based company were solid, if not spectacular. Quarterly revenues increased 4 percent, to $6.1 billion, over the second quarter of 2017, and global product sales, which included the company's first biosimilar, Kanjinti, grew 2 percent.
The impending departure of two key executives – Sean Harper, executive vice president of R&D, and Tony Hooper, executive vice president of global commercial operations – also drew attention, especially for timing of the announcement, which came one day after big biotech Gilead Sciences Inc. said CEO John Milligan and board chair John Martin will step down at year-end. (See BioWorld, July 27, 2018.)
Turnover at the top amid rising regulatory headwinds and a complicated global arena led Leerink Partners LLC's Geoffrey Porges to ponder whether "safe and stable" is good enough "as portfolio challenges mount." Going forward, two big questions for Amgen and fellow biotech pioneers are whether they can continue to wring price increases in the U.S. from legacy products in the face of political pushback and to wrap their arms around increasingly diverse product pipelines, all the while keeping one step ahead of generics and biosimilars competitors.
For Amgen, consistency has been the key. The company's younger products enjoyed double-digit growth, including a spike of 78 percent in quarter-over-quarter sales of cholesterol drug Repatha (evolocumab), driven primarily by unit demand and partially offset by lower net selling price. Sales of Blincyto (blinatumomab), indicated to treat acute lymphoblastic leukemia, increased 40 percent. Sales grew by 25 percent for multiple myeloma drug Kyprolis (carfilzomib), also driven by higher unit demand and partially offset by lower sales price.
Sales of osteoporosis treatment Prolia (denosumab) showed sustained strength, increasing 21 percent quarter over quarter, as did those of bone metastases agent Xgeva (denosumab), whose sales grew 14 percent.
Amgen did not break out numbers for Kanjinti (ABP-980), approved in May by the EMA as a biosimilar to Herceptin (trastuzumab, Roche Holding AG) to treat HER2-positive metastatic breast cancer, early breast cancer and metastatic adenocarcinoma of the stomach or gastroesophageal junction. The BLA received a complete response letter from the FDA.
Amgen's legacy products fared less well. Sales of bone marrow stimulant Neulasta (pegfilgrastim) inched up 1 percent quarter over quarter, based on a higher sales price that was partially offset by lower unit demand. Even that marginal win is likely short-lived following approval last month of Mylan NV's Fulphila (pegfilgrastim-jmbd), co-developed with Biocon Ltd., of Bangalore, India, as the first U.S. biosimilar to Neulasta. (See BioWorld, June 6, 2018.)
Meanwhile, sales of anti-inflammatory Enbrel (etanercept) fell 11 percent quarter over quarter, driven mainly by unfavorable changes in inventory and lower unit demand, according to Amgen. In the face of increased competition, sales of the company's anemia agents also dropped: Aranesp (darbepoetin alfa) by 12 percent and Epogen (epoetin alfa) by 14 percent. Sales of Neupogen (filgrastim), which is facing competition from biosimilars, decreased 26 percent.
Amgen said operating expenses increased 4 percent in the second quarter due to investments in newer and recently launched products, partially offset by savings from "process improvement efforts." Sales margin decreased by 0.4 points due to favorable royalty cost and lower acquisition-related intangible amortization, partially offset by higher manufacturing cost and unfavorable product mix. R&D expenses were flat, according to the company, but selling, general and administrative, or SG&A, expenses jumped 12 percent due to costs associated with product launches and marketed product support.
Biopharma 'at a crossroads'
Still, Amgen retained its healthy bottom line, reporting an increase of 20 percent in quarterly GAAP earnings per share (EPS), to $3.48, and a 5 percent increase in GAAP operating income, to $2.8 billion. The company's GAAP operating margin increased 1.5 percentage points to 49.9 percent.
Amgen revised its 2018 EPS guidance modestly upward to $11.83-$12.62 on a GAAP basis and its 2018 revenues guidance to $22.5 billion to $23.2 billion, which most analysts still characterized as conservative.
The company generated $1.9 billion of free cash flow in the second quarter compared to $2.1 billion in the second quarter of 2017 and reported cash and equivalents of $29.4 billion at the end of the second quarter.
Amgen seemed more methodical than Gilead did a day earlier in disclosing the departures of its company veterans. Harper, who joined Amgen in 2002, was said to be leaving to pursue opportunities in early stage biotech. He'll be succeeded by David Reese, Amgen's senior vice president of translational sciences and oncology. Hooper, who plans to retire after 30 years in biopharma and seven years at Amgen, will be replaced by Murdo Gordon, who earlier this week relinquished his role as chief commercial officer at Bristol-Myers Squibb Co.
"One of the hallmarks of a well-run company is a carefully considered succession planning process," Robert Bradway, Amgen chairman and CEO, said on the company's earnings call. "Amgen has done this well through our nearly 40-year history, and I'm confident we'll do so again as Sean Harper and Tony Hooper step down from their roles."
The departure of key executives from their roles at Amgen and Gilead "perhaps signals we are entering a new era for these biotechnology company powerhouses and the industry, in general," observed Peter Winter, BioWorld Insight editor and long-time industry observer. With biopharma "at a crossroads" on drug pricing and regulatory pressures, companies are being driven "along a new path and seeking ways to improve their return on investment in R&D through precision medicine and AI. Fresh approaches and thinking are required to help steer biotech companies in this direction," he added.
Overall, Winter was sanguine about the management changes, calling it "a win-win for the sector, as "the retiring executives who made an enormous contribution for their companies will be able to provide expertise to the next generation of companies that, in 20 years, will look entirely different than the successful companies we have today."
'We'd still like to see more top-line growth'
The Amgen story does face some risks, Piper Jaffray's Raymond cautioned.
"Specifically, while AMGN has effectively migrated almost two-thirds of the Neulasta market to the Onpro system, conversion seems to have stalled, leaving one-third of the market vulnerable to Mylan's newly launched biosimilar Neulasta," he wrote in a company note. "Also, while AMGN has so far kept mum on any Enbrel impact from copay accumulators, seasonally, the impact tends to be felt by patients in the summer months, so we do on the margins worry that Q318 could manifest pressure on the drug, similar to Humira, as presaged by ABBV."
Nevertheless, Raymond was sufficiently confident in Amgen's abilities to raise the price target to $210 from $190. Shares (NASDAQ:AMGN) closed Friday, following the company's earnings report, at $192.44 for a loss of $1.61.
Other analysts also weighed in on the company's upside and downside.
"Another beat and raise quarter is great, but we'd still like to see more top-line growth," J.P. Morgan analyst Cory Kasimov wrote in a second-quarter snapshot, hiking the company's price target $1, to $192. "While AMGN's tight financial planning and execution are admirable, we really want to see demonstrable growth in the new product cycle (e.g., Aimovig, Repatha) and/or evidence of blockbuster potential in the pipeline to get more constructive on the story," Kasimov said. "Given assumed erosion of legacy franchises, we currently forecast a 2017-2022 top-line revenue CAGR of 0.2 percent."
Added Leerink's Porges in his earnings report, "The medium and long-term growth outlook for the company is uncertain, given the imminent challenges of biosimilar launches against Neulasta and Epogen, further erosion of Neupogen and Aranesp, and increasing competitive challenges for Enbrel. It is unclear to us whether the launch of Aimovig (which is being supported by a generous free goods program at launch) and the continued growth of Xgeva and Prolia and a handful of niche products can offset this erosion."
While Porges also increased the company's price target, to $213 from $210, he cautioned that Amgen's late-stage pipeline is relatively lean in comparison to peers, "and the departure of the two most senior R&D and commercial executives will not reassure investors about the company's near-term outlook," he said.
In other earnings news:
Seattle Genetics Inc., of Bothell, Washington, reported revenues of $170.2 million and $310.8 million, respectively, for the second quarter and first half of 2018, compared to $108.2 million and $217.4 million for the same periods in 2017. Net U.S. and Canadian sales of Adcetris (brentuximab vedotin) in the second quarter were $122.4 million, an increase of 65 percent over the same period in 2017, and $217.8 million for 2018 year to date, compared to $144.7 million for the same period in 2017. The company said growth reflected label expansions that included cutaneous T-cell lymphoma subtypes in November 2017 and front-line stage III/IV Hodgkin lymphoma in March. Royalty revenues from partner Takeda Pharmaceutical Co. Ltd., of Osaka, Japan, were $20.6 million in the second quarter, compared to $12.4 million in the second quarter of 2017, and $36.2 million for 2018 year to date, compared to $29.4 million for the first half of 2017. Expenses for the second quarter were $200.5 million, compared to $167.5 million for the second quarter of 2017 and $434.9 million for the first half compared to $335.9 million for the same period last year. Seattle Genetics reported $457.8 million in cash and investments as of June 30. On Friday, the company's shares (NASDAQ:SGEN) closed at $72.98 for a gain of $1.73.