West Coast Editor

Despite a dent in third-quarter profits due to its buyout of Tularik Inc., Amgen Inc.'s earnings managed to beat Wall Street estimates, thanks to sales of Aranesp and Enbrel.

The numbers were disclosed after trading Wednesday. Amgen's stock (NASDAQ:AMGN) closed Thursday at $54.28, down $2.13.

Net income topped out at $236 million, or 18 cents per share, compared to $612 million, or 46 cents per share, for the third quarter of last year - down 61 percent. To blame was the $554 million write-off for the acquisition of Tularik, disclosed in the spring and completed by summer. (See BioWorld Today, March 30, 2004.)

Still, the results beat Thomson First Call's estimates of 62 cents per share. Setting aside the takeover of South San Francisco-based Tularik and other special expenses, earnings would have totaled $839 million, or 64 cents per share, an 18 percent rise over the same period in 2003.

Analysts mostly greeted the news with reserved pleasure. Christopher Raymond, with Robert Baird & Co. in Chicago, maintained his "outperform" rating on the stock. Jennifer Chao, with Deutsche Bank Securities Inc. in New York, hailed the strong quarter but noted "stock overhang relating to reimbursement, potential competition to [the erythropoietin (EPO) franchise] and lack of clinical/regulatory catalysts."

Final details of the Medicare Reform Act are expected to be made public at the first of next month, which could have an impact on reimbursement for some of Amgen's drugs, acknowledged CEO Kevin Sharer in a conference call related to the earnings.

Jim Reddoch, an analyst with Friedman, Billings, Ramsey & Co. in Arlington, Va., took the reimbursement dark cloud seriously, noting in a research report that Amgen "hedged more than usual" on the subject.

"Some patients (5 percent to 10 percent of the Aranesp total) will need to migrate to the hospital setting for treatment," he wrote. "This trail of tears' could result in lost patients, possible treatment delays and lowered utilization of Aranesp and Neulasta."

Generic EPO could face generic competition in Europe in 2006 and analysts continue to fret over Basel, Switzerland-based F. Hoffmann-La Roche Ltd.'s entry into the U.S. market at about that time with continuous erythropoiesis receptor agonist (CERA), another longer-acting form of EPO.

Raymond wasn't overly worried about the Medicare issue.

"We've done a lot of work on this," he said, including "a couple of really good-sized surveys with over 100 physicians and an equal number of practice managers."

Medicare rules will be "very disruptive," Raymond allowed, but the outlook (for the likes of supportive-care products such as Aranesp and Neulasta) is "not as pessimistic as it might be for other compounds. I could even argue there are signs that there are positive trends," he told BioWorld Today.

"We got a proposed fee structure in late July, and it leveled the playing field for Aranesp vis-a-vis Procrit," the version of EPO marketed by New Brunswick, N.J.-based Johnson & Johnson, Raymond said.

"If you look at the exogenous data points, J&J has capitulated that they are losing share to Aranesp, and the market is growing at 20 percent plus," he said.

In any case, the Amgen news, for now, is good.

Specifically, sales of Aranesp (darbepoetin alfa), the second generation of Amgen's red-blood-cell booster Epogen (epoetin alfa), first approved for chronic renal failure, totaled $608 million, up 39 percent for the three-month period.

Performing undeniably well, though, was Enbrel (etanercept), first approved for rheumatoid arthritis and gained through Amgen's merger with Seattle-based Immunex Corp. The drug sold $496 million, a 45 percent hike.

Somewhat less impressive was Neupogen (filgrastim), the first and shorter-acting version of Neulasta (pegfilgrastim), which is used to decrease infection during chemotherapy. But combined worldwide sales of Neulasta and Neupogen rose 14 percent to $752 million, and Amgen upped full-year guidance to a range of $2.8 billion to $3.1 billion for the pair of therapies from the previous $2.7 billion to $3 billion ballpark.

"Neulasta has achieved rapid market acceptance and should continue to grow, albeit at a more modest pace, through prophylactic use and patient growth," Schmidt wrote.

Product sales in the U.S. totaled $2.1 billion, an increase of 20 percent compared to the third quarter of last year, and international sales were $419 million compared to $300 million, an increase of 40 percent. Take away the foreign exchange impact and international sales would have jumped 31 percent.

The company's cash and marketable securities were $3.8 billion at the end of the quarter.

"We think The Street estimate of $2.84 for 2005 will have to come down based on reimbursement changes and resulting logistical changes in treatment," Reddoch wrote in his report. "Our EPS estimates for 2005 and 2006 are now $2.74 and $3.17, respectively, down from $2.79 and $3.33."

Raymond is staying upbeat.

"I understand why the company's commentary would be cautious, because it's still a big question mark," he said of the Medicare changes. "But it's not the end of the world."

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