Amgen Upped to Outperform

Following the release of fourth quarter and full year 2011 results, we upgraded biotech major, Amgen (AMGN - Analyst Report), to Outperform. Although the company missed estimates in the fourth quarter of 2011, guidance for 2012 was better-than-expected. The company expects earnings in the range of $5.90 - $6.15 per share on revenues of $16.1 - $16.5 billion. This was well above the Zacks Consensus Estimate of $5.46 per share.

We have raised our 2012 earnings estimate by 48 cents to $5.94 per share. The upward revision in earnings estimates has pushed the Zacks Rank for Amgen to #2 which indicates a “Buy” rating in the short-term. Share repurchases and cost control should help the company achieve at least the lower end of its guidance range.

Amgen received a major boost when it gained approval for its lead pipeline candidate, Prolia/Xgeva (denosumab). We are pleased to see that the company is working on expanding the product’s label into additional indications which should drive growth. The clinical results on Prolia/Xgeva so far are positive for the company, and reinforce our belief that the drug could be a blockbuster.

Prolia/Xgeva are slated to be major contributors to revenues with the franchise expected to post sales in the range of $3-$4 billion by 2015. Share gains and skeletal-related events (SRE) segment growth should drive Xgeva sales. Meanwhile, Prolia should benefit from the implementation of a permanent J code. Amgen expects to launch a DTC TV campaign later this year to drive sales.

Amgen has a collaboration with GlaxoSmithKline (GSK - Analyst Report) whereby both companies will share commercialization of denosumab for osteoporosis indications in Europe, Australia, New Zealand and Mexico. Glaxo is responsible for commercializing denosumab for all indications in countries like China, India, Brazil and Taiwan. Glaxo’s strong marketing presence in these areas and expertise in primary care markets should help Prolia capture significant share. Meanwhile, Daiichi Sankyo is Amgen’s denosumab licensing partner in Japan where it gained approval as Ranmark for the reduction of SREs in patients with metastatic bone disease in January 2012.

We are also pleased to see that Amgen is working on expanding its presence in international markets which represent significant commercial potential. The company expects to generate more than $1 billion in sales from new and emerging markets by 2015. Asia and Latin America should start contributing to Amgen’s international growth over the next five years.

We are also positive on Amgen’s efforts to drive growth and boost its pipeline through deals and acquisitions. Amgen recently announced its intention to acquire biotech company, Micromet, Inc. (MITI) for approximately $1.16 billion. With this acquisition, Amgen is looking to expand its oncology portfolio. Meanwhile, Amgen is also exploring the world of biosimilars. The company is collaborating with Watson Pharmaceuticals (WPI - Analyst Report) for the worldwide development and commercialization of oncology antibody biosimilar medicines.

Read the full analyst report on WPI

Read the full analyst report on MITI

Read the full analyst report on AMGN

Read the full analyst report on GSK