3 Things to Watch in Amgen's Earnings Report

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A while back, I argued that Amgen (NASDAQ: AMGN  ) still had room to run based on its strong pipeline, financial position, and comparative valuation. The acquisition of Onyx was a major step in accomplishing those growth goals, but there are a few other pieces that need to fall into place for Amgen to continue its success. Here are a few things you can watch for when Amgen reports earnings on Tuesday to see if the company's on track.

1. Enbrel sales
Enbrel brought in $1.2 billion in the most recent quarter, a 9% YoY increase. That was more than enough to finance Amgen's $967 million quarterly R&D expense, leaving its other products to finance its other expenses, stable dividend, and share buybacks. Enbrel will only grow more critical to Amgen's top line as time goes on. Sales of Aranesp and Epogen have peaked and begun to pull back, and blockbuster Neulasta will lose patent protection in 2015.

Pfizer's (NYSE: PFE  ) royalty entitlement on domestic sales of Enbrel is set to expire at the end of October, which should significantly help Enbrel's profitability. I'll be interested to hear, though, if management has a plan to create more organic revenue growth from Enbrel. Amgen could face some serious competition from next-generation oral drugs, like Pfizer's Xeljanz and Celgene's apremilast. Xeljanz was recently compared to Amgen in a phase 3 trial for chronic plaque psoriasis with mixed results, and apremilast is under FDA review for psoriatic arthritis with label expansion that could eat away some demand for Enbrel.

2. Onyx integration
In August, Amgen made one of the biggest acquisitions of the year with the purchase of oncology specialist Onyx Pharmaceuticals. There are two points to watch for in Amgen's discussion of the Onyx integration.

First, I'm interested to hear the company's approach to the integration of Onyx SG&A expenses into its cost structure. Amgen has a limited oncology franchise, but a large portion of its revenue base comes from Neulasta, a drug used to stimulate white blood cell growth in patients on chemotherapy. That may help Amgen's relationship with oncologists, but pushing Kyprolis may require more intense marketing.

Second, I'll be interested to hear more about which development programs will be continued, sold, partnered, or scratched altogether. Onyx has five drugs in clinical trials (three are already approved for at least one indication) spanning twelve indications. A big point of interest will be label expansion for Kyprolis, which is currently approved as a third-line treatment for multiple myeloma. As the centerpiece of the deal, Kyprolis is expected to bring in peak sales of more than $2 billion, so I'd expect Amgen to finish out the four phase 3 trials in which Kyprolis is currently being tested.

3. PCSK9 race
After the Onyx acquisition, you can bet that Amgen's drug AMG145 will be the next biggest point of discussion. AMG145 is a PCSK9 inhibitor that mimics the effects of a naturally occurring genetic mutation that causes extremely low levels of "bad" LDL cholesterol. It has shown remarkable results in phase 2 trials, reducing LDL by up to 59% in a pooled analysis of four trials. AMG145 will face some fierce competition from Regeneron (NASDAQ: REGN  ) and Sanofi's (NYSE: SNY  ) alirocumab. It reduced LDL by up to 73% when combined with a statin, and is slightly ahead of AMG145 in phase 3 development. AMG145 represents Amgen's biggest short-term catalyst, and analysts will be sure to scrounge for any little details management is willing to provide.

The bottom line
I think Amgen's bottom line will continue to grow -- that's why I'm a shareholder. There are several upcoming catalysts for Amgen, but management style will be equally important moving forward. Management will need to maintain Enbrel sales in the face of alternative oral treatments, and be able to efficiently integrate operations from Onyx. We should get a nice chunk of information about these topics and more when Amgen presents its earnings next week.

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