Leerink Partners Cuts Price Target on Amgen (AMGN); Reiterates Market Perform
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Leerink Partners maintained a Market Perform rating on Amgen (NASDAQ: AMGN), and cut the price target to $163.00 (from $193.00), following the company's 2Q earnings report. Total product revenues of $5.516bn were in line with consensus and 4% under forecasts. Epogen declined less than expected and beat consensus by 10%. On the conference call management stated that given the contract terms they have committed to, in order to protect Enbrel’s formulary position, they are anticipating that in 2017 Enbel will not benefit at all from net price increases.
Analyst Geoffrey Porges commented, "Amgen Reported Q2 Results Yesterday With a Modest Revenue Beat and EPS Upside on Margins. The real story however, is likely to be the outlook for Enbrel and the impact of the company’s new contracts, and their pricing effect. Total revenue of $5.81bn was nearly in line with a one time milestone payment offsetting a negative channel inventory reduction during the period. The most important disclosure was the slowing, and apparently ending, of pricing power for Enbrel. We estimate that Enbrel price increases contributed more than 80% of the company’s operating income growth for the last six quarters, and the end of the 20%+ price tailwinds for this $5bn+ franchise unwinds one of the company’s last remaining defenses against revenue and earnings erosion from biosimilar and branded competitors. Amgen’s dependence on legacy products is coming back to haunt them, and though their cash flow is very strong, and their financial position impeccable, their lack of growth drivers to offset ongoing or imminent erosion of Epogen, Aranesp, Neupogen, Neulasta and Enbrel ($15bn of $22.8bn total revenue this year) means that the stock is likely to come under pressure from both negative estimate revisions and multiple compression. We cannot identify pipeline programs of sufficient size to offset the outlook for this core business, and even with a moderately positive outlook for Repatha, see revenue growing in the low single digits through the end of the decade. EPS growth is likely to be at best mid single digits, and given this outlook, and materially lower revenue and earnings estimates in our model, we are lowering our target price for the stock from $193 to $163, and maintain our Marketperform rating."
Shares of Amgen closed at $160.57 yesterday.
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