Amgen ( AMGN) is expected to use added cost savings squeezed from its Immunex acquisition -- along with surging sales of key drugs -- as fodder to raise earnings guidance for next year. The world's largest biotech firm, which will host an investor conference call on Thursday morning, is already on tap to grow 2003 earnings by 20%. Just how much more it can pad profits next year is an open question. And how Amgen goes about doing it is also ripe for debate, biotech watchers say. Amgen management might offer a range of bottom-line guidance, or they could just talk up top-line revenue growth that would lead analysts, naturally, to raise their own profit forecasts. Not much in the way of palace intrigue in the hours leading up to the call, but then, there isn't much to complain about when it comes to Amgen's ability to hit its marks these days. "Amgen has beaten Wall Street's estimates by a combined 6 cents per share over the last two quarters, and they've done that in the face of weaker-than-expected Enbrel sales," says SG Cowen's Eric Schmidt, referring to the rheumatoid arthritis drug picked up in the Immunex deal. "Starting in 2003, we think you'll see Enbrel start contributing to earnings rather than detract from them, and that gives Amgen three drugs in the market that are ramping up growth significantly. It's the kind of situation you wait for if you're a biotech investor." Schmidt rates Amgen a strong buy, and his firm doesn't do banking for the company. In advance of any new guidance, Amgen is expected to earn $1.65 in 2003, according to the consensus estimate compiled by Thomson Financial/First Call. Banc of America Securities' Mike King says he'd be happy if Amgen management raises 2003 earnings guidance to around $1.70 per share. By his reckoning, that's easily attainable, because relatively small, incremental upside growth in the Epogen/Aranesp and Neupogen/Neulasta drug franchises could contribute another 6 cents per share and 4 cents per share, respectively, to Amgen's earnings. King rates Amgen buy, and his firm doesn't do banking for the company.
During its third-quarter conference call, Amgen forecast low 20% sales growth for its Epogen/Aranesp franchise through 2002. It also forecast mid-30% growth in 2002 for Neupogen and Neulasta, an increase from its previous guidance of mid-20% sales growth. Most analysts see clear sailing ahead for Neulasta (the newer version of Neupogen) because it has zero competition. Aranesp's outlook is not as clear-cut, mainly because the drug is locked in a fierce market-share battle with Johnson & Johnson's ( JNJ) Procrit/Eprex franchise. As for Enbrel, Amgen management should provide an update on the drug's well-publicized supply constraint, including progress being made on getting a new manufacturing facility in Rhode Island approved by the Food and Drug Administration during the first quarter of 2003. Amgen has previously forecast 2003 Enbrel sales in the range of $1.2 billion to $1.4 billion. (An increase in Enbrel sales has less impact on Amgen's bottom line because of lower margins and royalties paid to Wyeth.) Salomon Smith Barney biotech analyst Elise Wang believes Amgen will likely guide 2003 earnings to a range of $1.65 per share to $1.75 per share Thursday (She's raising her earnings projection to $1.70 from $1.66.) Wang believes Amgen gets to the higher number through lower operating expense and stronger drug sales, including 24% sales growth to $3.24 billion for the Epogen/Aranesp franchise and 27% sales growth to $2.33 billion for Neupogen/Neulasta. "In our opinion, Amgen's fundamentals have never been stronger," Wang says. She rates Amgen outperform and her firm doesn't do banking for the company. At its Tuesday closing price of $47.08, Amgen is trading at 28 times 2003 earnings, a tad over its 20% long-term growth rate. But ratchet up that growth rate to 25% and Amgen looks attractive compared with the rest of the profitable companies in the biotech sector. Opines King, "I think Amgen trades at a pretty hefty discount to the group, and I don't think that's justified." Amgen shares were down 3 cents to $47.05 in Wednesday pre-market trading.