Amgen Crushes Wall Street's Expectations in Q2, But This Figure Is a Bit Worrisome

Source: Amgen via Flickr.

The original biotech blue-chip stock, Amgen , continued its recent string of earnings beats when it reported its second-quarter earnings results after the closing bell last night.

Amgen's Q2, by the numbers For the quarter, Amgen generated $5.37 billion in revenue, a 4% increase from the year-ago quarter, which was also inclusive of negative currency translation to the tune of 2.5 percentage points. Adjusted profits grew 8% to $2.57 per share on the heels of higher sales and disciplined spending.

Comparatively, Wall Street was looking for Amgen to report just $2.42 in EPS on $5.31 billion in sales. The $0.15 EPS beat is becoming almost commonplace for Amgen, which has topped EPS estimates by $0.11 to $0.38 over the prior four quarters.

Furthermore, Amgen boosted its full-year guidance to a fresh range of $21.1 billion-$21.4 billion in sales from a previous forecast of $20.9 billion-$20.3 billion, and raised its full-year EPS to a range of $9.55-$9.80 from $9.35-$9.65.

In short, it was a very good quarter, and Amgen's 2% increase in Thursday's after-hours trading session implies that investors are pretty pleased as well. But, headline numbers only tell you part of the story. In order to understand how Amgen arrived at its Q2 sales and profit figures we need to dive a bit deeper.

Source: Amgen via Flickr.

Amgen's key growth driversQuickly summing up Amgen's Q2, it was a nice balance between the pricing power of mature drugs and increased demand for newer products driving growth.

Amgen's top-selling product, Neulasta/Neupogen, a drug that helps encourage white blood cell production for chemotherapy patients, witnessed a 1% sales decline, primarily because of increased competition within the United States for Neupogen. On the other hand, rheumatoid arthritis drug Enbrel delivered 8% year-over-year growth primarily because of price increases and a return to normal inventory levels. Amgen's management notes that Enbrel remains on track to deliver $5 billion in annual sales.

The really exciting growth came from Amgen's newest products such as Xgeva and Prolia, which treat patients with bone-related problems such as osteoporosis. Prolia sales skyrocketed 29% year-over-year, including a 33% increase in the numbers of units sold (albeit Q2 and Q4 are two of its stronger quarters per Amgen), while Xgeva sales improved 11% year-over-year as unit sales increased 12%.

In addition, Amgen is beginning to see a direct benefit from its cost-cutting efforts. Amgen announced about 4,000 job cuts last year designed to save in the neighborhood of $1 billion. These savings will go toward boosting its gross margin in the long run over the 50% mark, while helping to offset the rising costs related to its robust phase 3 pipeline and its multiple upcoming drug launches. In Q2, Amgen's research and development expenses fell 6% to $918 million while its cost of sales remained flat despite its 4% revenue increase. This improved efficiently should help to pay metaphorical and literal dividends for Amgen's investors.

This figure is a bit worrisomeOn the other hand, multiple myeloma drug Kyprolis brought with it mixed reviews for the quarter -- at least in my opinion.

During the quarter Kyprolis sales improved 53% on a year-over-year basis to $119 million, putting Kyprolis on pace to perhaps challenge the $500 million mark based solely on its third-line indication.

Source: Amgen.

It's worth noting, that Amgen received an approval from the Food and Drug Administration expanding its label on Kyprolis to a second-line status for multiple myeloma patients just last week. There are some 5,900 potential patients in the third-line and 1,200 in the fourth-line for Kyprolis to reach each year. As a second-line therapy Kyprolis has an opportunity to reach 16,400 patients on top of the combined 7,100 in the third- and fourth-line. It's a big opportunity for Kyprolis to expand and reach its full potential of perhaps $3 billion in annual sales.

However, I wasn't very thrilled with Kyprolis' $119 million in Q2 sales. Its international sales declined from $11 million in Q1 2015 to just $7 million this quarter, while its sequential worldwide quarterly sales improved by only 10% from the $108 million it delivered in Q1. Although we're still looking at growth, it would appear that Kyprolis' opportunity in later-stage multiple myeloma could be slowing or shrinking. What's tough to tell is whether that's a direct sign of increased competition, or whether it's just maximizing its opportunity and is running out new patients to reach.

Kyprolis net sales. Source: Amgen.

Another worrisome aspect, even with Kyprolis' expanded approval, is Johnson & Johnson'sexperimental multiple myeloma drug daratumumab. In May, it was announced that daratumumab generated a 29% overall response rate in a midstage multiple myeloma study. The average patient in the study had received five prior lines of therapy. What's interesting here is the study that led to Kyprolis' initial approval also involved patients with five lines of prior therapy, but it only led to a 23% overall response rate. I believe there's enough room for two therapies here, but it makes me wonder, with Kyprolis sales already appearing to slow down in third- and fourth-line indications, if daratumumab could become the dominant late-stage multiple myeloma therapy.

Can Amgen motor even higher? Now that we have a better bead on Amgen's quarter, let's ask the ultimate question: should you be buying Amgen here?

On one hand, you can certainly make the argument that the tripling in Amgen's share price over the past four years already factors in its robust late-stage pipeline. And, as noted above, the argument can be made that Amgen may have overpaid for Onyx Pharmaceuticals if Kyprolis fails to reach its lofty potential.

Then again, Amgen continues to practically grow its portfolio of drugs across the board and has an extensive pipeline of wild cards to fall back onto. Heart failure drug Corlanor and cholesterol drug Repatha have the potential to really surprise Wall Street and investors. The question, of course, is will they?

If my arm were twisted and I were forced to choose I would probably side with optimists here as Amgen's cost-cutting efforts and ability to raise prices on its therapies should help it at least maintain its EPS for the intermediate future. Even if a handful of its drug launches or phase 3 studies fall flat, Amgen has the cash flow and dividend to support the long-term investor. If Kyprolis, Corlanor, Repatha, and cancer immunotherapy T-Vec all find the mark, then Amgen could have further upside potential.

The article Amgen Crushes Wall Street's Expectations in Q2, But This Figure Is a Bit Worrisome originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.