Amgen Inc. Delivers in Q3 Despite Sluggish Revenue

Beating earnings expectations has become a recurring pattern for Amgen Inc. (NASDAQ: AMGN). The big biotech announced its third-quarter results after the market closed on Thursday. Amgen, yet again, topped Wall Street expectations. Here are the highlights.

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By the numbers

Amgen reported revenue of $5.8 billion, up 2% from the third quarter of 2015. While the revenue growth was sluggish, it was still enough to surpass the average analyst estimate of $5.73 billion.

Earnings growth, on the other hand, looked better. Amgen posted third-quarter net income of $2.02 billion, or $2.68 per diluted share. That reflected an increase of 8.6% compared to earnings of $1.86 billion reported in the prior-year period and a 9.8% jump over the$2.44 per diluted share from the year-ago period.

On a non-GAAP basis, Amgen's earnings came in at $2.28 billion, 9.6% higher than the $2.08 billion posted in the same quarter last year. Amgen reported non-GAAP earnings per diluted share of $3.02. This figure represented an 11% increase over the non-GAAP earnings per diluted share of $2.72 announced in the third quarter of 2015. It also easily topped the average analyst estimate of $2.79.

Amgen also generated $2.5 billion of cash flow in the third quarter. The company ended the quarter withcash, cash equivalents, and marketable securities totaling $37.98 billion.

Behind the numbers

Net product sales were flat in the third quarter compared to the prior-year period. Top-selling Enbrel lost ground slightly from the same quarter last year, with sales of $1.45 billion. Amgen's second-highest moneymaker, bone marrow stimulant Neulasta, also saw sales slip 5% year over year, to $1.2 billion.

The biggest losers, however, were Epogen and Neupogen. Sales for the drugs fell 31% and 36%, respectively, versus the third quarter of 2015.

Amgen did have some bright spots. Sales for cancer drug Kyprolis soared 34% year over year, to $183 million. Sensipar/Mimpara sales grew by 18%, to $415 million. Sales for bone disease drug Prolia also increased 18%, to $379 million.

Were it not for the catch-all category of "other revenue" climbing compared to the prior-year period, Amgen wouldn't have reported any revenue growth. So how did the biotech's earnings jump? Lower costs.

Cost of sales decreased 1% in the third quarter, thanks primarily to manufacturing efficiencies and higher net selling prices. Selling, general, and administrative (SG&A) costs were flat compared to the prior-year period. The big story for Amgen was that research and development costs fell 12%. All of this combined for a 3% year-over-year decline in total expenses.

Looking ahead

Amgen narrowed its full-year 2016 revenue guidance. The company now expects 2016 revenue between$22.6 billion and $22.8 billion. Previously, the low end of that range stood at $22.5 billion.

The company also increased its full-year earnings outlook. Amgen now projects GAAP earnings per share of$9.94 to $10.11, up from the previous range of$9.55 to $9.90. Non-GAAP earnings per share are expected to be between$11.40 to $11.55. Amgen's prior guidance called for non-GAAP earnings per share in the range of$11.10 to $11.40.

There are several potential catalysts for Amgen's stock coming up relatively soon. In September, the biotech announced that erenumab met its primary endpoint in a late-stage study targeting prevention of episodic migraines. Results from a second late-stage study of the pipeline candidate should be announced later this year.

Perhaps the biggest news for Amgen will come from the late-stage cardiovascular outcomes study for cholesterol drug Repatha. The company expects to announce those results in the first quarter of 2017. Positive results could help Amgen convince payers to open their purse strings for Repatha.

Amgen needs help from its pipeline and for Repatha sales to pick up momentum to get revenue growing briskly again. I think the biotech will be successful on both fronts, although it will take time. Meanwhile, Amgen will pay investors to wait.

The company's dividend yield stands at 2.53%. Amgen has increased its dividend every year since 2011.It's similar to beating earnings estimates: It's a recurring pattern that any investor can like.

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Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.