Why Amgen Inc. Shares Nose-Dived 15.4% in October

Image source: Getty Images.

What happened

After Amgen, Inc.(NASDAQ: AMGN)sounded a cautionary alarm regarding drug prices during its third-quarter earnings, shares in the companyfell 15.4% in October,according toS&P Global Market Intelligence.

So what

Amgen put up solid top and bottom line in the third quarter. However, it may face difficulties in delivering future growth, based on management's comments during a conference call with investors.

The company reported sales of $5.8 billion, up 1.6% year over year, and earnings per share, or EPS, of $3.02, up 11% year over year, in the third quarter. Sales were $80 million above industry watchers' predictions and EPS beat analysts' forecast by $0.23, but despite the beat, shares tumbled after management indicated to investors that it doesn't expect to realize gains from a price increase on its best-selling Enbrel next year. Apparently, insurers are requiring higher rebates for Enbrel for it to remain in a preferred position in their drug formularies. The drugmaker'sexecutive vice president for global commercial operations, Anthony Hooper, provided more details:

Now what

The lack of pricing power is bad news for the biotech giant because Enbrel's markets have become increasingly competitive, and that's weighing down unit volume. In Q3, Enbrel volumes were 7% lower than a year ago.The risk of volume loss and flat-lining prices is important because Enbrel sales were $1.45 billion in the third quarter, making it Amgen's top-selling drug.

However, investors may not want to dismiss Amgen altogether on this news.

The company's earnings are growing more quickly than its sales thanks to a cost restructuring, and there are some bright spots in its product portfolio and pipeline.

For example, the company's Prolia, Kyprolis, and Repatha saw rapid sales growth last quarter versus a year ago. Prolia sales rose 18%, to $379 million; Kyprolis sales rose 34%, to $183 million; and Repatha sales jumped to $40 million from $3 million last year. In addition, the company's got a slate of biosimilars in the works, including one for Humira, and a cardiovascular outcomes study is expected to read out data early next year. If that study is positive, it could significantly boost Repatha sales.

Overall, however, Amgen appears to be in a period of transition. Its blockbusters Epogen and Neupogen are seeing sales drop because of recently launched competing biosimilars, and a lid on drug prices doesn't offer a lot of support to its top-line growth next year. Therefore, while the company's 3% dividend yield is enticing, a wait-and-see approach might be better than rushing in to buy following last month's drop.

10 stocks we like better than Amgen When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now and Amgen wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 7, 2016

Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.

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.