Despite experiencing a 24 percent increase in product sales and a 26 percent increase in adjusted earning, Amgen Inc. missed its earning expectations for the fourth quarter.

The Thousand Oaks, Calif.-based company reported adjusted earnings per share of 58 cents, 3 cents below consensus. Throw in changes from the recently implemented Medicare reimbursement act that Amgen said should slow revenue growth in 2005, and the company's stock dipped Thursday. Shares (NASDAQ:AMGN) fell $1.98 to close at $61.58.

"Overall, I think that the strong revenues based on the strength of their products were clearly offset by greater-than-anticipated expenses" said Janet Gearlds, portfolio manager with Wells Fargo Bank's Private Assessment Management, adding that she had "a lot of concerns going into this year."

Full-year adjusted earnings per share were $2.40, a 26 percent increase, compared to $1.90 per share in 2003. Total revenues for the quarter ended Dec. 30 were $2.9 billion - nearly $2.8 billion from product sales - an increase from the $2.2 billion for the fourth quarter 2003. Sales for the full year totaled $10 billion, a 27 percent increase from the $7.9 billion earned in 2003. Overall revenue for 2004 increased 26 percent to $10.6 billion.

But Amgen's costs also increased last quarter. Costs of sales rose to $476 million from $384 million during the fourth quarter of 2003. Research and development expenses for the quarter totaled $608 million vs. $494 million the year prior, and expenses for the full year grew to $2 billion, up from $1.6 billion in 2003, due mainly to costs associated with the $1.3 billion acquisition of San Francisco-based Tularik Inc. in March, as well as clinical manufacturing costs and expenses related to clinical trials. (See BioWorld Today, March 30, 2004.)

But don't expect large revenue increases in 2005, Amgen said, due to broad reimbursement changes following the passage of the Medication Modernization Act (MMA), which added prescription drug benefits to Medicare and might affect overall drug costs. With several products dependant upon Medicare reimbursement, Amgen considered those changes when creating its 2005 estimates. The company expects growth increases in the high single digits to low teens for the year, with adjusted earnings per share to range from $2.70 to $2.85.

While there's growth ahead, Amgen's Medicare warning worries some analysts.

"I think there's just a lot of uncertainty in 2005, and management clearly expressed some of those concerns," Gearlds said. "After this year, I think management will be better able to quantify how [the Medicare changes] are going to affect them. The issue is at the top of a lot of people's minds."

One of Gearlds biggest concerns is competition, as Amgen's blockbusters eventually go off patent. "Epogen went off patent in December in Europe, so it will be interesting to see when a generic comes out and how that dynamic changes," she said.

Epogen, for anemia patients on dialysis, reported sales of $697 million in the fourth quarter and $2.6 billion for the year, up from $2.4 billion last year.

Amgen reported fourth-quarter sales of $704 million for its other anemia drug, Aranesp, for patients with chronic kidney disease and chemotherapy-induced anemia, and full-year sales of $2.5 billion, up from $1.5 billion in 2004. The company also saw an increase in its sales of Neulasta and Neupogen, used to treat chemotherapy-related infections. Fourth-quarter sales for the drugs increased 13 percent to $778 million, and were $2.9 billion for the year, up from $2.5 billion.

Sales of Enbrel, a biologic for treating inflammation, increased by 49 percent, from $380 million for 2003's fourth quarter to $567 in 2004. For the year, Enbrel brought in $1.9 billion, up from $1.3 billion. Amgen attributed the increase to the recent growth in biologics for rheumatology and dermatology markets. In April, Enbrel (etanercept) received FDA approval for moderate to severe psoriasis.

Adjusted net income for last quarter was $749 million, up 22 percent from $615.

As Amgen's marketed products face competition, Gearlds told BioWorld Today the company needs to focus more on drug development. "I think they really need more pipeline development, though I don't expect a lot of this year," she said. "But, hopefully, we'll see more in their pipeline in 2006."

Amgen provided updates on that pipeline, including ongoing trials for AMG 162, for bone loss. Amgen reported at the American Society of Bone and Mineral Research in September that twice-yearly injections of AMG 162 significantly increased bone mineral density compared with placebo after 12 months. The product is in Phase III trials.

Last quarter, Amgen initiated TREAT (Trial to Reduce cardiovascular Events with Aransep Therapy) to study the cardiovascular outcomes in anemia patients with chronic kidney disease and Type II diabetes. Also during the past quarter, the FDA granted fast-track designation for both AMG 531, a treatment for an autoimmune bleeding disorder, and AMG 706, an oral cancer therapy for tumors of the gastrointestinal tract in Phase II trials.

In the company's filing, Amgen reported cash and marketable securities totaling about $5.8 billion. The company had about 1.3 billion shares outstanding.

"One thing I do like is Amgen's aggressive share-buyback program," Gearlds said, adding that, despite upcoming challenges, the company is "headed in the right direction."

Stock repurchases for the year were $4.1 billion, or about 69 million shares. Amgen has about $969 million remaining under the previous repurchase program, and announced last quarter that it secured net proceeds of $2 billion from a note offering. That $2 billion was intended to fund open-market purchases of shares under the repurchase program and for general corporate purposes.