INVESTMENT THESIS
Amgen Inc. (NGS: AMGN) with a price target of $275. After facing declining sales of mature products in 2019, the company has returned to growth in 2020, with a 12% increase in product sales in 3Q20. Otezla, an immunology drug acquired from Celgene, and Amgen’s own portfolio of newer drugs have become growth drivers. In addition, Enbrel, the company’s top-selling product, received a new lease on commercial life when a federal appellate decision validated the patent covering Enbrel, giving it an extension of marketing exclusivity through 2029. We also expect the company to benefit from the launch of new pipeline products and from its collaboration agreement with Chinese biotech company Beigene
RECENT DEVELOPMENTS
Despite headwinds from the pandemic, Amgen delivered better-than-expected 3Q20 earnings on October 28. Adjusted EPS rose 19% to $4.37.
Total revenue grew 12% to $6.4 billion. This was driven by higher product volume, partly offset by lower net selling prices and the effects of the pandemic on prescriptions of certain products. Worldwide product volume grew 18% (improving sequentially from 13% in 2Q20). Growth contributors included Otezla, Repatha, Mvasi and Kanjinti. The latter two products are part of Amgen’s biosimilars portfolio, which also includes Amgevita, a biosimilar version of Humira.
As a category, Amgen’s biosimilars had sales of $478 million, growing 176%. With ABP-654, a potential biosimilar version of Stelara, entering Phase 3 studies, we expect Amgen to add another product to its biosimilars portfolio.
The volume of physician-patient interactions, through increasing, has not yet reached pre pandemic levels, and this has affected prescription volumes for certain drugs, such as Prolia, Repatha, Otezla and Enbrel. We believe that the growth in product volume in 3Q20 was all the more impressive given the continuing impact of COVID-19 on physician-patient interactions.
EARNINGS & GROWTH ANALYSIS
Citing the company’s better-than-expected 3Q20 performance and improving end-market conditions, management raised its 2020 adjusted EPS guidance to $15.80-$16.15 from $15.10-$15.75. While the updated guidance includes a lower expected tax rate, it also incorporates the strong 3Q20 performance.
MANAGEMENT & RISKS
Risks for Amgen include such factors as the length and cost of developing new biologic products. Such development cycles could stretch more than 10 years. Amgen also faces competition for existing products.
Amgen’s products face litigation risk over the validity of patents. We note that Amgen won a major victory in July 2020 when the U.S. The Federal Appeals Court upheld a U.S. district court ruling that rejected a patent challenge from Novartis, which is seeking to market an Enbrel biosimilar. The decision likely means that the patent for Enbrel’s active ingredients will remain in force through 2029.
Amgen also faces the risk that insurers and other payers may restrict reimbursement coverage of its drugs. For example, CVS, which operates the Aetna insurance business, decided to remove Repatha from its national formulary for covered drugs as of July 1, 2020. Still, Repatha has broad coverage from insurers in the PCSK9 class of cholesterol-lowering drugs. In Europe and other overseas markets, national agencies typically make coverage decisions, often forcing manufacturers to make pricing concessions.
COMPANY DESCRIPTION
Amgen, based in Thousand Oaks, California, is a leading global biotech company. Its key products include Repatha, Kyprolis, Prolia, Xgeva, Neulasta, and Enbrel. The shares are a component of the S&P 500.
VALUATION
After cycling through a period of product maturation, Amgen has returned to top-line growth. Product revenue grew 12% in 3Q20. AMGN shares are trading at 13.7-times our adjusted EPS estimate for 2021. While this valuation is above the mean of 12.2 for our coverage universe of biotech/pharma stocks, we think
AMGN is an attractive investment based on its current growth products, which now include Otezla, and solid pipeline. O n November 17 at midday, BUY-rated AMGN traded at $235.60, down $1.06.
Source: Argus
