Newbury Park, CA OCTOBER 28, 2014 — Amgen’s Newbury Park, California headquarters as the biotech … [+]
More than 41 years ago, Amgen
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From a split-adjusted 27 cents a share in June 1983, shares of Amgen have risen at an 18.2% average annual rate to $262 on Aug. 11, 2023 — beating the S&P 500’s 8.3% average increase during that period.
Can shares of Amgen — which sports a 3.25% dividend yield — keep rising? After going nowhere so far in 2023, there is good news in Amgen’s most recent financial report and CEO Robert Bradway’s confidence in closing Amgen’s $28 billion acquisition of Horizon Therapeutics by December.
Moreover, my August 10 interview with Salveen Richter, a Goldman Sachs managing director, suggests Generative AI could boost the productivity of Amgen’s drug discovery operation — possibly raising the odds of faster organic growth.
Nevertheless, a looming patent cliff for Amgen’s significant drugs means it may need more new patented products soon. Without faster growth, the stock could disappoint.
Amgen’s Q2 2023 Beats Expectations
While Amgen reported modest growth in the second quarter, the biopharma giant exceeded revenue and profit expectations and lifted its full-year guidance.
Here are the key numbers from MarketWatch:
- Q2 Revenue: $6.99 billion — up 6.9% and $30 million ahead of analysts’ forecast. Amgen’s “11% growth in volume offset a 2% decline in net selling prices and 1% lower inventory levels,” noted MarketWatch.
- Q2 Adjusted Earnings Per Share: $5.00 — 51 cents a share above the FactSet consensus.
- 2023 Revenue Guidance Range: $26.6 billion to $27.4 billion — the midpoint of which is up about 1% from its previous guidance range.
- 2023 Adjusted EPS Guidance Range: $17.80 to $18.80 — the midpoint of which is about 1% higher than its previous guidance range.
Amgen’s established products declined while some of its best-selling drugs enjoyed growth. According to MarketWatch, sales of Epogen, Aranesp, Parsabiv and Neulasta dropped 17% in the wake of lower net selling prices and declining volume. Best sellers Amjevita/Amgevita and Prolia enjoyed sales increases — 2% to $1 billion and 11% to $1.03 billion, respectively.
Amgen’s fastest growth came from smaller drugs — Blincyto, Evenity and Repatha, according to Investor’s Business Daily. Here are the highlights:
- Blincyto, a cancer drug, enjoyed 48% sales growth to $206 million
- Evenity, an osteoporosis treatment, generated 47% sales growth to $281 million
- Repatha, a migraine treatment, saw a 36% jump to $424 million in sales
Moreover, Amgen announced progress in its cancer drugs. Specifically, IBD
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Amgen also said a combination of its drugs Lumakras and Vectibix extended the lives of patients with advanced colon cancer “without the disease progressing,” noted IBD.
Amgen was happy with its results. Bradway said in a recent statement, “We had a very strong quarter, serving more patients across all geographies and therapeutic categories and delivering record revenues and [adjusted] earnings per share.”
Will Amgen Complete Its Horizon Therapeutics Takeover?
In December 2022, Amgen made a roughly $28 billion bid to acquire Horizon Therapeutics, which the Federal Trade Commission is trying to block. On August 3, Bradway expressed confidence the merger would be completed by the end of 2023.
In its lawsuit, the FTC argued Amgen could use its drug portfolio to “entrench the monopoly positions” of Horizon’s thyroid eye disease drug Tepezza and gout treatment Krystexxa. The agency argued Amgen has engaged in such drug “bundling” in previous negotiations with payers.
Amgen said it would not follow that strategy with Horizon drugs and expects the deal to be completed in December. “Simply put, there are no competitive overlaps and no incentives to bundle our drugs with theirs. We look forward to making our case in court in September and I am confident, rather, that we will prevail,” Bradway told investors in an August 3 conference call.
How AI Could Help Amgen Grow Faster
Biopharma companies are using Generative AI to speed up drug development and to design new drugs that better target specific diseases. As Richter said, “Compared to traditional AI, Generative AI has the exciting potential of creating new content — synthetic data for designing new drugs, developing diagnostic tools, and crafting personalized care plans.”
ChatGPT can make administrative tasks more efficient. As she explained, these include developing detailed treatment plans in real time, responding more quickly to questions from the Food and Drug Administration, and putting proposals together.”
Amgen stands out among biopharma companies in its use of AI. “There has always been some level of AI in healthcare since the early days. Machine learning has been used for computational biology to develop drugs more effectively, and to validate targets.”
Amgen has become better at developing drugs since it adopted Google’s
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Amgen replaced a more costly and time-consuming approach to characterizing proteins — wet labs methods and analysis — with DeepMind which uses structure prediction to produce better protein structures, she explained.
Amgen’s Patent Cliffs
Amgen faces significant challenges, According to the Wall Street Journal, the Internal Revenue Service is going after Amgen for “billions of dollars” in back taxes and Amgen lost a patent-infringement ruling in the Supreme Court for Repatha, a new Amgen cholesterol drug.
Yet its biggest growth threat by the end of the decade could be its patent cliffs — important Amgen drugs poised to lose their patent protection. For example, Enbrel — a treatment for rheumatoid arthritis and other autoimmune diseases comes off patent in 2029. AbbVie
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Brian Skorney, a Baird analyst, pointed out Enbrel first quarter 2023 revenues of $579 million fell 29% short of analyst estimates from Visible Alpha.
While two Amgen bone health drugs — Prolia and Xgeva — have helped offset the potential for lower revenue, the Journal noted another Amgen drug — Otezla — also missed first quarter “estimates due to competition from a Bristol-Myers Squibb [rival drug],” the Journal reported.
Meanwhile analysts are concerned Horizon’s Tepezza works so well that should Amgen complete its bid, the product’s revenues will fall short of Amgen’s expectations.
How so? In 2022, Tepezza generated $2 billion in revenue and Horizon forecast $4 billion in peak sales. However, in the first quarter, Horizon reported Tepezza sales fell 19% — prompting SVB
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The FTC is concerned Amgen could try to boost Tepezza’s sales after acquiring Horizon by bundling it — a strategy Bradway said Amgen would not follow.
Where Amgen Stock Is Heading
Amgen is overvalued according to 13 Wall Street analysts. As TipRanks noted, their average 12-month price target is $247.67 — about 6% below its August 14 price.
Morningstar is slightly more optimistic — setting a price target of $268. Strategist Karen Andersen wrote she is maintaining the target “following solid 6% product sales growth in the second quarter, driven by 11% volume growth.”
Andersen wrote Amgen’s biggest growth drivers in the quarter — asthma drug Tezpire, osteoporosis drugs Evenity and Prolia, and Repatha — countered “relatively flat sales of immunology drugs Enbrel and Otezla” and dropping sales of “supportive care drugs like Epogen and Neulasta.”
She expects the Horizon deal to go through and the approval of Tarlatamab, the small cell lung cancer drug, in 2024.
To inject new life into its stock price — Amgen needs faster growth from new, patented drugs. It is unclear when the biopharma giant will get there.