Amgen Inc. (AMGN, Financial) is an American biopharmaceutical company specializing in the development and commercialization of medicines aimed at treating patients with cardiovascular disease, cancer, osteoporosis, migraine and various autoimmune disorders.
Thesis
The company's share price has been on an upward trend in recent months due to several key factors. The first is the completion of the $27.8 billion acquisition of Horizon Therapeutics after months of legal battle with the Federal Trade Commission. In addition to Horizon's extensive portfolio of product candidates, Amgen has also acquired several Food and Drug Administration-approved drugs, which will allow it to reduce the financial risk associated with the loss of exclusivity of Prolia, Otezla and Nplate in the next five years.
Source: Horizon Therapeutics
In addition, the company's management raised its full-year 2023 revenue guidance from $26.6 billion to $27.4 billion to $28 billion to $28.4 billion. We believe this was due not only to the acquisition of Horizon's products, but also to the continued strong demand for Amgen's flagship medicines, such as Repatha, Evenity and Blincyto.
On the other hand, despite Amgen's relatively low revenue growth rate, it has higher multiples relative to its key competitors in the pharmaceutical industry, such as Bristol-Myers Squibb (BMY, Financial), Roche Holding (RHHBY, Financial) and AbbVie (ABBV, Financial).
Author's elaboration, based on GuruFocus and Seeking Alpha data.
Furthermore, we highlight several key risks that threaten the company's long-term revenue growth, for which we continue our analytics coverage of Amgen with a "market perform" rating.
The first risk is a decline in demand for the company's immunology products. So combined sales of Otezla (apremilast) and Enbrel (etanercept) amounted to $1.6 billion for the third quarter of 2023, decreasing by 7.6% compared to the previous year. We expect demand for these two drugs to continue to decline in the coming years because their efficacy in treating immunological diseases is less impressive than that of competitors such as Eli Lilly's Taltz (LLY, Financial), Johnson & Johnson's Tremfya (JNJ, Financial) and AbbVie's Skyrizi.
Author's elaboration, based on quarterly securities reports.
Additionally, at the end of the third quarter of 2023, Amgen's total debt was approximately $60.47 billion, an increase of $20.83 billion from the end of 2022 due to the need to finance the acquisition of Horizon Therapeutics.
Author's elaboration, based on GuruFocus and Seeking Alpha data.
As a result, we believe Amgen does not currently offer an attractive risk-reward opportunity for long-term investors. Moreover, we would like to point out that according to GuruFocus, the company is fairly valued.
The financial position of Amgen and its prospects
Amgen's third-quarter 2023 revenue was $6.9 billion, missing our expectations by about $50 million but up 3.75% year over year.
Meanwhile, Amgen's forward non-GAAP price-sales ratio is 5.13, which is 39.16% higher than the sector average and 0.19% lower than the average over the past five years, indicating financial participants remain optimistic about the commercial prospects of its branded medicines, even despite the negative impact of the IRA and the possible launch of Prolia biosimilars as early as the first half of 2025.
Prolia (denosumab) is a medicine used to treat patients with various bone-related disorders. Moreover, due to its mechanism of action based on RANKL inhibition and high efficacy demonstrated in phase 3 clinical trials, it continues to be one of the leaders in the global osteoporosis therapeutics market.
Author's elaboration, based on quarterly securities reports.
Its sales were $986 million in the third quarter of 2023, up 14.4% from the prior year. At the same time, Prolia's share of the company's total revenue is about 14.3%, which makes this product one of the most important for Amgen's financial position.
Author's elaboration, based on quarterly securities reports.
At the same time, we expect Prolia will become a major headache for Amgen's CEO due to the appearance of its biosimilars on the U.S. market in the next two years. Ultimately, this will lead to a significant decline in sales of this monoclonal antibody, which will also create additional downward pressure on the company's share price.
In the table below, we have highlighted companies that have either already submitted the biologics license application for its denosumab biosimilar candidate or continue to conduct pivotal Phase 3 clinical studies.
The author's elaboration, based on press releases.
The second key contributor to Amgen's year-over-year revenue growth was Repatha (evolocumab), which works by preventing PCSK9 from binding to the low-density lipoprotein receptor, which ultimately leads to a significant reduction in low-density lipoprotein-cholesterol (LDL-C) levels in the patient's blood. LDL-C is sometimes also called "bad" cholesterol because, when in excess, it can form plaques on the walls of arteries, which ultimately leads to the development of atherosclerosis and cardiovascular diseases that affect millions of Americans.
CDC's Interactive Atlas of Heart Disease and Stroke
The drug received its first FDA approval in late August 2015 to treat certain patients with high cholesterol. Since 2017, Repatha has continued to increase its share in the global cardiovascular drugs market.
Author's elaboration, based on quarterly securities reports.
Its sales were $406 million in the third quarter, an increase of 31.4% year over year, primarily due to increased demand in the U.S. and China.
Author's elaboration, based on quarterly securities reports.
The biopharmaceutical company is expected to release fourth-quarter 2023 financial results on Feb. 2, 2024. According to Seeking Alpha, Amgen's revenue for the quarter is anticipated to be $7.97 billion to $8.28 billion, up 16.8% from analysts' expectations for the previous quarter.
Author's elaboration, based on GuruFocus and Seeking Alpha
On the other hand, according to our model, the company's total revenue will be slightly below the median of this range and reach $8 billion. Amgen's year-over-year revenue growth will be primarily driven by the acquisition of Horizon Therapeutics' medicines and increased demand for Repatha, Evenity and Blincyto.
Amgen's third-quarter non-GAAP earnings were $4.96 per share, up 5.5% year over year, driven by higher prices for some of its drugs and continued strong demand for Repatha and Blincyto. These factors partially minimized increased expenses in later-stage clinical programs and lower sales of Neulasta, Lumakras and Epogen. Moreover, the company's management raised its 2023 financial guidance. It said:
"For 2023 non-GAAP earnings per share, we are narrowing the range to $18.20 to $18.80 versus previous guidance of $17.80 to $18.80. We will add Horizon's business into Q4 without material non-GAAP EPS dilution."
According to Seeking Alpha, Amgen's fourth-quarter earnings per share are expected to be between $4.32 and $5.09, down 1.7% from the consensus estimate for the third quarter of 2023. Simultaneously, we expect its earnings per share to be above the median of this range and reach $4.7, an increase of 14.9% year over year.
Author's elaboration, based on GuruFocus and Seeking Alpha data.
Conclusion
Amgen is an American biopharmaceutical company specializing in developing and commercializing medicines to treat patients with cardiovascular disease, cancer, osteoporosis, migraine and various autoimmune disorders.
In recent months, the company's share price has again continued to move within an upward trend, including due to the completion of the acquisition of Horizon Therapeutics, an extensive portfolio of experimental medicines and its dividend yield exceeding 3%, which is higher than many of its competitors in the pharmaceutical industry.
On the other hand, due to the company's low revenue growth rate, extremely high debt, declining sales of some of its drugs year over year as a result of increased competition in the global autoimmune disease therapeutics market and the launch of Prolia biosimilars in the next two years, we are maintaining our analytical coverage of Amgen with a "market perform" rating for the next 12 months.
