Amgen: Upside Awaits With Numerous Attractive Growth Prospects
Summary
Amgen, a leading biotechnology company, is making waves in the industry with its innovative medicines and strategic acquisitions. The company's recent acquisition plans are set to bolster its expertise in dealing with inflammation and expand its operational footprint. Amgen's positive clinical trial results for biosimilars and expansion of biomanufacturing capacity are also contributing to its growth. Despite concerns over patent expiration and the burden of additional debt, Amgen remains an attractive option for investors due to its growing dividend, favorable discount, and positive outlook for revenue and earnings per share. Overall, Amgen is a company with promising growth potential in the biotechnology industry.
AMGN Continues to Develop Innovative Medicines and Expand its Footprint through Acquisitions
AMGN remains a key player in the industry. In fact, they continue to develop innovative medicines and potentially expand their operational footprint through meaningful acquisitions. The company unleashed two significant catalysts that will strengthen its expertise in dealing with inflammation.
Horizon Therapeutics
Firstly, Amgen announced their plan to acquire Horizon Therapeutics (NASDAQ: HZNP ) for $116.50 per share in cash, with a transaction equity value of around $27.8 billion. To support this acquisition, they entered into a bridge credit agreement and a term loan credit agreement with a combined principal amount of $28.5 billion in December 2022. Horizon is described by the management as follows:
"Horizon is a global biotechnology company headquartered in Dublin, Ireland and is focused on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases. Horizon has 12 marketed medicines and a pipeline with more than 20 development programs." -Source: Q4 2022 Report
The acquisition is subject to regulatory approvals and is expected to be completed in the first half of 2023, according to management. Additionally, they strongly believe that this acquisition will complement their existing product portfolio and pipeline, accelerate growth, and position them well for long-term success. In fact, they plan to leverage their expertise in inflammation and nephrology to enhance Horizon's growth potential and expand their global reach. Furthermore, they intend to utilize their expertise to develop new treatments and generate robust cash flow to support ongoing investment in innovation and dividend growth. As a result, we can expect continued dividend growth. Additionally, the acquisition is expected to accelerate revenue growth, increase efficiency, and result in at least $500 million in pre-tax cost savings by the end of the third fiscal year following completion. Further investigation indicates that HZNP has been experiencing growth in its revenue, which has positively snowballed to its growing earnings per share. This trend suggests that the company is performing well and represents a good investment opportunity for AMGN .
ChemoCentryx
Secondly, another value adding catalyst of the company is the completion of its acquisition of ChemoCentryx for $3.7 billion in October 2022. This acquisition significantly improves AMGN's product portfolio with TAVNEOS, a first-in-class treatment for ANCA-associated vasculitis, as quoted below.
This acquisition significantly improves AMGN's product portfolio by introducing TAVNEOS, which is a "first-in-class" treatment for ANCA-associated vasculitis. Overall, this acquisition brings major improvements to AMGN's offerings, as quoted below.
"The acquisition includes TAVNEOS®, an orally administered selective complement 5a receptor inhibitor that was approved by the U.S. Food and Drug Administration (FDA) in October 2021 as an adjunctive therapy for adults with severe active ANCA-associated vasculitis in addition to standard of care, which generally consists of glucocorticoids and either rituximab or cyclophosphamide immunosuppressant therapy. Beyond its approved ANCA-associated vasculitis indication, TAVNEOS® is also being studied in additional inflammatory diseases, including hidradenitis suppurativa (HS), a severe and deforming chronic dermatological condition, and complement 3 glomerulopathy (C3G), a rare genetic kidney disease. In addition to TAVNEOS®, the acquisition adds three early-stage drug candidates that target chemoattractant receptors and other inflammatory diseases and an oral checkpoint for cancer." -Source: AMGN's Press Release
Positive Catalysts in Cardiometabolic, Inflammation, and Oncology/Hematology Product Lines
AMGN has seen positive results in its Cardiometabolic product line. To name a few, according to the management, Repatha FOURIER-OLE studies showed that taking Repatha and achieving low levels of bad cholesterol can lower the risk of future heart problems without causing any additional safety issues. The studies also demonstrated that taking Repatha did not cause any additional safety problems during a follow-up period of up to 8.6 years.
A study conducted on olpasiran has revealed some promising results. It has shown a significant reduction in the levels of Lp(a), which is known to be linked to cardiovascular events. Furthermore, no harmful side effects were observed during the study. This Phase 2 trial, known as the OCEAN(a)-DOSE study, was particularly successful among patients who received a dosage of 75 mg or higher every 12 weeks. The reduction in Lp(a) levels was substantial, amounting to at least 95% compared to the placebo group by week 36.
In their Inflammation pipeline, a new pre-filled pen for Tezspire has been approved for self-administration in the US. This means that patients can now administer a pre-filled pen for Tezspire themselves at home instead of having to go to a healthcare provider for each dose. By providing patients with more convenience and flexibility, this development is expected to help the company position itself better in the growing self-administered medication market.
In their Oncology/Hematology line, the global Phase 3 CodeBreaK 200 trial showed that LUMAKRAS/LUMYKRAS was more effective in treating patients with KRAS G12C-mutated NSCLC than intravenous chemotherapy.
Positive Clinical Trial Results for Biosimilars
In 2022, AMGN announced positive results from a number of clinical trials, supporting its expanding biosimilar product portfolio. Amgen announced positive results from a Phase 3 study evaluating the efficacy and safety of ABP 654, an investigational biosimilar to STELARA, for the treatment of moderate-to-severe plaque psoriasis, in April 2022. The primary efficacy endpoint was achieved, with no clinically significant differences between ABP 654 and STELARA. This result represents a significant advancement for ABP 654 and may pave the way for a new treatment option.
ABP 959 is an investigational biosimilar to SOLIRIS, which is used to treat paroxysmal nocturnal hemoglobinuria. Amgen reported positive top-line results from a Phase 3 study comparing the efficacy and tolerability of ABP 959 to SOLIRIS in August 2022. The study attained its primary objectives, demonstrating that ABP 959 and SOLIRIS have no clinically significant differences as well.
Expansion of Biomanufacturing Capacity
With an aim to cater to the rising demand for its drugs, particularly for life-threatening ailments like cancer and heart disease, Amgen is expanding its biomanufacturing capacity. In March 2022, the management announced its latest biomanufacturing facility in North Carolina to be fully operational in 2025. Overall, this is a strategic move by AMGN to improve its biosimilar portfolio and sustain top-line growth in the future.
AMGN's Growth Catalysts Meet Attractive Price Action
Technical Analysis
Due to AMGN's interesting acquisitions and innovative product portfolio, investing in the company has become more attractive, especially considering its current price action as of this writing.
In fact, AMGN's price reached a significant level of support, as evidenced by its 200-day simple moving average (“SMA”). This support has been tested successfully in the past, and a consolidation above this area could confirm its bullish structure. This could potentially attract the attention of more buyers in the coming weeks, leading to a further increase in price.
It's worth noting, however, that the MACD indicator currently shows a bearish trend , with the MACD line trading below its Signal line. This is in confluence with the price trading below its 20- and 50-day simple moving averages. Hence, without a shift in this trend, we can expect continued bearish pressure, implying a much deeper correction than today’s level.
Overall, with its recent acquisition catalyst and diversified product portfolio, AMGN is an attractive option for investors looking to capitalize on the company's growth potential. Its current price action, along with potential bullish momentum, makes it a compelling long candidate as of this writing.
Favorable Discount: A Great Opportunity for Investors
Starting in the first quarter of 2022, AMGN has changed the way it reports its adjusted financial results. They used to leave out certain types of payments when they calculated their non-standard financial results, but now they will include all of these payments. The types of payments that will now be included are as follows:
"no longer excludes adjustments for upfront license fees, development milestones and in-process research and development (IPR&D) expenses of pre-approval programs related to licensing, collaboration and asset acquisition transactions from our non-U.S. Generally Accepted Accounting Principles (GAAP) measures."-Source: AMGN Preliminary Report
Overall, this change represents a significant shift in the way the company presents its adjusted financial information. As a result, the company's adjusted earnings per share recorded last year, before the change was implemented, amounted to $17.10. However, it is now restated to a lower value of $13.92 after the change. On a backward-looking basis, it appears that the company's adjusted EPS was not as strong as it had previously appeared. However, when comparing the current adjusted earnings per share value of $17.69 to the much lower figure recorded in FY'21, the year-over-year growth of 27% appears much more attractive.
AMGN has a trailing GAAP P/E of 19.24x, which is lower than its sector's P/E median of 24.53x. This suggests that potential investors may find a favorable discount . Moreover, the undervaluation is reinforced by its forward P/E of 18.37x, in comparison to its sector's P/E median. Additionally, AMGN's forward EV/EBITDA of 9.69x, compared to its sector's trailing EV/EBITDA average of 14.94x, tells investors a similar story that the company is currently trading at a discount .
Looking at the weekly chart above, the company's dividend grade remains healthy despite today's challenging operating environment. In fact, AMGN boasted a growing forward dividend yield of 3.66%, better than its sector's median of 1.71% and 5-year average of 2.85%. AMGN has a healthier GAAP payout ratio of 65.65% than its 5-year average of 79.16% and a safe dividend coverage ratio of 2.11x. Furthermore, analysts anticipate that AMGN will continue to raise its dividend for FY'23, FY'24, and FY'25, with dividends of $8.47, $9.13, and $9.80, respectively.
Overall, AMGN remains attractive at its discounted valuation. Additionally, AMGN has a growing dividend, a healthier GAAP payout ratio, and a safe dividend coverage ratio, which makes the stock attractive to investors.
Risk To Monitor
Without HZNP acquisition catalysts, analysts expect a declining top line of $22. 40B in 2032. This decrease in revenue is expected due to the patent expiration issues currently faced by the company. Once the patent expires, competition from other companies producing similar drugs will increase, resulting in potential market share and revenue losses. As a result, the company's overall financial performance may be negatively affected. If this trend continues, it could potentially make AMGN’s valuation less attractive.
The completion of the HZNP acquisition will help mitigate the deceleration trend in its top line, protecting the company's overall shareholder value. Additionally, HZNP's positive EPS outlook suggests that the acquisition will be accretive and is expected to provide significant synergies in the future.
As part of its acquisition plan, as mentioned earlier, AMGN recognized additional interest-bearing debt, bringing its total debt to a record $39,640 million. This translates to a deteriorating debt-to-equity ratio of 10.82x. Additionally, this snowballed into its growing fixed interest obligation of $1,406 million, which could limit its flexibility in pursuing other growth opportunities or returning capital to shareholders. Unfortunately, this burden has also impacted AMGN's EPS outlook for FY'23. The expected YoY growth rate for next fiscal year has significantly decreased to only 1.75% on a midpoint basis, down from the impressive 27% YoY growth rate seen previously.
Despite these concerns, AMGN remains liquid, especially considering management's positive outlook. Additionally, as of this writing, leading credit rating agencies such as S&P , Moody's, and Fitch have assigned investment-grade credit ratings of BBB+, Baa1, and BBB+, respectively, to the company's outstanding senior notes.
Conclusive Thoughts
Amgen generated total revenue of $26,323 million, up from $25,979 million in FY'21. Operating margin is starting to improve to 38.25% from last year's performance of 35.94%. This positive performance snowballed into its improving adjusted diluted earnings per share of $17.69, up from $13.92 in FY'21.
Despite today's market uncertainties, simply looking at its positive outlook of growing top line (26.0B to 27.2B in FY'23) and Non-GAAP earnings per share ($17.40-$18.60) should reassure its investors. This makes the stock an attractive buy as of this writing.
Thank you for reading and good luck!
- Amgen has realized positive revenue growth, despite today's challenging operating environment.
- The company has positive catalysts, such as acquisitions, and a positive product pipeline, which support the acceleration of revenue growth and position it well for long-term success.
- Additionally, AMGN is expanding its biomanufacturing capacity to cater to the rising demand for its medicine.
- It enjoys a positive outlook from the management, with a growing top line and earnings per share.
- It remains fundamentally attractive and is trading near support levels, making this stock a good buying candidate.
Amgen, a leading biotechnology company, is making waves in the industry with its innovative medicines and strategic acquisitions. The company's recent acquisition plans are set to bolster its expertise in dealing with inflammation and expand its operational footprint. Amgen's positive clinical trial results for biosimilars and expansion of biomanufacturing capacity are also contributing to its growth. Despite concerns over patent expiration and the burden of additional debt, Amgen remains an attractive option for investors due to its growing dividend, favorable discount, and positive outlook for revenue and earnings per share. Overall, Amgen is a company with promising growth potential in the biotechnology industry.
AMGN Continues to Develop Innovative Medicines and Expand its Footprint through Acquisitions
AMGN remains a key player in the industry. In fact, they continue to develop innovative medicines and potentially expand their operational footprint through meaningful acquisitions. The company unleashed two significant catalysts that will strengthen its expertise in dealing with inflammation.
Horizon Therapeutics
Firstly, Amgen announced their plan to acquire Horizon Therapeutics (NASDAQ: HZNP ) for $116.50 per share in cash, with a transaction equity value of around $27.8 billion. To support this acquisition, they entered into a bridge credit agreement and a term loan credit agreement with a combined principal amount of $28.5 billion in December 2022. Horizon is described by the management as follows:
"Horizon is a global biotechnology company headquartered in Dublin, Ireland and is focused on the discovery, development and commercialization of medicines that address critical needs for people impacted by rare, autoimmune and severe inflammatory diseases. Horizon has 12 marketed medicines and a pipeline with more than 20 development programs." -Source: Q4 2022 Report
The acquisition is subject to regulatory approvals and is expected to be completed in the first half of 2023, according to management. Additionally, they strongly believe that this acquisition will complement their existing product portfolio and pipeline, accelerate growth, and position them well for long-term success. In fact, they plan to leverage their expertise in inflammation and nephrology to enhance Horizon's growth potential and expand their global reach. Furthermore, they intend to utilize their expertise to develop new treatments and generate robust cash flow to support ongoing investment in innovation and dividend growth. As a result, we can expect continued dividend growth. Additionally, the acquisition is expected to accelerate revenue growth, increase efficiency, and result in at least $500 million in pre-tax cost savings by the end of the third fiscal year following completion. Further investigation indicates that HZNP has been experiencing growth in its revenue, which has positively snowballed to its growing earnings per share. This trend suggests that the company is performing well and represents a good investment opportunity for AMGN .
ChemoCentryx
Secondly, another value adding catalyst of the company is the completion of its acquisition of ChemoCentryx for $3.7 billion in October 2022. This acquisition significantly improves AMGN's product portfolio with TAVNEOS, a first-in-class treatment for ANCA-associated vasculitis, as quoted below.
This acquisition significantly improves AMGN's product portfolio by introducing TAVNEOS, which is a "first-in-class" treatment for ANCA-associated vasculitis. Overall, this acquisition brings major improvements to AMGN's offerings, as quoted below.
"The acquisition includes TAVNEOS®, an orally administered selective complement 5a receptor inhibitor that was approved by the U.S. Food and Drug Administration (FDA) in October 2021 as an adjunctive therapy for adults with severe active ANCA-associated vasculitis in addition to standard of care, which generally consists of glucocorticoids and either rituximab or cyclophosphamide immunosuppressant therapy. Beyond its approved ANCA-associated vasculitis indication, TAVNEOS® is also being studied in additional inflammatory diseases, including hidradenitis suppurativa (HS), a severe and deforming chronic dermatological condition, and complement 3 glomerulopathy (C3G), a rare genetic kidney disease. In addition to TAVNEOS®, the acquisition adds three early-stage drug candidates that target chemoattractant receptors and other inflammatory diseases and an oral checkpoint for cancer." -Source: AMGN's Press Release
Positive Catalysts in Cardiometabolic, Inflammation, and Oncology/Hematology Product Lines
AMGN has seen positive results in its Cardiometabolic product line. To name a few, according to the management, Repatha FOURIER-OLE studies showed that taking Repatha and achieving low levels of bad cholesterol can lower the risk of future heart problems without causing any additional safety issues. The studies also demonstrated that taking Repatha did not cause any additional safety problems during a follow-up period of up to 8.6 years.
A study conducted on olpasiran has revealed some promising results. It has shown a significant reduction in the levels of Lp(a), which is known to be linked to cardiovascular events. Furthermore, no harmful side effects were observed during the study. This Phase 2 trial, known as the OCEAN(a)-DOSE study, was particularly successful among patients who received a dosage of 75 mg or higher every 12 weeks. The reduction in Lp(a) levels was substantial, amounting to at least 95% compared to the placebo group by week 36.
In their Inflammation pipeline, a new pre-filled pen for Tezspire has been approved for self-administration in the US. This means that patients can now administer a pre-filled pen for Tezspire themselves at home instead of having to go to a healthcare provider for each dose. By providing patients with more convenience and flexibility, this development is expected to help the company position itself better in the growing self-administered medication market.
In their Oncology/Hematology line, the global Phase 3 CodeBreaK 200 trial showed that LUMAKRAS/LUMYKRAS was more effective in treating patients with KRAS G12C-mutated NSCLC than intravenous chemotherapy.
Positive Clinical Trial Results for Biosimilars
In 2022, AMGN announced positive results from a number of clinical trials, supporting its expanding biosimilar product portfolio. Amgen announced positive results from a Phase 3 study evaluating the efficacy and safety of ABP 654, an investigational biosimilar to STELARA, for the treatment of moderate-to-severe plaque psoriasis, in April 2022. The primary efficacy endpoint was achieved, with no clinically significant differences between ABP 654 and STELARA. This result represents a significant advancement for ABP 654 and may pave the way for a new treatment option.
ABP 959 is an investigational biosimilar to SOLIRIS, which is used to treat paroxysmal nocturnal hemoglobinuria. Amgen reported positive top-line results from a Phase 3 study comparing the efficacy and tolerability of ABP 959 to SOLIRIS in August 2022. The study attained its primary objectives, demonstrating that ABP 959 and SOLIRIS have no clinically significant differences as well.
Expansion of Biomanufacturing Capacity
With an aim to cater to the rising demand for its drugs, particularly for life-threatening ailments like cancer and heart disease, Amgen is expanding its biomanufacturing capacity. In March 2022, the management announced its latest biomanufacturing facility in North Carolina to be fully operational in 2025. Overall, this is a strategic move by AMGN to improve its biosimilar portfolio and sustain top-line growth in the future.
AMGN's Growth Catalysts Meet Attractive Price Action
Technical Analysis
Due to AMGN's interesting acquisitions and innovative product portfolio, investing in the company has become more attractive, especially considering its current price action as of this writing.
In fact, AMGN's price reached a significant level of support, as evidenced by its 200-day simple moving average (“SMA”). This support has been tested successfully in the past, and a consolidation above this area could confirm its bullish structure. This could potentially attract the attention of more buyers in the coming weeks, leading to a further increase in price.
It's worth noting, however, that the MACD indicator currently shows a bearish trend , with the MACD line trading below its Signal line. This is in confluence with the price trading below its 20- and 50-day simple moving averages. Hence, without a shift in this trend, we can expect continued bearish pressure, implying a much deeper correction than today’s level.
Overall, with its recent acquisition catalyst and diversified product portfolio, AMGN is an attractive option for investors looking to capitalize on the company's growth potential. Its current price action, along with potential bullish momentum, makes it a compelling long candidate as of this writing.
Favorable Discount: A Great Opportunity for Investors
Starting in the first quarter of 2022, AMGN has changed the way it reports its adjusted financial results. They used to leave out certain types of payments when they calculated their non-standard financial results, but now they will include all of these payments. The types of payments that will now be included are as follows:
"no longer excludes adjustments for upfront license fees, development milestones and in-process research and development (IPR&D) expenses of pre-approval programs related to licensing, collaboration and asset acquisition transactions from our non-U.S. Generally Accepted Accounting Principles (GAAP) measures."-Source: AMGN Preliminary Report
Overall, this change represents a significant shift in the way the company presents its adjusted financial information. As a result, the company's adjusted earnings per share recorded last year, before the change was implemented, amounted to $17.10. However, it is now restated to a lower value of $13.92 after the change. On a backward-looking basis, it appears that the company's adjusted EPS was not as strong as it had previously appeared. However, when comparing the current adjusted earnings per share value of $17.69 to the much lower figure recorded in FY'21, the year-over-year growth of 27% appears much more attractive.
AMGN has a trailing GAAP P/E of 19.24x, which is lower than its sector's P/E median of 24.53x. This suggests that potential investors may find a favorable discount . Moreover, the undervaluation is reinforced by its forward P/E of 18.37x, in comparison to its sector's P/E median. Additionally, AMGN's forward EV/EBITDA of 9.69x, compared to its sector's trailing EV/EBITDA average of 14.94x, tells investors a similar story that the company is currently trading at a discount .
Looking at the weekly chart above, the company's dividend grade remains healthy despite today's challenging operating environment. In fact, AMGN boasted a growing forward dividend yield of 3.66%, better than its sector's median of 1.71% and 5-year average of 2.85%. AMGN has a healthier GAAP payout ratio of 65.65% than its 5-year average of 79.16% and a safe dividend coverage ratio of 2.11x. Furthermore, analysts anticipate that AMGN will continue to raise its dividend for FY'23, FY'24, and FY'25, with dividends of $8.47, $9.13, and $9.80, respectively.
Overall, AMGN remains attractive at its discounted valuation. Additionally, AMGN has a growing dividend, a healthier GAAP payout ratio, and a safe dividend coverage ratio, which makes the stock attractive to investors.
Risk To Monitor
Without HZNP acquisition catalysts, analysts expect a declining top line of $22. 40B in 2032. This decrease in revenue is expected due to the patent expiration issues currently faced by the company. Once the patent expires, competition from other companies producing similar drugs will increase, resulting in potential market share and revenue losses. As a result, the company's overall financial performance may be negatively affected. If this trend continues, it could potentially make AMGN’s valuation less attractive.
The completion of the HZNP acquisition will help mitigate the deceleration trend in its top line, protecting the company's overall shareholder value. Additionally, HZNP's positive EPS outlook suggests that the acquisition will be accretive and is expected to provide significant synergies in the future.
As part of its acquisition plan, as mentioned earlier, AMGN recognized additional interest-bearing debt, bringing its total debt to a record $39,640 million. This translates to a deteriorating debt-to-equity ratio of 10.82x. Additionally, this snowballed into its growing fixed interest obligation of $1,406 million, which could limit its flexibility in pursuing other growth opportunities or returning capital to shareholders. Unfortunately, this burden has also impacted AMGN's EPS outlook for FY'23. The expected YoY growth rate for next fiscal year has significantly decreased to only 1.75% on a midpoint basis, down from the impressive 27% YoY growth rate seen previously.
Despite these concerns, AMGN remains liquid, especially considering management's positive outlook. Additionally, as of this writing, leading credit rating agencies such as S&P , Moody's, and Fitch have assigned investment-grade credit ratings of BBB+, Baa1, and BBB+, respectively, to the company's outstanding senior notes.
Conclusive Thoughts
Amgen generated total revenue of $26,323 million, up from $25,979 million in FY'21. Operating margin is starting to improve to 38.25% from last year's performance of 35.94%. This positive performance snowballed into its improving adjusted diluted earnings per share of $17.69, up from $13.92 in FY'21.
Despite today's market uncertainties, simply looking at its positive outlook of growing top line (26.0B to 27.2B in FY'23) and Non-GAAP earnings per share ($17.40-$18.60) should reassure its investors. This makes the stock an attractive buy as of this writing.
Thank you for reading and good luck!
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