Biotechnology Leader, Market Leading Product Portfolio, Impressive Pipeline and Strong Dividend Growth
Strong portfolio of 14 industry-leading treatments and 10 additional treatments expected to be approved in the next 2-3 years with $52 billion addressable market
63% annual dividend growth since 2011, quarterly dividend up 30% in 2015
Q4 revenue of $5.33 billion outperforms management’s original guidance of $5.2 billion
Amgen, Inc. (NASDAQ: AMGN) is a biotechnology leader that researches, develops and manufactures human therapeutics to treat serious illnesses, and distributes its products in over 75 countries. Since its founding in 1980, the company has developed a robust portfolio of over 14 drug treatments, and its R&D pipeline includes nine biosimiliars in development and several other drugs in various test and approval stages, many with first-mover advantage in multi-billion-dollar niches. To improve operating efficiency and specialization, Amgen focuses its drug development activities in five key areas: Inflammation, Nephrology, Bone Health, Oncology and Cardiovascular.
Enbrel, an immune system modulator, is Amgen’s top performing treatment with net sales of $1.34 billion in Q4 2014. The company’s next best performer is Neulasta, a white blood cell encourager, with $1.18 billion in Q4 net sales. The rest of Amgen’s portfolio generated $2.66 billion in Q4 201 net sales, with total Q4 sales of $5.17 billion, up 8% year-over-year.
Shares Up 32% Year-Over-Year, Projected to Gain Another 28% on Bullish View
As of market close on March 27, 2015, Amgen shares were at $162.59, and up 32% over the last year, off the 52-week high $173.14, with a market capitalization of $121.91 billion on earnings of $6.70 per share and a price-to-earnings ratio of 24.27x which is in-line with related companies.
Shares trade below peer valuation averages and offer significant upside potential.
Analysts have an average price target of $178 for Amgen which represents 10% upside potential. Bullish analysts have a price target of $208 which represents 28% upside, not counting dividends or dividend growth.
63% Annual Dividend Growth Over Three Years, 30% Hike in 2015 Dividend
Amgen began paying dividends in 2011 and has consistently increased distributions on an annual basis since. Dividends have climbed 182% since the company first paid a dividend of $0.28 per share on September 8, 2011. The company boasts a 3-year dividend growth rate of approximately 63% and most recently increased dividends by 30%. Amgen’s Board approved a Q2 2015 dividend of $0.79 per share, annualized at $3.16, to be paid June 5, 2015, to shareholders on record May 14, 2015. With this latest dividend announcement, Amgen shares offer a dividend yield of 1.9%.
Amgen had a Dividend Payout Ratio of 0.36 for the year ended December 31, 2014, while the company’s main competitors, Gilead Sciences (GILD), Celgene (CELG) and Biogen Idec (BIIB) do not pay dividends at all. Historically, the company’s dividend payout ratio averages to 0.325 over the past 10 quarters.
Record Buybacks Boost Shareholder Value, Align Management with Stockholders
In addition to dividends, management announced plans to repurchase $2 billion in stock by year-end 2015, under its $4 billion stock repurchase agreement. In Q4 2014, the company repurchased 900,000 shares at a total cost of $1.53 billion. Through dividends and share repurchases, the company returned 45% of its adjusted net income to shareholders, marking the best performance by any large capitalization healthcare firm in the United States since 1999. Amgen plans to return approximately 60% of its adjusted net income to shareholders through 2018.
Biotechnology Sector Expected to Perform Well in Coming Years
The NASDAQ Biotechnology Index (^NBI), which includes large capitalization biotech companies, increased 33% in 2012, 59% in 2013 and 34% in 2014. The index is up 80% over the last 52 weeks and up 17% year-to-date. The iShares NASDAQ Biotechnology ETF (IBB), which includes large capitalization biotech and pharmaceutical companies, is up 51% over the last 52 weeks and up 17% year-to-date.
Moreover, American firms lead the world in biotech innovation and selectively use their financial strength to make strategic acquisitions and incentivize partners on win-win collaborations. With no end in sight to world population growth and lifespans, demand for innovative treatments will continue to rise and disproportionately reward companies that are successful at developing and bringing innovative treatments to the healthcare marketplace. Amgen’s sector leadership and promising pipeline will help drive continued revenue growth, cash flow and earnings over the foreseeable future.
Amgen’s Robust Pipeline Targets $52 Billion Market with Strong Competitive Advantage
Overall, its product pipeline addresses a $52 billion global market opportunity.
Amgen has multiple treatments in promising stages of development, testing and approval. For example, Amgen has applied for marketing approval of its cardiovascular drug evolocumab under trade name Repatha in Japan. The company has submitted favorable data from a Phase III trial conducted with 7,200 Japanese patients suffering from reduced monoclonal antibodies that are critical to liver function in the removal of lipoprotein cholesterol. Repatha is also currently under review in the United States and the European Union.
Amgen is currently awaiting a review decision of its biologics license application for talimogene laherparepvec by the Cellular, Tissue, and Gene Therapies Advisory Committee and the U.S. FDA. The two agencies will meet on April 29, 2015, to review the drug and make recommendations.
Amgen recently presented data from a recent Phase III trial of its chronic dermatologic treatments – Brodalumab and Enbrel – at the Annual Meeting of the American Academy of Dermatology that was held March 20-24, 2015, in San Francisco. The data showed promise for the long-term treatment (over 52-weeks) of patients with moderate or severe plaque psoriasis.
In February 2015, Amgen reported positive results from a Phase III trial of its AMG 416 chronic kidney disease treatment. Results showed a greater than 30% reduction in first endpoint trials and a greater than 50% reduction in second endpoint trials. The company’s other treatment for the same condition, Sensipar, only showed a greater than 30% reduction in second endpoint trials.
Additionally, Amgen reported positive results from a Phase III trial of its ABP 501 biosimiliar rheumatoid arthritis treatment. Patients treated with ABP 501 met the company’s endpoint goal and showed signs of safety and immunogenicity that were comparable to adalimumab. Amgen currently has nine biosimiliar treatments in development, with a majority expected to launch between 2017 and 2019. Management values its biosmiliars portfolio at over $3 billion.
Brand and Distribution Attract Strategic Partnerships, Expand Access to Innovation
Amgen’s brand, R&D and commercialization expertise, and global distribution reach make it a compelling strategic partner for innovative companies that want to shorten their time to market and maximize global sales potential. These partnerships, in turn, help Amgen address gaps in its portfolio and stay ahead of the innovation and biotechnology curve, while giving partners access to capital, R&D, manufacturing, marketing and sales.
For example, Amgen entered into an exclusive license agreement with immunotherapy company Celimmune LLC to develop AMG 714, an anti-IL-15 monoclonal antibody. After AMG 714 is developed, Amgen will have exclusive rights to sell the treatment globally, except in Japan, and the option to repurchase all rights to the treatment at a later time. AMG 714 is currently about to enter Phase II trials to analyze its effects on diet non-responsive celiac disease and refractory celiac disease.
The company is also jointly developing a cancer treatment that leverages T cells with biopharmaceutical company, Kite Pharma. The partnership combines Amgen’s human genetics knowledge with Kite’s T cell technology to research new experimental drugs on the immune system. Kite will receive an initial payment of $60 million and could earn $525 million more in milestone payments.
Amgen also has a collaborative research agreement with the MD Anderson Cancer Center at the University of Texas to advance Amgen’s biospecific T cell engager to treat patients with myelodysplastic syndrome. MD Anderson will receive royalty and milestone payments if a new treatment is developed while Amgen will hold all commercial rights.
Cambridge R&D Expansion Consolidates R&D
As part of management’s reconfiguration plan, Amgen plans to cut approximately 300 jobs and close operations at one San Francisco facility as the company combines its cancer business with that of recently acquired Onyx Pharmaceuticals. Amgen plans to expand its Cambridge research center for which Amgen received a $1.8 billion tax break under the Massachusetts Life Science Center tax incentive awards.
New On-Body Neulasta Delivery Kit Offers Revenue Growth
Amgen recently launched a new on-body delivery kit for its Neulasta treatment that allows healthcare providers to give patients a full dosage of at-home treatment the day after chemotherapy instead of having the patient return to a clinic or hospital. The single-use, prefilled syringe in the on-body injector delivers the prescribed dosage of Neulasta. This innovation addresses a 12-year old loophole where a majority of patients did not receive next-day treatment and were exposed to neutropenia, a serious medical emergency tied to low white blood cells in the body.
Amgen Uses Acquisitions, Lawsuits to Defend Intellectual Property
In a recent study, Amgen reported that its Kryprolis proteasome inhibitor treatment for multiple myeloma (plasma cell cancer) was more effective than Velcade, a rival myeloma treatment from Japan’s Takeda Pharmaceuticals. To add Kryprolis and related treatments to its portfolio, Amgen spent $10.4 billion to acquire smaller rival Onyx Pharmaceuticals in 2013. In making the comparison, Amgen is aggressively going after Velcade’s $2 billion in annual sales. Amgen plans to present a final study comparing the two drugs’ effects on recently diagnosed patients.
A United States federal judge recently rejected Amgen’s request to deny its rival Novartis AG’s (NVS) sale of biosimiliar treatment Zarxio which contains the same active ingredient as Amgen’s Neupogen. Neupogen has annual sales of approximately $1.2 billion which Zarxio could eat into. Amgen is appealing the ruling but Novartis could release the biosimiliar before a final decision is announced.
Top-Tier Leadership Dedicated to Growth, Dividends, Buybacks
Robert Bradway joined the company in 2006 and was named Chairman and Chief Executive Officer in May 2012. Mr. Bradway has held multiple senior management positions with Amgen and has over 30 years of health care industry experience. Prior to Amgen, he worked for the international health care business of financial services company Morgan Stanley (MS). Under his watch, shareholders have done very well with a 170% return over the past five years.
David Meline serves as Executive VP and Chief Financial Officer, overseeing finance, accounting and investor relations. Mr. Meline previously held the same title with technology company 3M (MMM) and the North America division of General Motors (GM). In addition, he has worked in Switzerland, South Korea, Brazil and Kenya.
Paul Eisenberg is Senior VP – Global Medical and Chief Medical Officer and is responsible for Amgen’s global medical and scientific strategies. Mr. Eisenberg previously served as VP – Global Security and Senior VP – Global Regulatory Affairs and Safety with Amgen. He has led the global registration of all the company’s products since 2007.
Q4 Revenue and Profits Shine
For the three months ended December 31, 2014, Amgen had total revenues of $5.33 billion (up 6%), operating income of $1.46 billion (up 23%), income before income taxes of $1.29 billion (up 27%) and net income of $1.24 billion (up 27%), or $1.68 per diluted share.
Year-over-year, Neulasta sales increased 7%, Enbrel sales increased 11%, Kyprolis sales increased 25%, Vectibix sales increased 29% and Prolia sales increased 33% – reflecting strong growth in demand for the company’s products.
As of December 31, 2014, Amgen had $27 billion in cash and cash equivalents, $30.22 billion in long-term debt and $25.78 billion in total stockholders’ equity.
2015 Guidance Predicts Revenue Growth of 4-6%
For full year 2015, management expects total sales of $20.8-$21.3 billion, up 4-6% year-over-year, and adjusted earnings of $9.05-$9.40 per share. Additionally, the company plans to spend about $800 million on capital expenditures in the year.
Amgen is a clear industry leader with a solid portfolio of money-making treatments, excellent balance sheet strength and a solid pipeline of products that should help cash flow grow over the coming years as the world’s population expands. In addition to 10% – 28% one-year share price appreciation potential, the company has a strong focus on dividends and dividend growth, and is well positioned to claim a spot on investors’ long-term holdings list.