(07/17/15) Amgen: The Grandfather of Biotech

The latest core position we are adding to our portfolio is one of the pioneers of the entire biotech sector, suggests Bret Jensen, editor of Biotech Gems.

Amgen (AMGN) is the California-based grandfather of biotech; it has been a public company for more than three decades and produces over $20 billion annually in top line revenue.

Amgen has everything one could ask for from a stable large-cap selection within the biotech industry.

This includes established products, a deep pipeline, a strong balance sheet, and reasonably valued shares.

Amgen’s main products include Neupogen, which stimulates white blood cells that defend against bacterial infection production in cancer. Combined with Neulasta, a long-acting white blood cell stimulant, this franchise produces almost $6 billion in annual global sales.

Enbrel is approved to treat rheumatoid arthritis, psoriatic arthritis, and chronic plaque psoriasis. In late 2011, Enbrel was issued a new patent, which extends to 2028.

Epogen is a genetically engineered version of human erythropoietin with annual sales of over $2 billion, even if it has been hampered by Medicare pricing for dialysis patients.

The company also owns Aranesp, a recombinant protein that stimulates the production of red blood cells in predialysis and dialysis patients and does just under $2 billion in global sales.

AMGN launched Prolia a few years ago for treatment of post-menopausal osteoporosis and for prostate cancer patients with bone loss due to hormone ablation. It already has over $1 billion in annual sales and is growing over 30% year-over-year as of the last quarter.

The company also has a robust pipeline with 16 compounds in Phase III trials that could accelerate growth and support a resilient, but largely mature, drug portfolio.

Repatha is a PCSK9 inhibitor, a new, more effective class of cholesterol drugs. Corlanor was approved in April to reduce the risk of hospitalization for worsening heart failure in patients with chronic heart failure.

This is the first new heart failure medicine to the market in the US in almost a decade. The company believes up to one million patients are candidates for this treatment.

Overall, Amgen has a healthy combination of established products, just launched compounds, an impressive pipeline, and soon-to-be growing presence in biosimilars.

Revenues should continue to increase in the low to middle single digits year-over-year for years to come.

The company earned $8.70 a share in FY2014 and is on track to post approximately $9.60 a share in profit in FY2015. The current consensus calls for $10.50 to $10.60 a share in the black in FY2016.

AMGN sells for 14.5 times those forward earnings, an unwarranted discount to the overall market multiple. It even pays a 2% dividend yield and I expect dividend payouts will continue to go up in line with earnings growth in the future.

The stock is offering a solid entry point after declining some $20 a share from a 52-week high earlier in the year.

This is not a home run stock, but should be a core contributor to our overall biotech portfolio for quarters and years to come.