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Amgen, Inc. - A Stock With Long-Term Growth Drivers

 February 11, 2013 12:04 AM

(By Mani) Shares of Amgen, Inc.(NASDAQ: AMGN) are a long term positive given conservative guidance, geographical expansion and growth from biosimilars. Moreover, it is focused on continued dividend growth which is attractive for long-term investors.

Amgen, the world's largest biotechnology company makes drugs for cancer, nephrology, inflammatory diseases, and now bone diseases. Amgen pioneered the use of recombinant DNA to produce some of the world's most successful blockbuster biotech drugs.

The company's core business is its erythropoietin (EPO) stimulating agents (ESAs such as Epogen and Aranesp) and neutrophil stimulating (Neupogen, Neulasta) franchises. Amgen obtained its principal inflammatory disease business (Enbrel) through the acquisition of Immunex.

[Related -Amgen, Inc. (NASDAQ:AMGN): What Will Drive Amgen This Year?]

Amgen's next leg of growth lies in biosimilars, which are nothing but officially-approved subsequent versions of innovator biopharma products made by a different company after the expiry the patent and exclusivity of the original product.

Biosimilars will become a bigger focus, and would be a key part of long-term growth post 2017 and Amgen's disclosure of Humira and Remicade as targets are not necessarily surprising as these two are the largest biologics in the world.

"Study requirements, expenses, hurdles for ROI for biosimilars were not disclosed but AMGN does have the advantage of technological know out in biologics development and manufacturing," RBC Capital Markets analyst Michael Yee said in a client note.

[Related -Amgen, Inc. (AMGN) Q3 Earnings Preview: Pipeline In Focus]

At its recent investor day, Amgen detailed their global biosimilars strategy, which includes 4 oncology products (Avastin, Herceptin, Rituxan and Erbitux). Amgen is hoping to garner a piece of the combined peak $41 billion in global sales from these 6 products.

Amgen appears conservative, but realistic on market potential, with the combined opportunity across the six programs described as multi-billion. Importantly, the company gave additional color on plans for a biosimilar Humira, with a focus on ex-US markets only, preserving brand protection for Enbrel in the US.

Meanwhile, Amgen is creating new manufacturing processes. Amgen plans to launch new manufacturing technologies by 2017, which are designed to improve throughput and reduce capital deployed to produce products. Amgen plans to have a new manufacturing plant online in Singapore by 2017. Amgen expects to deliver over $1 billion in sales in new and emerging markets by 2015.

"Few details were reported, but the long-term impact could significantly improve gross margins if successful," UBS analyst Matthew Roden wrote in a note to clients.

As part of its global expansion, Amgen is looking to launch products in Japan by 2016 by signing near-term partnerships and over time, launching an Amgen-subsidiary by 2020. In China, the execution of launching products by 2015 is being proposed through partnerships/acquisitions of existing companies with a foothold in China.

Another promising growth driver for Amgen would be its cholesterol drug AMG 145 (anti-PCSK9), which is in the late-stage studies. Amgen is testing both bi-weekly and once-monthly dosing regimens on the basis of patient preference. Data from this program will be available in 2014.

On the fundamentals perspective, Amgen raised its 2013 earnings view to $7.05 - $7.35 from $6.85 - $7.15 including a one-time tax benefit from settlement of prior years. Analysts expect earnings of $7.06 a share for 2013.

To the cheer of value investors, Amgen retained its capital allocation guidance of 60 percent return of net income through dividends and buybacks. Amgen has a dividend yield of 2.1 percent with payout ratio of 26 percent.



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