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Amgen, Inc. (AMGN): What Moves The Stock From Here?

 June 27, 2013 02:14 PM

(By Mani) Amgen, Inc. (NASDAQ: AMGN) is benefiting from positive momentum with large-cap biotech and pharmaceuticals. The company is also poised to benefit from geographical expansion and growth from biosimilars. Moreover, it is focused on continued dividend growth which is attractive for long-term investors.

Thousand Oaks, California-based 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?]

"Sales of core Amgen products have stabilized following past labeling and reimbursement restrictions (National Coverage Decision) on Epogen/Aranesp and bundling of dialysis products under one composite rate," BMO Capital Markets analyst Jim Birchenough wrote in a note to clients..

Enbrel remains the key legacy growth product with dermatology segment expansion offsetting a competitive anti-TNF market and introduction of new oral drugs like Pfizer's Xeljanz. Enbrel, whose first-quarter sales grew 11 percent, remains the value share leader in both the rheumatology and dermatology segments.

[Related -Celgene Corporation (NASDAQ:CELG): Why Should You Invest In Celgene In 2014?]

Recently, FDA approved a new indication of Amgen's Xgeva for the treatment of adults and skeletally mature adolescents with giant cell tumor of bone.

"Newer growth products Xgeva, Prolia, NPlate and Vectibix are expected to grow 35 percent in 2013 but represent only 15 percent of product sales," Birchenough said.

Global Sensipar sales in the first quarter grew 21 percent. Xgeva and Prolia sales grew 46 percent and 61 percent, respectively. Overall and on a quarter-over-quarter basis, sequential decline was seen in key products Aranesp, Epogen, Neupogen, Enbrel and Prolia.

However, the company's pipeline looks promising and would be potential catalysts in 2013, with upside potential from cancer treatment Talimogene, AMG-785 (postmenopausal osteoporosis), AMG-145 (elevated low-density lipoprotein).

The key focus is on the development of AMG-145 for elevated low-density lipoprotein (LDL). The company's phase 2 data in statin-intolerant patients showed up to a 51 percent reduction in LDL with q4weekly AMG145 monotherapy and with 63 percent LDL reduction when combined with Merck's Zetia versus 15 percent with Zetia alone.

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.

Amegen disclosed the initiation of a phase 3 trial of biosimilar Herceptin head-to-head against branded Herceptin in HER2-positive breast cancer patients but did not provide timelines for this program. Other biosimilar programs Amgen is pursuing include Humira, Remicade, Avastin, Erbitux, and Rituxan.

"Greater attention is on Teva Pharma's (NYSE:TEVA) Neulasta biosimilar Neugranin, although the timing of filing with FDA is not clear," Birchenough wrote.

Amgen gets 80 percent of its G-CSF brand sales coming from Neulasta and Teva would not launch the product until November 2013. Hospira is conducting a head-to-head study with its biosimilar EPO versus Epogen. In early 2013, Hospira changed the primary completion date of the trial from November 2012 to August 2013.

On the capital allocations front, Amgen has been focused on increasing its dividend and increased the most recent first quarter dividend by 31 percent from the prior four quarters to 47 cents per share when paid on March 7, 2013. The dividend yield on the recent stock price is 1.7 percent with a payout ratio increased to 27.9 percent from 21.3 percent. Still, there is room for higher shareholder returns.

"The dividend yield is well below the five-year average for pharma of 4.1% to 4.7%; however, the payout ratio is at the lower end of pharma peers at 35% to 58%," Birchenough noted.

Amgen stock was up 12 percent year-to-date, underperforming Nasdaq Biotechnology Index's 22 percent. Amgen's stock is cheap with a forward P/E of 12 versus Celgene's (NASDAQ: CELG) 17 times and Biogen Idec's (NASDAQ: BIIB) 20.6 times.

Though Amgen would face challenges in the form of Teva's biosimilar, it has the firepower in Enbrel, Xgeva and Prolia to offset those roadblocks. Amgen's certain drugs such as AMG-145 have the potential to become best-sellers. Moreover, the recent retreat in the stock creates an attractive entry point.



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