Amgen's Future Is Brighter Than You Might Think

When you think about a cutting-edge, one-foot-in-the-future biotech company, no one would blame you for skipping over Amgen (AMGN 1.11%). You don't have to look very hard to find a headline labeling it as an aging pharmaceutical company grappling with a fading market presence and lack of ingenuity in the pipeline. Some may even argue that Amgen's future isn't as bright as its biotech competitors.

I couldn't disagree more. In fact, earlier this month CEO Robert A. Bradway outlined his long-term strategy for growth that focuses on three key areas:

1. Selective research and development with "biology first" policy.
2. Transformation of the commercial model.
3. New manufacturing technologies.

What does it all mean? Let's take a closer look.

Pipeline outlook
Amgen's pipeline stacks up pretty favorably with its peers, especially in late-stage development:

Source: Company websites. 

As of today, the company expects results from two pivotal phase 3 trials this year, five more in 2014, and one in 2016. That doesn't beat Celgene, which is expecting data from more than 10 phase 3 trials this year, but it does dismiss any claims that Amgen has lost its ability to innovate.

I recently pointed out why Celgene was my favorite big biotech for 2013. I'm not backing down from that opinion -- I just think several companies finished a close second. Other than Amgen, Gilead and Biogen have promising drugs on the market and in their pipelines as well. Gilead, which has several of the market's brightest drugs, has five biologics in phase 2 trials not included in the table. And although Biogen began 2013 with a failed phase 3 trial, its focus on pure biologics is unrivaled.

Amgen's size and market presence deserve an analysis of its own. Consider that Neulasta/Neupogen, the company's top drug, nearly brought in more revenue last year than the totals enjoyed by Celgene and Gilead.   

Decoding "biology first"
The pipeline is being driven by a "biology first" policy, which aligns development selectivity with human genetics. A recently acquired treasure trove of human genetic data from deCODE Genetics could pay tremendous long-term dividends. What's the importance?

Over the past 17 years, deCODE Genetics created dozens of innovative analysis techniques to mine genetic data from large populations. The company used Iceland's mostly homogenous population to sweep through the human genome with unparalleled precision. Discrepancies in gene expression were easier to notice in the population and less likely to be caused from racial genetic differences, thus making genes linked to various diseases stand out with scientific significance.

The result? deCode found genetic risk factors for dozens of diseases that have spurred a modern-day gold rush into population genetics. One such highly targeted therapy developed with genetic analysis was Herceptin from Roche (RHHBY 1.64%), which generated $6.4 billion in 2012 sales. Essentially, deCODE took the first step in developing one of the Holy Grails of health care: individualized medicine.

Now all of those innovative analysis techniques belong to Amgen, which hopes to use it to take some of the guesswork out of biologics development. Don't get me wrong -- all companies developing biologics today understand the importance of genetics. Amgen has just made one of the more aggressive moves to ensure it remains a top focus.

Biologics manufacturing
Gaining approval for a biologic involves a bit more paperwork than a small molecule. Even biosimilars -- the generic versions of a biologic -- take longer to get a regulatory nod than small-molecule generics do. What's the holdup? Biologics are approved on data submitted from trials and manufacturing facilities.

Biomanufacturing facilities can cost a pretty penny, too. Genzyme recently built a facility for $175 million, or $22,000 per liter of bioreactor. Investments in that neighborhood keep smaller companies from crowding the industry, prices high, and generic competition low. Nonetheless, permanent investments in biomanufacturing are a great way to gauge the growth of any pipeline.  

Amgen recently announced plans to build the world's newest biomanufacturing facility in Singapore that will cost $200 million, likely pegging it near $20,000 per liter of bioreactor as well. The facility will be used exclusively for monoclonal antibodies, which are quickly outgrowing the company's current production capacity.

Amgen's best-selling antibodies -- Vectibix, Prolia, and XGEVA -- brought in $1.58 billion in sales last year and are expected to breach $3 billion in the next few years. The facility will also come in handy for its newly planned portfolio of six biosimilars, which the company believes represent a multibillion-dollar opportunity.  

Foolish bottom line
Investors looking to buy into the future of biotechnology would be making a grave mistake by glossing over Amgen. The company may be considered part of the "old guard," but it hasn't lost its ability to innovate or its focus on the future of medicine.