3 Undervalued Amgen Growth Opportunities to Watch

Amgen's pipeline may not have huge mega-blockbusters, but there are some promising drugs worth watching

Jun 16, 2014 at 5:30PM

Amgen (NASDAQ:AMGN) hasn't put as many eggs into the megablockbuster basket as Merck or Bristol-Myers Squibb, nor has it sought to utterly dominate a therapeutic area the way Biogen Idec may dominate MS. What Amgen does offer, though, is a deep pipeline that goes well beyond the much-discussed PCSK9 cholesterol market. Biosimilar risk is a real threat to the current marketed portfolio, and Amgen does not have much to offer within the hot immuno-oncology sector. Less-appreciated opportunities in psoriasis and migraine could offer upside as analysts start working those into their models, though.

Evolocumab grabbing the airtime
A large percentage of sell-side pieces on Amgen focus on evolocumab, the company's late-stage PCSK9 antibody for cholesterol, and with good reason. Evolocumab could be a $3 billion drug in an $8 billion new class, with upside (and downside) tied to large long-term outcomes studies.

Amgen's data continue to look strong. Five phase III studies (DESCARTES, MENDEL-2, LAPLACE-2, GAUSS-2, RUTHERFORD-2) have shown consistent LDL reductions ranging from about 40% in GAUSS-2 (statin-intolerant pts) to 60% to 70% in monotherapy (MENDEL-2), statin combo (LAPLACE-2), and those with heterozygous familial hypercholesterolemia (RUTHERFORD-2.) Most recently, DESCARTES confirmed that range of LDL reduction with a solid safety profile, including a low incidence of neurocognitive adverse events.

These results look broadly consistent with those seen from Sanofi (NYSE:SNY)/Regeneron's alirocumab, though cross-trial comparisons are tricky and Sanofi's trials have enrolled patients with generally higher baseline LDLs. Interestingly, evolocumab seems to be virtually equally effective between monthly and semi-monthly dosing, and that could be a possible point of differentiation with Sanofi/Regeneron's drug.

As a reminder, Pfizer (NYSE:PFE) is a little further behind with its drug bococizumab, which is a humanized murine antibody. The Amgen and Sanofi/Regeneron drugs are fully human, and immunogenicity could emerge as an issue for Pfizer's antibody in long-term use.

Not just evo-Kyprolis
I don't want to suggest that evolocumab isn't an important drug; $3 billion is a lot of potential revenue. I simply think that there are other compounds in Amgen's pipeline that should also get a little more consideration and attention.

Kyprolis doesn't lack for attention, as this multiple myeloma drug was a major part of the nearly $10 billion deal for Onyx in 2013. Kyprolis is approved in the U.S. as a third-line option in multiple myeloma, but numerous studies are under way (including CLARION, ASPIRE, and FOCUS) with the goal to gain EU approval and expand into second and/or first-line use in the U.S.

An interim analysis of ASPIRE is coming soon, but CLARION (first-line) results won't be available until 2016-2017. Celgene, Bristol-Myers, and Johnson & Johnson could all be serious rivals with their own pipeline drugs, but successful trial outcomes could pave the way toward more than $3 billion a year in Kyprolis sales.

Not just evo – Bmab and '334
I believe investors should also keep a close eye on AMG827 (brodalumab, "Bmab") and AMG334.

A phase III study of Bmab (AMAGINE-1) showed very strong efficacy for this injected anti-IL-17 receptor antibody. At the 210mg dose, 83% of patients saw 75% clearance (PASI 75) at week 12, versus 72% (placebo-adjusted) for the Novartis IL-17 antibody in phase III and 74% (placebo-adjusted) for Lilly's (NYSE:LLY) antibody (phase II results.) Complete clearance was achieved in 42% of Bmab patients (39% for Lilly and 24% for Novartis), suggesting that Amgen has a drug that will be more effective than oral drugs (like Pfizer's and Celgene's) and safer than aTNFs from AbbVie and Johnson & Johnson.

As such, this could be a $2 billion/year drug. Amgen licensed this drug to AstraZeneca and is entitled to a small royalty on sales, as well as a 50/50 split on commercialization profits.

Turning to AMG334, this CGRP antibody is still early in its development (its in a phase IIb study), but it could represent the first highly effective and safe prophylactic therapy for migraine. About 3 million Americans suffer chronic migraines and another 11 million have episodic migraines. Allergan's Botox offers limited long-term relief and only about 20% of those taking triptans see 24-hour relief (and long-term use is generally contraindicated.)

Lilly is working on a similar antibody and early stage results showed a 70% responder rate (50% reduction in monthly migraine days) versus 45% for the placebo group. One-third of those getting Lilly's drug reported a 100% reduction in migraine days, double the placebo rate.  While these high placebo response rates are a threat, the market potential here for Amgen could be equal to the PCKS9 cholesterol opportunity, but it appears in few sell-side models (even with a high risk adjustment to reflect its early stage position.)

The bottom line
Amgen still isn't cheap enough for me to be table-pounding bullish, even though the shares have declined a bit from my last piece (when I thought the valuation was a little problematic). It's getting closer to a potential entry point, though, and investors who are more bullish on the likelihood that Amgen will withstand competition from biosimilars – which, in the U.S., has been a lot of light and very little heat – may find more upside here today.

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Stephen D. Simpson, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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