Amgen (AMGN 0.60%) shareholders have to be pretty happy right now. The biotech stock is up nearly 14% so far in 2018, almost twice has much as the S&P 500 index. The company reported 17% year-over-year earnings growth in its second-quarter results announced in July.
But is Amgen a stock to buy for investors who aren't already shareholders? And should current shareholders consider adding to their positions? Let's look at three factors that are important in answering those questions.
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Current products
I have good news and bad news when it comes to Amgen's current product lineup. Most people seem to like the bad news first, so I'll start there.
Sales are slipping for Amgen's top-selling product, Enbrel. The company doesn't expect the situation to get better, with lower demand and lower selling prices continuing through the rest of the year. Amgen is fighting in court to keep biosimilars to the drug off the U.S. market.
The biotech's No. 2 best-seller could also face serious headwinds. Mylan won FDA approval in June for a biosimilar to Amgen's neutropenia drug Neulasta. More biosimilar versions from other drugmakers could be on the way as well.
There are also problems further down the list in Amgen's lineup. Sales are plunging for Aranesp and Epogen due to competition. The two drugs combined generated more than $3 billion in revenue last year.
Now for some good news. Bone disorder drugs Prolia and Xgeva continue to enjoy strong momentum. Amgen is also seeing impressive sales growth for several of its relatively newer products, including multiple myeoloma drug Kyprolis and cholesterol drug Repatha.
In addition, the company appears to have a huge winner on its hands with Aimovig. Amgen co-markets the migraine drug with Novartis. Early uptake of Aimovig looks encouraging. Although competition is likely on the way, Aimovig should be another blockbuster for Amgen within a few years.
Late-stage pipeline
With revenue falling -- or soon likely to fall -- for several of its current top drugs, can investors count on Amgen's late-stage pipeline to deliver new products to fuel growth? Maybe.
The big biotech claims nine programs in phase 3 clinical testing. Five of those programs are pursuing new indications for already-approved drugs. For example, Amgen is evaluating cancer immunotherapy Imlygic in combination with Merck's Keytruda in treating metastatic melanoma.
Amgen awaits regulatory approval for one of its late-stage programs. The biotech received a Complete Response Letter from the FDA in 2017 for new osteoporosis drug Evenity, but it resubmitted for approval last month.
Tezepelumab is perhaps the most promising of Amgen's other three new late-stage candidates. The drug, which Amgen is developing with AstraZeneca, is in a phase 3 clinical study targeting treatment of asthma. Experimental heart failure drug omecamtiv mecarbil could also be a winner. However, I think the odds are stacked against Amgen's late-stage Alzheimer's disease drug AMG 520 after the failures of other BACE inhibitors in treating the disease.
Financial position
Investors can find a lot to like by looking at Amgen's financial statements. The company reported $28.8 billion in cash, cash equivalents, and marketable securities as of June 30, 2018. That's plenty of money for Amgen to pick up additional pipeline assets if it chooses to do so.
Amgen also generates solid cash flow. Over the last 12 months, the biotech had levered free cash flow totaling more than $8.5 billion. Amgen has consistently used its cash flow to reward shareholders. The company repurchased $3.1 billion of its stock last year. Amgen's dividend yields close to 2.7%. The biotech has increased its dividend payout by over 180% during the last five years.
Is Amgen a buy?
It's possible that Amgen's rising stars and its late-stage pipeline candidates could offset the sales declines for Enbrel, Neulasta, and other current drugs. However, I don't think Amgen is a great stock to buy right now.
The biotech simply faces too many headwinds, in my view. Sure, it could continue to produce some revenue and earnings growth on the strength of new products like Aimovig. However, I suspect that the consensus Wall Street estimate of average annual earnings growth over the next five years of only 5.4% isn't too far off from what Amgen will actually deliver.
Amgen could change my opinion with an impressive acquisition or two. For now, though, I think there are plenty of other biotech stocks with better prospects.
