Please ensure Javascript is enabled for purposes of website accessibility

Is Amgen a Buy?

By Keith Speights - Aug 18, 2019 at 9:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The biotech's present and future might not live up to its past.

Amgen (AMGN 1.11%) has made some investors really, really rich. Accounting for stock splits through the years, Amgen has delivered a return of close to 58,000%. An initial investment of $10,000 back in 1983 would now be worth in the ballpark of $5.9 million. And a big chunk of that gain has come in just the past 10 years.

Is Amgen still a stock that can make investors a lot of money in the future? Or is the big biotech past its prime? 

Man with hands on hips looking at a wall covered with drawings of money bags and question marks

Image source: Getty Images.

A different dynamic

My Motley Fool colleague Cory Renauer summed up Amgen's second-quarter results in two words: treading water. Actually, Cory was being generous. The big biotech sank a little. Amgen reported a year-over-year revenue decline of 3%.

The problem is that the drugs that have generated billions of dollars in sales for Amgen in the past are losing steam. Sure, they're still making tons of money. But they're either growing very sluggishly or sales are declining.

Amgen scored a huge court victory recently in defending patents for its top-selling drug, Enbrel. However, the company's lawyers can't help improve the immunology drug's 4.7% year-over-year growth rate notched in the second quarter.

The legal eagles can't do anything about sliding sales for Amgen's other top products. Sales for Sensipar in Q2 plunged nearly 71% from the prior-year period. Neulasta's sales sank 25%. Epogen and Aranesp were down 10% and 8%, respectively.

It's not that Amgen doesn't have some stars in its current lineup, though. Blockbuster osteoporosis drugs Prolia and Xgeva continue to show solid momentum. 

Looking to the newbies

Amgen also has some newer drugs with a lot of potential. Aimovig is off to a good start, racking up sales of $142 million in the first six months of this year as its commercial launch gains traction. Analysts project peak sales for the migraine drug could reach $1.2 billion.

The biotech has high hopes for leukemia drug Blincyto as well. The bispecific T-cell engager (BiTE) antibody is especially gaining sales momentum in international markets. New osteoporosis drug Evenity could rake in over $500 million annually.

But it's fair to say that Amgen has experienced some disappointments with new drugs, too. Cholesterol drug Repatha isn't anywhere close to the blockbuster level the biotech anticipated. Amgen has also made a concerted push to develop biosimilars, but all of its biosimilars combined generated only $137 million in the first half of 2019.

Pipelines are the lifeblood of biotechs. If you look at Amgen's pipeline, though, there's something that will jump out immediately: It's heavily skewed toward early-stage programs. Amgen has only five late-stage programs and three mid-stage programs, compared to 24 programs in phase 1.

The biotech is also betting heavily on oncology, with the majority of those early-stage programs targeting cancer. Unfortunately, cancer drugs in phase 1 testing have the lowest odds of any therapeutic area of eventually winning FDA approval. Out of every 100 early-stage cancer drugs, only five will ultimately gain approval, based on historical data.

Wild cards

It's possible, of course, that one of Amgen's pipeline candidates could become a huge success and change the company's trajectory. There's also another wild card that could shake things up: the possibility of a game-changing acquisition.

Amgen is a prime candidate to go on a buying spree. The company had nearly $21.8 billion in cash, cash equivalents, and marketable securities as of June 30, 2019. It could easily afford to acquire one or more smaller biotechs. Alternatively, the company could use its cash to license promising therapies instead of buying another drugmaker outright.

Acquisitions don't always work as well as intended, though. Amgen spent $10.4 billion in its 2013 buyout of Onyx to get multiple myeloma drug Kyprolis. The company is a long way off from getting a return on that investment.

Is Amgen a buy?

All of this might sound like I'm down on Amgen. Actually, I think the stock is a pretty good fit for income-oriented investors. Its dividend currently yields nearly 3%. Amgen also claims an impressive track record of boosting its dividend, with the payout growing 138% over the past five years.

But is Amgen a buy for most investors? I don't think so -- at least not yet. I wouldn't rule out the possibility of its making investors a lot of money over the long run. However, my view is that it's better to wait and see how Amgen's early-stage pipeline candidates progress. There are plenty of other biotech stocks with more promising growth prospects. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amgen Inc. Stock Quote
Amgen Inc.
$247.50 (1.11%) $2.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.