Congress' recent move to limit prescription drug prices has the pharmaceutical industry in an uproar. Questions about the long-term impact of the Inflation Reduction Act -- whether the law will truly make medicine more affordable for the patients who need it most or squash innovation as pharmaceuticals claim -- are up for debate.

However, it will unquestionably affect those companies with top-selling Medicare drugs. Since major biotechnology player Amgen (AMGN -1.33%) makes this cut, should we revalue the company in light of the new regulations? Let's take a look.

Impact on osteoporosis drug Prolia

Bone density drug Prolia is used to treat osteoporosis in women after menopause to reduce the risk of bone fracture. Prolia is Amgen's second top- selling drug, bringing in $3.3 billion in sales during 2021. This treatment is also Amgen's only drug to make Medicare's top 10 drugs by sales, coming in near the top of the Part B list with $1.6 billion in 2020 government sales.

However, Prolia's patent timeline makes the drug unlikely to become a target of the new drug pricing legislation. The government's ability to negotiate drug pricing will kick in over time, starting in 2026 and including Part B drugs, such as Prolia, in 2028. But Amgen's domestic patents expire well before then, meaning that there will already be generic competition on the market and rendering the drug ineligible for price negotiation.

The company will get a glimpse in the coming months of what to expect when Prolia's patent expires. The European patent just expired in June. Early methods of treatment and manufacturing patents will expire in the U.S. this year and next, although the primary U.S. patent on the antibody remains good until 2025.

The Inflation Reduction Act also charges manufacturers a government rebate if the drug price increases faster than inflation, but Amgen claims that increasing Prolia revenue stems from high demand in volume, rather than pricing action, so this measure is also unlikely to come into play.

Impact on domestic sales

Although Amgen has relatively limited exposure to Medicare, a large portion of the company's sales originate from the domestic market. With roughly 70% of sales coming from the U.S., the company will always be sensitive to changing regulatory decisions. 

Several factors add a layer of protection. The product mix is well-diversified, with the company's top-selling autoimmune drug Enbrel accounting for only 16% of total revenue in the second quarter. Amgen has some new treatments poised for blockbuster status but not necessarily on track to become industry superstars. These include Lumakras for lung cancer, Repatha for cholesterol, Kyprolis for multiple myeloma, Avacopan for an autoimmune blood vessel disease, and Tezspire for asthma. A well-diversified sales mix will limit the impact of regulatory action aimed at high-cost mega-blockbusters.

Amgen has also been expanding its portfolio of low-cost biosimilars. Key candidates may compete with Johnson & Johnson's Stelara for inflammatory diseases, Regeneron's Eylea for two eye diseases, and AstraZeneca's Soliris for blood disease. Potential biosimilar blockbuster Amjevita for rheumatoid arthritis is finally nearing its January launch after waiting since its Food & Drug Administration approval in 2016 per a legal settlement reached over AbbVie's Humira.

Overall, the strong biosimilar portfolio is expected to more than double by 2030. 

Amgen's outlook

Amgen has been fairly stagnant recently in terms of both company growth and total investment return. The stock price hasn't shown any significant appreciation in the past couple of years and has been hovering around its current price since the run-up in recession-proof healthcare stocks earlier this year. This reflects the company's lackluster revenue growth, which was 1% year over year in the second quarter and has been a little under 3% annually over the past five years.

In the absence of robust internal pipeline growth, Amgen has negotiated a number of relatively small deals, including Five Prime Therpauetics and Teneobio in 2021, and most recently for ChemoCentryx this summer. Falling in the range of $1 billion to $4 billion, these actions beef up the pipeline but don't add any major near-term revenue makers. 

The company's acquisitions have progressively added to its debt position. Long-term debt now stands at $36 billion, relatively high given a cash position of $7 billion. Additionally, Amgen is being scrutinized for its allocation of profits from its Puerto Rican manufacturing site and could face an IRS bill for as much as $7 billion, including penalties; however, the company filed a petition in July to contest the IRS' claims. The dispute could take years to settle, so this likely won't impact the company's debt position anytime soon.

Overall, the new pricing legislation shouldn't cause too much alarm among Amgen investors. A relatively weak late-stage pipeline and high leverage position are likely to impose greater drag on future growth. But with cash flow to support a 3.1% dividend yield and a track record of raising that dividend, Amgen may be well on its way toward becoming a Dividend Aristocrat. The company's aggressive stock repurchase program should also help support stock price.

With a well-diversified product mix, Amgen is still a stable company for the long-term income investor.