This year hasn't been kind to biotech stocks, which as a group haven't kept pace with the broader market. The performance of the SPDR S&P Biotech ETF makes that clear. Leading drugmaker Amgen (AMGN 0.22%) has had a better showing, but it has still substantially trailed the S&P 500.
Still, long-term investors will want to know whether the drugmaker can deliver solid results over the long run -- and one year's worth of underperformance doesn't tell us much either way. For that, let's look into what's going on with Amgen and decide whether buying the biotech's shares today is worth it.
Will top-line growth bounce back?
Amgen's revenue hasn't been growing at a good clip, for the most part, over the past few years. The company is dealing with increased competition, sometimes generic and sometimes not, for some of its key products. In the third quarter, revenue rose by nearly 4% year over year to $6.9 billion. That's not bad by the standards the drugmaker has set over the past three years.
AMGN Revenue (Quarterly YoY Growth) data by YCharts
Still, investors will want the biotech to deliver consistent top-line growth. Amgen has tried to remedy the situation by launching new products. One of them was Tezspire, an asthma treatment developed with AstraZeneca. The other was cancer medicine Lumakras, whose claim to fame was to be the first to target a mutation present in about 13% of lung cancer patients.
They haven't been on the market for that long, and neither is generating anywhere near enough sales to meaningfully impact Amgen's revenue yet. For instance, Tezspire's revenue in the third quarter was just $161 million, although that was an increase of 192.7% year over year. Amgen also seized on capturing some of the multibillion-dollar market that became available when Humira lost patent exclusivity earlier this year.
The company's generic version of the immunology medicine, Amjevita, generated $152 million in sales in Q3, up 30% year over year. Amgen's biggest growth drivers for the quarter included osteoporosis medicine Prolia, whose revenue of $986 million jumped 14% versus the prior-year period. The biotech also recently completed the acquisition of Horizon Therapeutics for about $28 billion in cash.
The key asset from the transaction was Tepezza, the first and only medicine approved by the U.S. Food and Drug Administration to treat thyroid eye disease. Tepezza was first given the green light in early 2020, and the pandemic disrupted its initial launch because most ophthalmologists' offices initially closed. Horizon Therapeutics did find a way to reach out directly to patients.
However, the backing of Amgen -- whose funds, sales team, and relationships in the healthcare industry are likely far greater than Horizon's -- should help improve things.
Further, Amgen can look to its pipeline, too. The company is developing several biosimilar products. It is betting on this market because most patients in the U.S. think prescription drug prices are too high, so there is a substantial need for cheaper options. Amgen is also developing brand-new products of its own, in addition to the many label expansions it should receive for its existing therapies.
While the past three years have been volatile on the top line for Amgen, this was a highly unusual period for any business given the pandemic. In my view, the company's revenue should stabilize within a couple of years and start moving in the right direction consistently again.
Amgen's strong dividend program
Amgen stock should appeal to income-seeking investors. The company's dividend yield of 3.14% is nearly twice the S&P 500's 1.62%. The biotech has raised its dividend by almost 47% in the past five years alone, while its cash payout ratio of 47.5% still looks reasonable. Of course, this won't matter much if Amgen's business encounters enough issues down the line to force the company to slash its payouts, but that seems unlikely.
Even amid the pandemic and the associated economic troubles -- both marketwide and company-specific ones -- the drugmaker has continued to reward shareholders with dividend hikes. That speaks volumes about the strength of Amgen's underlying business. As things improve for the company, which they will as older products begin to have less of an impact on its financial results, Amgen's dividend program should remain one of its brightest spots.
While the biotech doesn't offer an exciting business like those that focus on artificial intelligence, nor will it be a high-growth stock, Amgen is an excellent pick for risk-averse dividend investors focused on the long game.
