Editor's note: This article has been corrected. Tavneos was approved on Oct. 7, 2021. At that time, it was owned by ChemoCentryx, which was later acquired by Amgen.
Amgen (AMGN +0.61%) has been grabbing headlines lately, and not always for the right reasons. The company is currently engaged in a battle with the U.S. Food and Drug Administration (FDA), which has demanded that the biotech pull Tavneos, a medicine for severe anti-neutrophil cytoplasmic autoantibody-associated vasculitis (a group of rare autoimmune inflammatory diseases), from the market. The FDA is claiming that ChemoCentryx manipulated clinical trial data. Tavneos was approved on Oct. 7, 2021. At that time, it was owned by ChemoCentryx, which was later acquired by Amgen.
Elsewhere, Amgen has been fighting off attempts by Colorado regulators to cap the annual price of its famous psoriatic arthritis drug, Enbrel. Amgen recently won a court victory in that battle, although it probably isn't completely over yet. With all that going on, some might worry about Amgen's business and ability to maintain its dividend program intact. Should investors seek out other dividend stocks?
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A resilient business
Suppose Amgen loses its dispute with the FDA and is forced to take Tavneos out of the U.S. market. Let's also assume that Colorado regulators get their way and put a price cap on Enbrel. What effect would those setbacks have on the company's financial results? The answer is that the immediate impact will be fairly minimal. In the first quarter, Enbrel's revenue was $320 million, down 37% from the year-ago period. The medicine's sales are declining largely due to Medicare price-setting under the Inflation Reduction Act, a 2022 law that gave the U.S. Centers for Medicare & Medicaid Services the authority to negotiate the prices of some of the drugs it spends the most on.
Enbrel was targeted by the first round of negotiations. This means the medicine plays a little role in Amgen's long-term growth plans, especially since it will face biosimilar competition by 2029. Price setting at the state level would accelerate the year-over-year sales decline for the immunosuppressant, but it would do little to fundamentally change Amgen's prospects (although, in fairness, it may set a dangerous legal precedent).
Regarding Amgen having to pull Tavneos from the U.S. market, the medicine was first approved in 2021 and generated $119 million in sales in the first quarter, up 32% year over year. It accounted for just 1.4% of the company's total revenue. This loss also wouldn't be that big a deal. Amgen has proven, time and time again, that it can overcome obstacles of this kind. Last year, it lost patent exclusivity for denosumab, a bone health medicine marketed under brands such as Prolia and Xgeva.
It was a meaningful growth driver, but despite this loss, the company is still performing well. In the first quarter, Amgen's revenue increased 6% year over year to $8.6 billion, while its earnings per share rose 4% to $3.34. Amgen can also overcome the headwinds it is currently facing.
NASDAQ: AMGN
Key Data Points
Amgen's strong pipeline
Another reason to be bullish about Amgen's future is the company's pipeline. The biotech is developing several important medicines to bolster its lineup and mitigate the potential negative impact of regulatory and legal setbacks. Perhaps Amgen's most promising candidate is MariTide, an investigational GLP-1 medicine that is being developed across diabetes, weight loss, sleep apnea, cardiovascular outcomes, and more. This drug, which is undergoing several phase 3 studies, could become a leading GLP-1 therapy, especially given its differentiated profile.
MariTide is being developed for once-monthly or less frequent administration. Even with lower weight-loss efficacy than some current options, it could attract many patients and carve out a solid niche in the fast-growing GLP-1 market. And again, it isn't the only exciting pipeline candidate in Amgen's portfolio. Amgen's ability to develop newer, better products to replace older ones whose sales are dropping is another reason the company's outlook is strong.
A strong dividend track record
Amgen has a robust underlying business, is posting solid financial results, and boasts a deep pipeline. In addition to all that, the company's dividend track record is pretty impressive. Amgen has increased its payouts every year since it first initiated one in 2011 -- and over the past decade, its dividend has increased by 152%. Meanwhile, the company's forward yield is 2.7%, compared with the S&P 500's average of 1.1%. Amgen may be in the news for the wrong reasons, but the company's dividend remains as safe as ever. Long-term income seekers can still count on this company.
