Amgen On The Move: Raising Dividend, Expanding Pipeline

| About: Amgen Inc. (AMGN)

Dividend increase

Amgen (NASDAQ:AMGN) will increase its dividend 31 percent for the first quarter of 2013, and pay stockholders 47 cents a share on March 7, 2013. The current payment is 36 cents.

Also, the company will buy back another $2 billion in shares as part of an ongoing program with a total of $10 billion authorized for buybacks.

Pipeline expansion

Robert Bradway became the new CEO in May 2012, and he, along with his team, is quite busy.

Amgen is looking for new products and acquisitions to boost revenue to compensate for expected declines in its core anemia business.

Bradway is credited with effectively managing the decline of Amgen's key anemia drugs. His financial strategies have served shareholders well.

Amgen's shares are up from $57.62 a year ago to close to $90 these days, more than a 55% gain.

The company is making strides with its drug pipeline too.

Earlier in 2012, Amgen acquired Micromet Inc. for $1.16 billion to add an experimental leukemia drug, blinatumomab (MT103), to its portfolio. Five ongoing clinical studies of the drug, an antibody, are currently underway. Trials in adult and pediatric patients with acute lymphoblastic leukemia (NYSE:ALL) are in Phase 1/2, while trials in adult patients with non-Hodgkin's lymphoma are in Phase 1.

In July, Amgen bought Kai Pharmaceuticals of South San Francisco, Calif. for $315 million. This company is developing a treatment for secondary hyperparathyroidism, in which poor functioning of the parathyroid glands (small endocrine glands in the neck that release hormones directly into the bloodstream) allow blood levels of calcium and phosphorous to get too high. This frequently happens to patients with chronic kidney disease who are on dialysis.

If approved, the drug could become an additional treatment to Amgen's Sensipar, which is for secondary hyperparathyroidism and excessive calcium levels.

The osteoporosis drug Prolia, one of Amgen's newest products, was approved a second time in late September for use in men at high risk of fractures because of insufficient bone mass. Prolia is injected just under the skin every six months. Xgeva, which contains the same active ingredient but is administered in different doses, prevents fractures in cancerous bones. These two drugs have already had a combined $540 million in sales in the first half of 2012.

On December 10, the company agreed to buy DeCode Genetics Inc., an Icelandic genetics research company, for $415 million. DeCode is great at collecting genetic data but failed in the business of commercializing it.

Some analysts questioned Amgen's decision to buy the company.

Sean Harper, who took over as Amgen's top researcher in February, has stated his increasing appreciation of genetics. Having DeCode's science totally in-house is, according to Harper, a major boon.

Instead of relying on animal models, the company will have immediate access to key genetic information, a huge advantage in identifying disease targets.

Harper cites DeCode's work in Alzheimer's as an example of how he would like to use the company's technology.

In a study in Nature, DeCode showed that a lucky few people carry a genetic mutation that naturally prevents them from developing Alzheimer's. The discovery suggests the disease could be an extreme form of the cognitive decline seen in many older people. The mutation, the first ever found to protect against the disease, lies in a gene that produces an amyloid-beta precursor protein called APP, which has an unknown role in the brain and has long been suspected to be at the heart of Alzheimer's.

Because this kind of information comes directly from humans and not animal experiments, Harper notes it is extremely useful in drug development.

The idea is that genetics can prove whether a drug will work before the drug has even been developed.

Cholesterol lowering PCSK9

In Sean Harper's view the PCSK9 program for heart disease and the sclerostin program for osteoporosis are the two biggest assets currently in Amgen's pipeline.

Researchers at several drug companies, including Sanofi (NYSE:SNY), Pfizer (NYSE:PFE), Merck (NYSE:MRK), and Amgen, have pointed to PCSK9 as their new idea of a drug target to possibly replace Pfizer's long-time blockbuster, Lipitor.

PCSK9 is a gene that provides instructions for making the PCSK9 protein.

The PCSK-9 protein destroys LDL (bad cholesterol) receptors, which are very important for the removal of LDL cholesterol from the blood stream. In other words, the PCSK-9 protein's actions are deleterious, resulting in high levels of bad cholesterol, which can build up in artery walls leading to atherosclerosis.

Experimental drugs are often developed on the principle that "my enemy's enemy is my friend."

The experimental drugs for the lowering of bad cholesterol are proteins known as monoclonal antibodies, which block PCSK9 from binding to the receptor.

Inhibitors of PCSK-9 have been pursued for almost a decade, but promising clinical data are only just now emerging.

When and if approved, the market for these PCSK9 inhibitors may be at least $10 billion, according to Adnan Butt, an analyst with RBC Capital Markets in San Francisco. In the U.S. alone about 1 million people cannot take statins because of side effects such as muscle soreness.

The frontrunners of this race currently are Regeneron and its partner Sanofi, but Amgen is not far behind.

Amgen has published some positive data this year showing its drug AMG145 has lowered bad cholesterol (NYSE:LDL) by as much as 63%.

Amgen plans to begin Phase 3 trials in early 2013.

Sclerostin program for osteoporosis

Amgen is working on the Sclerostin project with partner UCB Pharma, a large Belgian biopharmaceutical company with revenues of EUR 3.2 billion in 2011.

In April the two companies began a Phase 3 clinical trial program of their sclerostin antibody (CDP7851/AMG 785) for the treatment of postmenopausal osteoporosis.

CDP7851/AMG 785 is a humanized monoclonal antibody that inhibits sclerostin, a protein secreted by bone cells that inhibits bone formation. By binding to and blocking sclerostin, the compound will increase the amount of bone in the skeleton.

The Phase 3 program is a two-year study involving 5,000 postmenopausal women with osteoporosis. The primary endpoint is the number of new fractures observed in 12 months. Initial results from the Phase 3 program are expected by 2015.

With more than 75 million people worldwide suffering from osteoporosis, therapeutics that help build bone are in serious need.

Osteoporosis, or porous bone, is a chronic, progressive and systemic disease marked by low bone mass, deterioration of bone tissue, and low bone strength, leading to bone fragility and an increased risk of fractures.

Sales of the existing drug Prolia have not been as robust as expected, partly because of competition from less expensive generic drugs, and also because physicians are concerned about the severe side effects seen with bisphosphonates.

Sclerostin inhibitors represent a promising new class of drugs with the potential to stimulate healthy bone formation.

Investor's summary

In 2012 Amgen was full of surprises.

In July, Amgen raised its 2012 financial forecast significantly, citing strong performance in the first half, momentum from rising sales, and promising drugs in development.

Investors will want to see whether the sales and research results continue that trend.

Revenue from newer drugs is important because sales for two top selling anemia drugs, Aranesp and Epogen, have been declining since federal health programs put limits on dosing and reimbursement amounts amid safety concerns.

Amgen has been beating sales expectations in the third quarter and posting one of the biggest share run-ups of any major drug company in 2012. And the whopping 30 percent increase in its dividend is the latest surprise. Additionally, further buyback of company shares will likely boost the share price.

The company forecasts full year revenues to fall between $17.2 billion and $17.3 billion and earnings per share between $6.50 and $6.60.

Amgen is on the move, promising greater returns for its investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.