Amgen (AMGN) is the world's largest biotechnology company by both market capitalization and revenue. The stock returned a staggering 33% in 2012, and already lost nearly 5% in 2013. Its Aranesp treatment has come under scrutiny recently, and the news may be influencing the stock for some time. Aranesp is a treatment for anemia, but issues have cropped up regarding its usefulness. In 2009, Aranesp was reported to have no positive impact for renal conditions. In 2012 Amgen pleaded guilty to offenses that they marketed the drug for uses not approved by the FDA. It announced this week that the company failed to reach its endpoint to lengthen lives of patients during the phase 3 clinical trials for a heart failure drug. The company started the trial way back in 2006.
Amgen is expected to rake in $1.44 in EPS on $4.366 billion in revenues for an expected growth of 19% and 10% respectively. The expectations for 2013 are relatively downcast at 3% revenue growth and 7% EPS growth for the full year, which is a sharp fall from full-year 2012's expected 23% and 3%, respectively.
Despite this AMGN has thrashed the consensus EPS estimates thanks to Amgen's aggressive use of capital on buybacks, on which Amgen has spent $3.39 billion in the first 3 quarters of 2012. 23% EPS growth on 3% revenue growth is certainly a shareholder friendly equation. Since 2011, Amgen has repurchased more than 20% of all outstanding shares and has an additional $2B share repurchase authorization well into 2014.
However, in the long run, earnings growth will have to come from its product portfolio and better commercialization of existing and pipeline drugs, and the company looks like it's headed in the right direction.
Amgen recently announced plans to build a new manufacturing facility in Singapore. Amgen anticipates investing approximately $200 million to build an innovative new facility, which will initially focus on expanding Amgen's manufacturing capability for monoclonal antibodies. Amgen also added a few acquisitions in the past year to diversify and strengthen its portfolio. KAI is developing AMG 416 for dialysis patients. Micromet is developing blinatumomab for leukemia. deCODE provides a unique platform to discover and validate targets via human genetics. Mustafa Nevzat helps establish Amgen in Turkey which is another fast growing emerging market.
Strong commercial execution
Since Amgen's PSA with Pfizer (PFE) to sell Enbrel ends in 2013, the company has started consolidating sales activities, expanding advertising of Enbrel, as well as easing access to Enbrel. Additionally, Enbrel is also gaining share in the rheumatology market. XGEVA is also gaining market share, and is clocking upwards of $1 billion in sales. XGEVA sales grew 97% in Q3 2012, and with its increasing market share in the US, XGEVA sales are expected to continue growing at a good pace. Amgen's Neupogen saw its sales fall 6% in Q3 2012 but since Teva's (TEVA) competing generic is barred from selling in the US till November 2013, this gives Amgen a few quarters to strengthen its defenses.
Owing to its size, Amgen naturally has the biotechnology sector's largest pipeline, with 43 different clinical trials currently in progress (18 phase I trials, 13 phase II trials, and 12 phase III trials). And while statistics suggest that only 10% of drugs make it through clinical testing, Amgen has adequate financial resources to constantly fill its pipeline by moving its existing compounds through to the clinical trials. During the earnings announcement, the company is expected to provide a detailed overview of its pipeline and where its clinical programs stand.
Amgen has been quick to realize that in order to stay relevant and not succumb to the lethargy plaguing the other larger companies, it must deploy capital aggressively. Amgen ended the third quarter of 2012 with $25.3 billion in cash and investments, and debt of $26.4 billion. With a net debt of $1.1 billion, the company does not seem to be in a strong financial position, but the answer lies in the organization of its balance sheet and the duration of its debt. Even in 2011, Amgen had increased net debt by only a few hundred million, despite spending billions on buybacks, dividends and acquisitions. And Amgen is forecasted to return to a net cash position during the course of 2013. Amgen's debt maturities are distributed across many years, with maturities extending up to 2043.
Of the total of 28 analysts following the stock, 14 have recommended a BUY or an OUTPERFORM rating, while 13 recommend HOLD. With an expanding product portfolio, strong commercial execution, diverse pipeline, and a solid financial position, Amgen is expected to have a robust 2013, and if Amgen continues to be aggressive with its capital deployment strategies, then the joyride for the investors can be expected to continue. Amgen also offers investors a chance to steady their portfolios, adding some stability to what is often an unstable and unpredictable sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.