Many different analysts have an opinion on the world's largest biotech Amgen (NASDAQ:AMGN), but how deep are they diving into the story? Amgen provides a nice blend of large cap value and growth, mixed with small cap growth through partnership deals. Amgen has stiff competition with the likes of Gilead (NASDAQ:GILD) and Pfizer (NYSE:PFE). Let's try to dissect Amgen in the entirety.
Amgen has the second deepest pipeline of drugs of the three large cap biotechs. According to Amgen, they have 45 drugs in development from Phase 1 to Phase 3. Conversely, Gilead has 32 drugs in development and Pfizer has 64. Meanwhile, Gilead only has 8 drugs in Phase 3, Pfizer has 25, and Amgen has 14. 7 of those Phase 3 drugs are focused on cancer treatments for Amgen, more than either Pfizer or Gilead. Keep in mind that 12.4 million people learn they have cancer each year, while 7.6 million people lose that battle each year. The CDC predicts that the global number of cancer related deaths will increase by 80% by 2030. It doesn't take a rocket scientist to know that cancer treating drugs presents the largest opportunity for any drug maker considering those statistics. Amgen has the inside track versus Gilead and Pfizer as far as quantity of drugs in late stage development.
What about the fundamentals? Amgen, at the time this article is written, has a P/E of 17.07, a dividend of 1.90%, a Forward P/E of 12.17, P/S of 4.26, PEG of 1.42, and a P/B of 3.87. In comparison, Gilead has a P/E of 28.92, no current dividend, a Forward P/E of 17.57, P/S of 7.82, PEG of 1.01, and a P/B of 7.75. Meanwhile, Pfizer has a P/E of 13.97, a 3.3% dividend, a Forward P/E of 12.47, P/S of 3.59, PEG of 4.82, and a P/B of 2.51. Using those metrics, we can see the massive 113% run Gilead has had in the past year is reflected in current valuations, looking the most expensive of the three. Pfizer may have the cheapest current P/E with the best dividend yield, but the PEG ratio is more than three times as expensive as Amgen. That worries me a great deal, and tells me that the 27.5% one year return may be slightly overextended. Yet, Amgen has the luxury of the cheapest Forward P/E, a growth rate superior to the industry average, and a dividend that has been increased twice in the past two years.
Winner: Amgen on a fundamentals basis.
Amgen is dedicated to continually strengthening the drug pipeline. AMGN just inked two deals in the past month to build a stronger presence in Japan. The first deal was with Japan's second largest biotech Astellas Pharma Inc. to develop five drugs in Amgen's pipeline and bring them to market. The other deal Amgen signed was with partner Cytokinetics Inc. (NASDAQ:CYTK) for $25 million to expand the licensing agreement on the omecamtiv mecarbil drug to Japan. Granted CYTK is still an early stage drug developing biotech, but Amgen's deal will provide them with the much needed liquidity to continue to bring omecamtiv mecarbil through trials. Cytokinetics will be announcing results from a recent Phase 2b trial at the European Society of Cardiology Congress 2013 in August. This could provide a boost to CYTK, and represent an even stronger pipeline for Amgen.
There are many other strong drugs in development as well. On June 12th, AMGN announced that an experimental drug called Trebananib was successful in a late stage trial in prolonging life in patients with recurrent ovarian cancer. This drug would help treat the more than 22,200 new cases of ovarian cancer in the US alone each year. Amgen expects results on the overall survival rate by 2014.
Amgen also released promising data on an immunotherapy treatment for melanoma called T-VEC for short back in February. Bristol-Myers Squibb's (NYSE:BMY) melanoma drug Yervoy has a lesser one year survival rate than Amgen's T-VEC did in a mid-stage trial. Melanoma is the most aggressive type of skin cancer, accounting for 75% of all skin cancer deaths. UBS Securities analyst Matthew Roden told his investors through a letter that he believes T-VEC could possibly become the new "go-to" drug for melanoma.
Those are just a few of the drugs that present huge potential for Amgen looking forward. While some of Amgen's current medications have patents that will expire soon, the pipeline is strong enough to withstand those expirations.
Balance Sheet and Expectations
Looking at the balance sheet of Amgen shows Working Capital has grown significantly over the past three years on an annual basis. Current assets grew from just $23.13 million in December of 2010 to $31.21 million in December of 2012. That represents an increase of 35% in current assets over those three years. Meanwhile, current liabilities went from $6.57 million in December 2010 to $8.91 million in December 2012. Cash and cash equivalents have also been able to remain steady despite continuing to sign new licensing deals to keep the pipeline robust.
Amgen has missed analyst expectations once in the past thirteen quarters, beating those expectations twelve times. EPS expectations have been increased on a quarterly basis year over year. Earnings have beat expectations by an average of ten percent over the past five quarters as well.
Amgen not only beats competitors Pfizer and Gilead using comparative fundamental analysis, but the pipeline presents extreme strength moving forward. Amgen has a clean balance sheet with a history of beating analyst EPS expectations as well. Considering the recent pullback in price of the stock from 52-week highs back on April 22nd, current valuations represent a decent entry point.
My personal 52-week price target: $135.00.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AMGN over 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.
Additional disclosure: Investing always involves a significant risk of loss, as such never invest more than you can afford to lose. Always consult with your own licensed financial professional before adding a new position to your portfolio.