Amgen - On Course To Change The Future

Mar.27.14 | About: Amgen Inc. (AMGN)

Summary

Amgen has 16 drugs in pipeline that are in the final testing phase with most of them expected to indicate pivotal findings in the present year.

T-vec could be a breakthrough drug bringing robust growth in Amagn’s top line.

Amgen is on course to find a cure and achieve approval for a drug that will change the scope of treatment of the deadliest form of skin cancer.

2014 is expected to be a slow year in terms of top line growth but it is of pivotal importance in terms of the research of its final stage drugs.

Amgen Inc. (NASDAQ:AMGN) reported strong annual performance in 2013 following the acquisition of Onyx Pharmaceutical Inc. (NASDAQ:ONXX) and boasts a strong pipeline. The following article highlights the recent pipeline successes of the company and indicates whether or not the company is poised for future growth.

Revenue Distribution

Geographically, the company is spread across 75 countries around the globe with a major chunk of revenues attributable to the US (77%) while only 23% of the revenues are contributed by the rest of the world. With regards to the distribution of the company's revenues amongst its various products Neulasta and ENBREL accounts for about 49% of the company's total net sales. Overall, the top line of the company has grown at a CAGR of 9.5% over the past three years. Complete product wise distribution is indicated in the graph below.

Source: Annual report

Comparing the company with the industry, Amgen's net profit margin exceeds the industry significantly with the company's NPM at 27.21 compared to the industry average of 6.56. While the top line of the company grew at a CAGR of 9.5%, the bottom line grew at a CAGR of approximately 17.50%. However, there is a heavy level of debt on the company's balance sheet that was raised for the acquisition of Onyx.

As far as profit distribution among shareholders is concerned the company's dividend yield stands at 1.99 in an industry where 1.69 is the norm. Dividends have grown at a CAGR of 7.3% over the past twelve quarters increasing at an average of 30% per year. Moreover, Amgen distributed about $20.8 billion among its investors through its share repurchase program over five years.

Evolocumab

As of now, the company has 16 drugs in pipeline that are in the final testing phase with most of them expected to indicate pivotal findings in the present year. By the end of January the company reported positive results shown by Evolocumab, a medicine designed to manage the cholesterol for patients who cannot take statin drugs. Statin intolerant users make up about 5-15% of the total number of cholesterol patients. Although Merck& Co. (NYSE:MRK)'s Zetia is already in the market providing a statin free cure to patients, Evolocumab has shown much better results reducing LDL cholesterol levels by as much as 50% as reported in its earlier trials. Zetia only reduces the LDL level by 15%. These findings will put Evolocumab in a leading position post approval.

T-vec Showed Great Results

Talimogene Laherparepvec (T-vec), a Phase III vaccine that is designed to attack advanced melanoma, showed very encouraging results according to recently gathered data. Advanced melanoma is reportedly one of the deadliest forms of skin cancer. T-vec is designed to activate the immune system in a systematic manner and successfully shrank tumors spread across the patient's body. More interesting findings are that the drug not only minimized the size of tumors that were injected with the drug but also shrank the non-injected ones that had metastasized to other parts of the body.

Of 4,000 tumor lesions under study, 64% of the tumors that were injected with the drug contracted by about 50% while 47% of the tumors completely withered. Of the tumors that were not injected with the vaccine, 35% of them showed a contraction by at least half their original size while 21% of them completely vanished. Of the visceral tumors, 15% shrank by at least half their pre-injected size.

Although significant results were achieved during the recent experiment, the vaccine is still under further study. Amgen has not yet mentioned when it will apply for approval from the FDA. As of now the company is observing the ultimate result of the treatment that is whether or not the vaccine achieves longer life span for the afflicted patients. Amgen's ultimate goal is to be able to shrink those tumors with the drug that are not in a position to be injected directly due to one reason or another. The company has joined hands with Bristol Myers Squibb Company (NYSE:BMY) to study T-vec in combination with Bristol Myers' Yervoy.

It seems that the company is on course to find a cure and achieve approval for a drug that will change the scope of treatment of the deadliest form of skin cancer.

2014 and Onwards

By the end of 2014, top line growth is expected to fall in the range of 3% to 5%. However, assuming that most of its pipeline products receive FDA approval by the end of 2016, Amgen's top line will receive a significant boost following 2016.

Due to the recent acquisition of Onyx, the company's debt to equity ratio is highly inflated. Therefore, to pay off its debt profits would not be distributed among the shareholders through share repurchases for some time. With a growing top line and the payment of debt through operating cash flows Amgen's financial position will become stronger in the coming years.

Lastly, we know that the company extracts a major chunk of its revenues from the US but the considerable growth potential exists in the emerging markets. In an effort to capitalize on that opportunity Amgen is expanding its operations into the Asian markets, particularly China and Japan. The move will not only diversify the company's revenues but will also give it exposure to new consumer markets.

Conclusion

With a sturdy pipeline, growing top line and geographic expansion on its plate I believe that the company is a long term buy. Although 2014 is expected to be a rather slow year in terms of top line growth the year is of pivotal importance in terms of the research of its final stage drugs. The company is presently undervalued in the market which is evident by the comparison of its current and forward P/E ratios. Amgen's current P/E ratio stands at 18.45 while the forward P/E ratio is projected to be 14.07 based on expected 2015 earnings.

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.