Amgen Shares Still Look Undervalued

Amgen is entering a period of heavy launches, a tribute to its recent pipeline productivity. The firm is launching heart failure drug Corlanor this month in the United States, and the launches of acute lymphoblastic leukemia drug Blincyto and a more convenient version of Neulasta (to defend against future biosimilar entrants) are already in progress. The biggest launch of the year is likely to be PCSK9 antibody Repatha, which could receive Food and Drug Administration approval in August. While Sanofi and Regeneron are poised to launch a similar product in July, we think both drugs will generate multi-billion-dollar sales, even if payers are able to negotiate discounts, given the millions of patients who will be eligible for therapy.

Amgen's revenue grew 11% to $5 billion in the first quarter, as several blockbuster therapies--Enbrel, Sensipar, Prolia, Xgeva, and Epogen--saw double-digit growth. While growth for older products like Enbrel and Epogen was driven by price increases, Prolia (39% growth) and Xgeva (22%) were driven by strong demand growth, as both are increasing market share. Sales of cancer drug Kyprolis grew 59% to $108 million, and strong prospects for expanded approval put this drug on track to surpass $1 billion in sales in 2017. Amgen saw 33% adjusted EPS growth in the quarter, virtually all due to 3% operating expense declines. Cost-cutting plans and improved R&D processes boosted operating margins above 50% ahead of Repatha's launch.

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