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Stock Analyst Update

Amgen Undervalued After In-Line 1st Quarter

The wide-moat drugmaker's cash pile can support acquisitions to bolster growth in the face of biosimilar and branded pressure.

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We’re maintaining our $198 per share fair value estimate and wide moat rating for  Amgen (AMGN) following steady first-quarter results, which reflected double-digit growth for newer franchises but continuing pressure on the three largest franchises (immunology drug Enbrel down 6%, and supportive care drugs Neulasta and Aranesp down 5% and 11%, respectively). We’ve slightly lowered our U.S. sales forecasts for Kyprolis, Aranesp, Enbrel, and Repatha, but a lower assumed tax rate and increases to our assumptions for several other drugs (Prolia, Vectibix, Nplate, and biosimilar Amjevita) balance the impact on our valuation. Overall, we expect Amgen to continue to struggle to see significant top-line growth given significant biosimilar and branded pressure, but investors are well aware of the challenges, and the firm has plenty of cash ($32 billion at the end of the quarter) to support acquisitions to bolster near-term growth.

Amgen is juggling several different types of uncertainties in 2018, from generic and biosimilar competition to drug reimbursement negotiations and business development strategy. Headwinds include the timing of U.S. Neulasta competition (we anticipate the second half of 2018, from Mylan), and U.S. Sensipar generic competition (we assume mid-2018). In the long run, however, Amgen has an interesting mix of drug candidates in less traditional areas of focus (cardiology, bone health) as well as oncology (one of the few drug developers who is testing both bispecific and CAR-T cell therapy approaches). While these programs continue to pass through clinical studies, Amgen will need support from continued growth of Prolia as well as a strong sales ramp for cholesterol-lowering drug Repatha (which has a new cardiovascular outcomes label in the U.S.) and migraine drug Aimovig (poised to launch following FDA approval in May).

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Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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