Company Reports

We’re maintaining our $268 fair value estimate for Amgen following in-line 2023 results. We think approved drugs and pipeline candidates should help the firm maintain solid mid-single-digit growth and a wide economic moat, although a successful obesity drug could move growth into double-digit territory. Given only phase 1 data so far, we assume a 30% probability of approval for obesity drug candidate MariTide. We see the shares as slightly overvalued at recent prices, likely because of overenthusiasm about Amgen’s prospects in this market.

Wide moat Amgen reported third-quarter results that were consistent with our expectations, and we're maintaining our $268 fair value estimate. We think shares look relatively fairly valued, as investors appear to be weighing the potential growth prospects for key pipeline programs in cardiometabolic disorders and oncology against continuing competition for products like oncology drug Lumakras and psoriasis drug Otezla. The Horizon Therapeutics acquisition officially closed in early October, which significantly expanded Amgen's rare disease business and should drive near-term growth, although we're cautious on Tepezza's ability to significantly expand sales in thyroid eye disease as well as upcoming competing to gout drug Krystexxa from Sobi's SEL-212. Competition continues to drive a wedge between product sales growth (5% in the third quarter) and volume growth (11%), although this difference was accentuated in the quarter by some changes to Amgen's estimated sales deductions.

Amgen has its roots in providing supportive-care products to kidney disease and cancer patients, but the firm has expanded its portfolio to include innovative drugs in therapeutic areas ranging from cardiology to immunology. Despite headwinds from biosimilar and branded competition, Amgen's newer blockbusters like cholesterol-lowering drug Repatha defend its wide moat and keep free cash flow above 30% of sales in our forecast.

As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29 announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

We’re maintaining our $268 Amgen fair value estimate following solid 6% product sales growth in the second quarter, driven by 11% volume growth. Amgen’s biggest growth drivers in the quarter were asthma drug Tezpire, osteoporosis drugs Evenity and Prolia, and cholesterol-lowering drug Repatha. These drugs were able to counter relatively flat sales of immunology drugs Enbrel and Otezla, as well as declines in older branded supportive care drugs like Epogen and Neulasta and Amgen’s biosimilar versions of Roche’s Herceptin and Avastin. Overall, we see Amgen as slightly undervalued, as market uncertainty surrounding the pending Horizon Therapeutics acquisition is likely weighing on shares. We continue to believe the deal will close at the end of the year, although we see Federal Trade Commission pushback as a signal that any future large acquisitions in the industry will be scrutinized. We continue to see Amgen’s broad portfolio as supporting a wide moat.

The approval of Novo Nordisk's GLP-1 agonist Wegovy in 2021 has led to a demand surge for the active ingredient semaglutide in various forms, including diabetes drug Ozempic. Eli Lilly's approved diabetes drug Mounjaro is poised to generate even stronger weight loss and to launch in obesity around the end of 2023. We think Novo and Lilly will continue to lead the obesity market over the next 10 years, with incremental innovation in this rapidly expanding market that will support their wide moats. We assume Novo Nordisk's Wegovy, higher-dose oral and injectable semaglutide, and novel GLP-1/amylin cagrisema will support more than 35% share in 2032. Eli Lilly is likely to remain Novo's chief competitor, driven by potential launches of Mounjaro in obesity as well as an oral GLP-1 and a novel triple agonist in 2025, resulting in a 40% share by 2032. We think Amgen, Pfizer, and other biopharma firms could begin to launch their own GLP-1-based obesity drugs as early as 2025, with these new players growing to roughly one quarter of the market by 2032.

We're raising our fair value estimate for Amgen to $268 from $255 after raising our sales forecast for Amgen's obesity drug candidate AMG 133, along with our broader, more bullish view on the global obesity market potential. We assume AMG 133 sales of $2.6 billion on a probability-adjusted basis by 2032, using a 30% probability of approval in 2026. We also assume the pending Horizon acquisition could close around the end of 2023, which is neutral to Amgen’s wide moat and our valuation, bringing valuable rare disease and immunology drugs but at a steep $28 billion price tag. We expect negotiations to continue over the next few months, as the FTC could be looking for Amgen to make broader commitments regarding future bundling practices and Horizon’s portfolio and pipeline. We see Horizon’s portfolio of rare disease and immunology drugs generating combined sales north of $6 billion by 2028.

Amgen has its roots in providing supportive-care products to kidney disease and cancer patients, but the firm has expanded its portfolio to include innovative drugs in therapeutic areas ranging from cardiology to immunology. Despite headwinds from biosimilar and branded competition, Amgen's newer blockbusters like cholesterol-lowering drug Repatha defend its wide moat and keep free cash flow above 30% of sales in our forecast.

We’re not making any changes to our $255 fair value estimate or wide moat rating for Amgen following the news that the U.S. Federal Trade Commission seeks to block Amgen’s pending acquisition of Horizon Therapeutics. Since the announced pending acquisition of Horizon in December, we have seen the acquisition as neutral to Amgen’s valuation, bringing valuable rare disease and immunology drugs but at a steep $28 billion price tag. We expect negotiations to continue over the next few months, as the FTC could be looking for Amgen to make broader commitments regarding future bundling practices and Horizon’s portfolio and pipeline.

We’re maintaining our $255 fair value estimate for Amgen following first-quarter results that were in line with our estimates. We’ve made some small changes to our valuation model, including pushing back the close of the Horizon Therapeutics acquisition by one quarter to mid-2023, removing two lupus drug candidates from our forecast, and slightly reducing our forecasts for immunology drugs Enbrel and Otezla. However, after factoring in better prospects for long-term growth of Horizon’s thyroid eye disease drug Tepezza and Amgen’s osteoporosis drug Evenity, this had no significant impact on our valuation. Amgen’s product sales grew by 2% in the first quarter, with 14% volume growth weighed down by lower prices (5% impact), lower wholesaler inventories, and foreign exchange headwinds. Total revenue was further hit by lower COVID-19 antibody sales, leading to a 2% revenue decline, with rising R&D costs driving down operating margin and leading to a 6% non-GAAP EPS decline. Overall, we think shares look fairly valued, with headwinds on older drugs countered by a portfolio of newer products and a pipeline that both help support a wide moat.

We’re maintaining our $255 fair value estimate for Amgen following fourth-quarter results that showed solid cost controls but significant continued pricing pressure on several of the firm’s franchises. We think the pending Horizon Therapeutics acquisition will boost Amgen’s immunology business at a time when the firm’s pricing power is fading for several of its key branded and biosimilar products. Between in-house pipeline progress and acquired products, we think Amgen is positioned to maintain a solid, diversified portfolio in the long run, warranting a wide moat rating. That said, we’re still waiting for data for key pipeline products in cardiometabolic disease and Horizon’s thyroid eye disease drug Tepezza before assuming Amgen can avoid a slight dip into negative growth territory when Prolia faces biosimilar competition (likely in 2025).

We don't expect to make any significant changes to our $255 fair value estimate for Amgen as a result of the firm's proposed acquisition of Horizon Therapeutics for $28 billion, or $116.50 per share. Amgen expects to close the acquisition in the first half of 2023, bringing several new marketed immunology drugs into its portfolio. Overall, we think at least three key Horizon drugs will help support Amgen's growth and wide economic moat during a potentially difficult period of competitive threats, as osteoporosis drug Prolia faces biosimilar competition (in 2025) and Otezla growth slows due to branded competition from Bristol's Sotyktu. Amgen has confirmed its continued commitment to increasing the dividend, and we don't expect the additional debt incurred as it absorbs Horizon to be a significant burden, given strong expected cash flows for the combined firm.

Amgen’s third-quarter revenue fell 1% from the prior-year period, as pricing pressure and foreign-exchange headwinds countered the 8% volume growth in the quarter. Non-GAAP net income grew 15% largely because of a $400 million up-front payment to Kyowa Kirin for atopic dermatitis drug AMG 451 in the third quarter of 2021 (excluding this payment from non-GAAP results implies 1% non-GAAP net income growth for the quarter). While Amgen’s osteoporosis business (Prolia and Evenity) continues to stabilize Amgen’s results, we’re less enthusiastic about growth prospects for Amgen’s other established drugs. We look to the launch of Amjevita (Humira biosimilar) in 2023 as well as the continuing launches of lung cancer drug Lumakras and asthma drug Tezspire to help drive growth heading into next year, and we’re particularly bullish on Tezspire’s differentiated profile from Regeneron/Sanofi’s Dupixent and strong efficacy. The drug was also just approved in Europe and Japan in September, and several studies in other immunology indications are in progress that could further expand its potential. In addition, the recent acquisition of ChemoCentryx and immunology drug Tavneos should prove complementary to Amgen’s existing immunology business. We think these newer products will help keep Amgen’s wide moat secure, and we’re maintaining our $255 fair value estimate.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

Amgen has its roots in providing supportive-care products to kidney disease and cancer patients, but the firm has expanded its portfolio to include additional innovative drugs in therapeutic areas ranging from cardiology to immunology. Despite headwinds from biosimilar and branded competition, Amgen's newer blockbusters like cholesterol-lowering drug Repatha defend its wide moat and keep free cash flow above 30% of sales in our forecast.

Amgen’s product sales grew by 3% in the second quarter, with 5% growth excluding foreign-currency headwinds and 10% volume growth showing underlying strength. Top- and bottom-line results were slightly ahead of our expectations, but we’re maintaining our full-year forecast and $260 per share fair value estimate. We saw steady growth from established brands like bone drug Prolia/Xgeva, cholesterol-lowering drug Repatha, and psoriasis drug Otezla. Newer drugs like osteoporosis drug Evenity, lung cancer drug Lumakras, and asthma drug Tezspire also helped counter declining sales of older drugs like immunology drug Enbrel as well as fading sales of the firm’s oncology biosimilars, which are already seeing significant competition and pricing pressure. We see Amgen shares as fairly valued, and we continue to see the firm’s newer products and pipeline supporting a wide moat. We’re particularly interested in upcoming data this weekend from Lumakras and small-cell lung cancer drug candidate tarlatamab, as these could boost our forecasts for Amgen’s oncology lineup.

The likelihood of drug-pricing policy changes in the United States changed dramatically over the course of July, and we are now assessing the impact of the various measures included in the Inflation Reduction Act of 2022 in our Big Biopharma valuation models. Assuming the bill is eligible to pass via reconciliation (the Senate parliamentarian is reviewing the bill), we think Democrats will be able to pass the Senate bill, paving the way for it to be signed into law. Overall, we don’t expect major changes to our fair value estimates or moat ratings, as the changes net out to a moderate negative that we believe is manageable, likely through a combination of cost-cutting, agreements with generic firms for limited authorized generic launches (to avoid the list for negotiated drugs), and higher launch prices (to counter pressure on price increases and earlier declines due to negotiation).

Morningstar now directly incorporates cost-effectiveness analysis into our biopharmaceutical ratings through what we're calling our capsule system. Given the lack of regulatory oversight on whether U.S. drug launch prices or price increases are justified, an independent, private organization—the Institute for Clinical and Economic Review, or ICER—has gained prominence and authority assessing cost-effectiveness. Drugs that are priced above ICER's cost-effectiveness thresholds or that record high unsupported price increases contribute to Morningstar's ESG Risk Rating Assessment and equity research methodology for incorporating environmental, social, and governance risk into our fair value estimates and moat and uncertainty ratings.

Amgen has its roots in providing supportive-care products to kidney disease and cancer patients, but the firm has expanded its portfolio to include additional innovative drugs in therapeutic areas ranging from cardiology to immunology. Despite headwinds from biosimilar and branded competition, Amgen's newer blockbusters like cholesterol-lowering drug Repatha defend its wide moat and keep free cash flow above 30% of sales in our forecast.

Amgen's first-quarter 6% total revenue growth (2% product sales growth) and 15% non-GAAP EPS growth put the firm on track to meet our forecast for the year, and we're not making any significant changes to our $260 fair value estimate for the firm.