Is Amgen Stock a Safe Bet in the Biotech Industry?

The biotech market is expanding steadily as new technology makes previously impossible medical breakthroughs a reality. Global biotech is forecasted to reach $5.68 trillion by 2033, but not all biotech companies are on track to develop blockbuster therapies, and some aren’t right for risk-averse portfolios. 

Amgen Inc. (NASDAQ:AMGN) is a market leader in the biotech space, which puts it on the shortlist for those who want to invest in this area. Is Amgen in a good spot to generate profits for shareholders? In other words, is Amgen stock a smart buy? 

Does Amgen Have A Pipeline?

Biotechs biggest profits come from drugs that are more effective than anything already on the market or drugs that are first-in-class – different from anything previously developed. Amgen focuses on these types of medicines, developing products to manage serious illnesses that have few existing treatment options.

To date, 35 of its products are commercialized across 100 countries, and there are more promising solutions in the Amgen pipeline. 

The company’s portfolio is fairly diverse. As of the first quarter of this year, the highest contributor to revenue was Prolia – a longstanding therapy approved to strengthen and protect bones in post-menopausal women. 

Amgen’s product portfolio was enhanced by the $27.8 billion acquisition of Horizon Therapeutics plc last year. The addition of Horizon brought first-in-class, early-in-lifecycle medicines such as TEPEZZA, KRYSTEXXA, and UPLIZNA into the Amgen family. These drugs are used in the treatment of rare inflammatory diseases.

Amgen continues to build its pipeline and currently has 25 medicines in Stage 3 trials. They have been developed to treat a variety of conditions ranging from neurological and inflammatory diseases to several types of cancer.

In addition to its Stage 3 candidates, Amgen is also working on a promising Stage 2 cardiometabolic medication known as MariTide. This drug appears to inhibit the gastric inhibitory polypeptide receptor and activate the glucagon-like peptide 1 (GLP-1) receptor to address obesity. 

If MariTide trials demonstrate it is both safe and effective, this therapy has tremendous revenue potential. Weight loss drugs are in high demand, and there is stiff competition to develop and deliver solutions for obese patients. After all, addressing obesity isn’t just about vanity. Obesity is linked to a long list of health issues, such as diabetes and heart disease. 

Some of Amgen’s rivals in the weight loss drug market include big names like Roche Holding AG (OTC:RHHBY), Eli Lilly and Company (NYSE:LLY), Novo Nordisk A/S (NYSE:NVO), and Pfizer Inc. (NYSE:PFE). However, MariTide might be able to differentiate itself from other injectable weight-loss drugs because it appears to have longer-lasting effects.

How Is Amgen Doing Financially?

A five-year lookback shows Amgen has consistently delivered impressive financial results. Among other accomplishments, the company has grown its annual top-line figures each year despite economic headwinds like rising interest rates and high inflation.

The growth rate has been relatively low – in the single digits – but it was primarily driven by an increase in sales volume rather than marking up product selling prices. This trend signals that demand for Amgen therapies has gone up. Investors also find it reassuring that the company reports robust annual profitability on a GAAP basis, though bottom-line results have been mixed. 

The biggest obstacle in biotech is the lengthy research and development period that precedes bringing drugs to market. The process of studying the safety and effectiveness of medications takes years, and successful completion of these trials is required for regulatory approvals. Many promising candidates never make it out of the trial phase. 

That research and development is costly. Amgen and its industry peers put substantial resources into each product that eventually makes it into hospitals and pharmacies, and those sales make up nearly all of these companies’ revenues. For example, in fiscal 2023, product sales made up 95.5% of Amgen’s total top line.

Although Amgen reported solid free cash flow as of the last fiscal year, debt has also risen. At the end of 2023, the company had $64.61 billion in total GAAP debt. Free cash flow for the same period declined by 16.2% to $7.36 billion.

While this appears to be a negative result in isolation, it is important to note that Amgen completed its big-budget acquisition of Horizon Therapeutics last year. The expectation is that the cost of acquiring Horizon will eventually be offset by added revenue. In the first quarter of fiscal 2024, Amgen did reduce its debt by $600 million.

Amgen’s total revenue for the first quarter increased by 22% from the prior year period to $7.45 billion. Several of the drugs in the company’s portfolio posted significant year-over-year gains. Amgen posted a GAAP-based net loss of $113 million, which is a huge downturn from the year-ago profits. However, on an adjusted basis, which considers the income tax effect, Amgen’s net income totaled $2.14 billion. This is flat compared to the corresponding year-ago value.

Due to its strong financial results, Amgen updated its guidance. Business leaders announced the company had raised the lower end of its fiscal 2024 revenue guidance from $32.4 billion to $32.5 billion. The higher end of the guidance remained the same at $33.8 billion. The range for non-GAAP EPS guidance was narrowed from $18.90-$20.30 to $19.00-$20.20.

How Stable is Amgen’s Dividend?

Amgen initiated dividends in 2011. Since then, the company has grown its per-share dividend every year. Stockholders received $1.44 per share in total dividends for 2012, compared to $8.52 per share in total dividends for 2023.

Amgen paid its most recent quarterly dividend in June of 2024 – a total of $2.25 per share. This comes out to an annual dividend of $9 per share or a yield of 2.70% at the current stock price.

Amgen’s dividend payouts increased at a CAGR of 9.6% over the past five years, and its dividend payout ratio is 46.38%. A 35%-55% payout ratio is generally considered healthy. 

Is Amgen Stock A Safe Bet? 

Amgen stock has all the hallmarks of being a safe bet and its share price has the potential to increase exponentially if the company succeeds in developing a weight loss drug that has long-lasting effects.

In the meantime, Amgen’s product portfolio is both diversified and growing through approvals and acquisitions. Better still, dividends are likely to be reliable in coming years.

Amgen is also trading cheaply, with its price sitting at 17.09x its forward non-GAAP earnings. That is lower than the industry average. Wall Street analysts expect a modest decrease in share price over the next 12 months, so it may be wise to wait a little longer before buying Amgen stock to get the best returns. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.