No doubt, Amgen, Inc. (NASDAQ:AMGN) has its share of challenges, both off and on the price chart. But as is often the case, opportunities and value may also exist. Let’s examine some of the key factors facing Amgen bulls and bears and then offer up a limited risk options strategy after reviewing the evidence at hand.

The past couple years have been anything but easy for Amgen shareholders. Since October 2014 AMGN stock has more or less been trapped in a volatile trading range of around 25% with little to show for holding the biotech giant during that period.

Before the violins come out for Amgen investors, a solid dividend now in excess of 3% has made the sub-par performance a bit more digestible. As well, a three-year period of massive out-performance in the biotech sector, which began in late 2011, helped AMGN stock to gains of more than 200%.

So, what’s in store for AMGN stock in 2017 and beyond?

Bear Case for Amgen

For bears not satisfied with Amgen’s flat, albeit sometimes volatile under-performance and eyeing additional price pressure; attention is likely being paid to a couple factors and/or challenges.

For one, much of AMGN stock’s growth the past few years has been from highly concentrated revenues approaching 50%, which are dependent on two drugs, Enbrel and Neulasta.

Front and center, Amgen is in U.S. federal court defending patent protection for Enbrel through 2029 against a biosimilar from Novartis AG (ADR) (NYSE:NVS) which received approval from the U.S. Food and Drug Administration last year. Revenues approaching $5 billion are at stake and a verdict is looking likely in 2018.

Another potential headwind for Amgen, along with other drug manufacturers, is the company’s ability going forward, to raise prices on its drugs.

The Trump administration has put the practice of egregious price hikes in its cross hairs. And with industry sources noting more than 80% of AMGN stock’s income growth directly attributable to regular price hikes on Enbrel, there is obviously some cause for concern.

Bull Case for Amgen

For bulls viewing Amgen’s period of stagnation as an opportunity going forward, bears don’t have the keys to the castle just yet.

As discussed, a good deal of AMGN stock’s fortunes have rested on two drugs. Those supports, despite the specter of competition and potential legislation, are still not going to be resolved overnight. What might also be appreciated are those outcomes could always prove favorable or at least better-than-feared and bullish catalysts for AMGN stock down the road.

Secondly, an initial price fumble by Amgen with Repatha, a drug marketed for lowering LDL cholesterol, may have another opportunity to be AMGN stock’s next big support.

A recent court decision favoring the company’s intellectual property against Praluent, a competing drug from Sanofi SA (NSYE:SNY) and Regeneron Pharmaceuticals Inc (NASDAQ:REGN) could mean Amgen will have market exclusivity and better pricing power than otherwise until patent protection expires.

Third, AMGN is cheap on a valuation basis. Shares compare favorably to both the broader market and its peer group with a trailing P/E of around 15.50 and forward P/E near 12.50. As mentioned, AMGN is also paying investors an above-market dividend of just over 3% supported by an attractive payout ratio of just 38%.

So, who has the upper hand in Amgen? Both the bear and bull camps obviously have their supports. But as the former’s case rests largely with what might occur versus an attractive “what is” situation that could also become more compelling for AMGN stock, I’m willing to see the upside potential in Amgen.

AMGN Stock Daily Chart

Optimistically, AMGN is supported by an oversold stochastic condition. The chart also offers investors an opportunity to buy a pullback within an up-channel from the November low. As well, the recent low marks a higher low pattern relative to the corrective October 2014 bottom.

Amgen bulls certainly have their work cut out for themselves.

For one, an early January gap fill ultimately failed to hold 200-day moving average support. Also, the aforementioned up-channel in AMGN stock, could be defined as a bearish flag.

A move below support backed by the 50-day simple moving average and recent pivot low, could be an early warning the last couple years of price consolidation turns out to be a major top for AMGN.

AMGN Bullish Long Butterfly

Given an advantage for Amgen’s bullish “what is” evidence off the price chart, but a slightly more obscured AMGN stock chart, as well as a looming earnings event late next week, I like a bullish long butterfly for positioning.

Reviewing AMGN’s options and shares at $153.85, the 3 Feb $155/$157.50/$160 call butterfly is attractive. Priced for 40 cents, the limited risk position is a bullish, short-term play on the “up-channel” modestly reaffirming itself.

A move of around 2% from current levels yields a max return of $2.10, or just over 500% if AMGN settled right at $157.50 next Friday following Thursday night’s earnings release.

More realistically, the opportunity for some type of profit above $155.40 and up to $159.60 while having risk contained to the small debit paid. In our view that makes for an interesting bullish play in lieu of the risks, as well as possible rewards in Amgen.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.