Should You Buy Amgen Stock? 3 Pros, 3 Cons (AMGN)


Like most stocks, the market’s tumble in August dragged shares of biotech Amgen (AMGN) down as well. And investors are starting to wonder if Amgen stock is undervalued as a result of the pullback … even with last week’s modest rebound effort. Even with the move off of its low, AMGN is still down more than 18% from its July 31 peak.

Should You Buy Amgen Stock? 3 Pros, 3 Cons With that as the backdrop, here’s a closer look at the biggest factors working for and against Amgen stock.

If something is going to send shares higher or lower, it’s most likely going to be one or more of these factors.

Pros on Amgen Stock

Repatha Is Approved: The news was unfortunately timed, being released on Friday to a market that had other things on its mind. Still, FDA approval of cholesterol-fighting drug evolocumab (they’re calling it Repatha) is good news all the same and should eventually help boost Amgen stock. The science behind the drug is similar to that of Praluent, from Regeneron Pharmaceuticals (REGN) and Sanofi SA (SNY), which was approved a little more than a month ago. The drug allows the liver to better process low-density lipoprotein cholesterol (LDL-C), or “bad” cholesterol. Although those with high cholesterol might not like the annual cost of $14,100, owners of Amgen stock are loving it.

Reliable Growth and Earnings Beats: Say what you want to about its portfolio. Say what you want about its pipeline. Say what you want about potential patent-expiration headwinds. But you can’t say Amgen doesn’t have a history of strong growth and earnings beats, sometimes in the face of doubt. AMGN has topped earnings estimates in each of its past five quarters and has only missed earnings estimates once in the past three-and-a-half years. The company is also in the midst of its sixth straight year of sales growth and its fourth consecutive year of earnings growth, which is something most other companies can’t say.

Strong Pipeline, Including Biosimilars: Owners of Amgen stock should appreciate the fact that the company has a robust pipeline, including 12 phase 3 trials. Among those 12 are the deservedly ballyhooed Kyprolis, Trebananib and Xgeva. And though the advent of the biosimilar era is in some ways working against Amgen stock, AMGN is riding that wave to its benefit as well. It’s developing six biosimilars of its own to take on some major branded drugs when the time comes. Among those six are alternatives to Rituxan and Avastin.

Cons on Amgen Stock

The Generics Are Coming: Beginning today, Novartis AG (NVS) can officially, legally sell a generic version of Amgen’s Neupogen. The introduction of this biosimilar won’t outright kill Amgen; Neupogen only made up $1.2 billion of 2014’s total revenue of $20 billion. In fact, the decision in favor of Novartis may yet be appealed. Even so, the Neupogen decision is a microcosm of a much bigger headwind that could gnaw at Amgen stock for a while — generic biosimilars take aim at Amgen’s bread and butter. A generic version of Neulasta, which is similar to Neupogen, may be delayed until the middle of next year, but the company can’t fend off these biosimilars forever.

Reliance on Too Few Drugs for Too Much Revenue: Augmenting the risk that generic biosimilars pose is the fact that AMGN currently derives almost 50% of its revenue from just two drugs. Enbrel and the aforementioned Neulasta each contributed 24% of the company’s total sales in 2014. Neulasta is already under fire from would-be competitors, and Enbrel isn’t any safer in the long run.

Questionable Practices: In the grand scheme of things, a $71 million slap on the wrist may not even be noticed the next time owners of Amgen stock have reason to scour the company’s quarterly results. But the fact that Amgen was implicated in yet another case of improperly — and inappropriately — marketing one of its drugs may leave investors wondering if much of Amgen’s growth has been built on the dubious practice. You see, the $71 million settlement over improperly pushing Aranesp and Enbrel came a couple years after paying $762 million in criminal penalties and settlements for similar tactics with Aranesp. If the company has done it twice now, is it doing so with all of its drugs? If so, it’s a recipe for trouble, one way or another.


Even with all of its downsides, weak Amgen stock is better than most other stocks on their best day. With the exception of its improper sales tactics, the company could buy or develop its way out of any trouble spurred by the rise of biosimilars and its concentrated portfolio.

In the meantime, odds are good that AMGN is cleaning up its sales approach for all of its drugs.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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