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

Amgen stock had a pretty solid 2016 compared to peers

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Last year wasn’t a great year for the biotech industry. The sector was rocked by various price hike scandals. These came under particular scrutiny as then-frontrunner Hillary Clinton specifically went after the sector. Combine that with more than a usual number of companies that collapsed following disappointing trial results, and you have the makings for a bad year. But out of the negativity, Amgen Inc. (NASDAQ:AMGN) has endured. One year from today, AMGN stock has managed to post a 5% gain.

Former biotech leader Gilead Sciences, Inc. (NASDAQ:GILD) is down 22% over the same stretch. With that role reversal, Amgen has now overtaken Gilead to become the market’s largest biotech firm.

In addition, AMGN stock has jumped over the last week. Can Amgen continue to outperform its industry, or will Amgen stock slow down?

AMGN Stock Cons

Drug Pricing Crackdown: Pharma and biotech companies have faced increasing scrutiny over drug pricing during the last 18 months. Blame it on the Martin Shkreli’s decision to raise an AIDS drug’s price by 5,000%, or the various shenanigans at embattled Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Gilead took fire on pricing for its hep C drugs. The list goes on.

The sector appears to have dodged a bullet with the 2016 election. Clinton took an adversarial position against the industry, calling out individual companies for public shaming. Trump’s position is less certain on drug pricing. He’s making some worrisome comments though, including suggesting that Medicare will pay less for drugs going forward. A dark cloud hangs over the industry until it becomes more apparent what health policy he’ll unveil once in office.

Repatha Off Track: Given the general problems around drug pricing, Amgen has seemingly squandered an opportunity. The company developed an improved drug for lowering LDL cholesterol, Repatha. Unfortunately, it priced the drug in late 2015, at the height of pricing overreaches. AMGN put it on the market with an initial sticker price around $14,000 per year, when reports suggested that most payers only would spend $2,000 to $3,000 per year for it.

There’s potentially a large market here. Around 40 million Americans currently take a cholesterol-lowering drug. However, statins in general are off patent and cheap, so insurers don’t mind paying. However, at $14,000, Amgen can really only hope to target the highest of high-risk patients. A price cut would likely help AMGN stock benefit more from Repatha while it’s still new and patent-protected.

Revenue Concentration: Amgen stock, like many biotechs, relies on just a few key products to drive its results. In 2015, Enbrel and Neulasta produced 48% of AMGN’s revenues. This figure changed little from 2014 and 2013, when those two drugs constituted 48% and 49% of sales. No other products have consistently topped 10% of total revenues. That’s fine for now, as long as Enbrel and Neulasta remain patent-protected. But the clock is ticking for Amgen to find another big product that will diversify the revenue stream.

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