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

AMGN is a solid dividend-payer, but ongoing patent battles are a concern

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Amgen, Inc. (NASDAQ:AMGN) has been one of the market’s all-time big winners. Had you invested $10,000 in AMGN stock 30 years ago today, it’d now be worth $3.1 million dollars. It’s fair to say that AMGN stock has changed many investors’ lives. But as the ads always warn, past results aren’t a guarantee of future success. So it’s worth seeing how fundamentals are looking going forward.

To Amgen’s credit, they have performed well in a difficult market. AMGN stock is sitting within 10% of its all-time high.

The SPDR S&P Biotech (ETF) (NYSEARCA:XBI), by contrast, languishes at $68, way down from its $90 peak.

AMGN Stock Cons

Biosimilars: Amgen has involved itself heavily in biosimilars, thus making them perhaps a net positive to the company. However, there is real risk as well. Biosimilars are close replicas of drugs, made with living cells rather than exact chemical copies of existing drugs. Biosimilars, if widely adopted by doctors, could be a game changer for the pharma industry, offering huge profits to the biosimilar developer while crushing profits for those with the original chemical drug.

Both of Amgen’s top drugs are targeted for biosimilars. Last year, the FDA approved Erelzi, a biosimilar competitor to Amgen’s pivotal Enbrel. And multiple companies are going after Amgen’s other blockbuster Neulasta, though the FDA hasn’t approved any of the biosimilar competitors just yet. Still, it’s probably only a matter of time. Amgen is attempting to defend its patents. But considering Amgen’s own biosimilar portfolio elsewhere, overly vigorous defense against biosimilars might end up being counterproductive.

Cholesterol Drug Patent Uncertainty: On Jan. 4, Amgen appeared to win an important patent decision. On that day, a court ruled that a rival cholesterol drug, Praluent, infringed on Amgen’s patents. That spiked AMGN stock, while sending Praluent owners Sanofi SA (ADR) (NYSE:SNY) and Regeneron Pharmaceuticals Inc (NASDAQ:REGN) lower.

That effect threatens to reverse itself, to the detriment of AMGN stock. On Wednesday afternoon, an appellate court ruled in favor of Sanofi and Regeneron, staying the decision against Praluent. This will allow those companies to keep selling their rival drug for the time being. Amgen may well ultimately win this patent decision, but it will take longer to get there than investors previously assumed.

Revenue Concentration: Revenue concentration is a key risk factor for pharma companies. Given that drugs have limited patent life before expiry, companies need to replace revenues constantly to avoid patent cliffs. Amgen is far from the worst positioned within its industry as far as patent issues go, but it still has concerns. Its top two drugs, Enbrel and Neulasta make up half of Amgen’s total worldwide sales. After those two blockbuster drugs, no other individual drug accounts for even 10% of Amgen’s overall revenues. That’s some fairly serious concentration risk. The situation comes with particular risk, since both drugs face biosimilar threats.

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Article printed from InvestorPlace Media,

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