Recently Amgen (NASDAQ:AMGN) stock was included on the Dow Jones index. The company joined two others: Salesforce.com (NYSE:CRM) and Honeywell (NYSE:HON). While the Dow Jones index has its issues, it is still prestigious.
Attaining this achievement was certainly not easy. Founded in the early 1980s, the company faced lots of tough challenges. Keep in mind that company had great difficulties in coming up with new drugs as well as raising enough capital for the R&D.
But in the late 1980s, Amgen hit an inflection point. The company’s investments finally paid off in a big way. Amgen received FDA approval for the first recombinant human erythropoetin product, called Epogen, for anemia. Then there would be approval of Neupogen, for treating infections due to chemotherapy – which would become another blockbuster drug. But this would be only the beginning of a long string of innovations and breakthroughs.
As of now, Amgen has a market value of $23.4 billon and annual revenues of $145 billion. Yes, it is a powerhouse in the biotech industry.
So when thinking of investing in the company, what are some of the key factor to consider? Well, let’s take a look at three:
AMGN Stock: Innovation
Amgen has a long history of investing aggressively in R&D (last year the spending was a hefty $4 billion). The result is that the company has been building a solid portfolio of drugs. Note that six generate more than $500 million a year.
In 2019, Amgen launched EVENITY, which is an osteoporosis treatment that increases bone formation and lowers bone loss. Because of this, there is a reduced incidence of fracture. Consider that about a third of women – who are over 50 – will have fractures because of osteoporosis. In fact, Amgen has other treatments for this disease, including Prolia.
But when it comes to AMGN stock, the key is the pipeline. Now it’s true that the company has had challenges with this, as has been the case with other large biotech operators. Yet it does look like Amgen stock is making progress. Note that the company currently has more than 150 clinical trials for dozens of drug candidates. They target areas include pediatric migraines, male osteoporosis, multiple myeloma, heart failure – just to name a few.
Dealmaking And Financials
A point of leverage for AMGN stock has been a savvy acquisitions strategy. One of the most important deal was for Otezla, which is the only oral non-biologic treatment for psoriasis and psoriatic arthritis. Last year, the sales reached about $2 billion.
There have also been some important partnerships, such as with Beigene (NASDAQ:BGNE). The company is the largest biotech operator in China. Amgen, which got a 20.5% stake in the company, will be able to distribute its oncology drugs in the country.
Finally, AMGN has the resources to continue its aggressive dealmaking. The free cash flows are substantial – coming to $2.7 billion in the latest quarter.
Secular Trends
Biotech remains a strong growth industry. According to Grand View Research, the spending is forecasted to increase by 7.4% to a whopping $727.1 billion by 2025.
Here are some of the key drivers:
- Aging of the Global Population: The number of those 60 or over is expected to jump from 760 million to two billion. In other words, there will continue to be growing demand for health services.
- Lifestyle: The sedentary lifestyle and bad eating habits have meant that a rising number of people have become more susceptible to disease.
- Digital Technologies: No doubt, biotech is more than experimenting with DNA. There have been great advances in leveraging AI (Artificial Intelligence) and ML (Machine Learning) to identify and test different treatments.
- Regulation: For the most part, governments have become more willing to approve new treatments. There are also various “orphan” programs that encourage the development of drugs for rare diseases.
Even with the growth in the biotech industry, the risks are still considerable. It’s common for new treatments to fail in clinical trials. This is why investing in something like Amgen stock is a good approach because of the diverse portfolio of drugs and strong financial resources.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
