Amgen's Portfolio Supports a Wide Moat, and Horizon Acquisition Supports Rare Disease Expansion

Strategist

Karen Andersen

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Amgen has its roots in providing supportive-care products to kidney disease and cancer patients, but the firm has expanded its portfolio to include innovative drugs in therapeutic areas ranging from cardiology to immunology. Despite headwinds from biosimilar and branded competition, Amgen's newer blockbusters like cholesterol-lowering drug Repatha defend its wide moat and keep free cash flow above 30% of sales in our forecast.

Amgen's first generation of biologics is coming under pressure, but newer drugs are keeping overall sales steady. Tougher labels and reimbursement had been affecting anemia drugs Epogen and Aranesp since safety concerns emerged in 2007, and the 2019 launch of Pfizer's biosimilar, Retacrit, is weighing on sales. Neutropenia drugs Neupogen and Neulasta are also in decline due to biosimilar launches. While Enbrel patents run to 2028, more effective branded competitors are poised to continue to erode its market share. Prolia (osteoporosis) and Xgeva (fracture prevention in cancer patients) should see a combined $6 billion in peak sales in 2024, but look vulnerable to biosimilars in 2025. To address these headwinds, Amgen has invested heavily in more-efficient manufacturing to defend margins and allow reinvestment in research and development and promotion in new areas, like cardiology. Amgen also purchased oral immunology drug Otezla, which fits well with the Enbrel franchise. Amgen's own large biosimilar portfolio and low manufacturing costs make it a viable biosimilar player, as well.

Amgen's newer drugs and its pipeline will be key to countering biosimilar versions of older drugs and branded competition. We see Repatha as a $3 billion opportunity despite price pressure, and asthma drug Tezspire (launched in the U.S. in 2022, $3 billion Amgen sales opportunity) looks differentiated. The Horizon acquisition closed in October 2023 and should boost midterm growth with thyroid eye disease drug Tepezza ($3.5 billion peak sales). Pipeline programs in cardiology (olpasiran), obesity (maridebart cafraglutide), and oncology (tarlatamab) have generated promising data and could begin to support growth within the next few years.

Business Strategy & Outlook

Amgen markets several blockbuster biologic therapies in the oncology and immunology markets, giving it the intangible assets that form the foundation of its wide moat. We think the firm does face environmental, social, and governance risks, particularly related to potential U.S. drug price-related policy reform (Amgen sees roughly three fourths of its sales from the U.S. market) and ongoing potential for product governance issues (including litigation). While we have factored these threats into our analysis, we don't see them as material to our valuation or moat rating. Highly profitable biologics like Prolia and Enbrel continue to support very strong free cash flows for the firm, generally above 30% of sales. We expect Amgen to see relatively steady free cash flow margins, and returns on invested capital should remain above its cost of capital for the foreseeable future. We think newly launched products and higher rates of productivity for its late-stage pipeline—both branded and biosimilar—will allow the firm to maintain strong ROICs. With new lower-cost manufacturing technology and aggressive cost-cutting efforts, pricing and volume pressure from biosimilar competition should not weigh heavily on long-term margins. 

One of the original biotechs, Amgen launched innovative recombinant proteins for anemia and neutropenia, beginning with Epogen in 1989 and Neupogen in 1991. Longer-acting products Aranesp and Neulasta were launched in 2001-02, just as the firm decided to acquire Immunex and bring immunology drug Enbrel into its portfolio. The launch of bone-strengthening drug Prolia/Xgeva in 2010 also brings a potential $6 billion in peak sales prior to expected biosimilar competition in 2025. 

Amgen has largely continued to grow despite steady regulatory and competitive headwinds, including safety issues weighing on anemia drugs Epogen and Aranesp since 2007, as well as generic (biosimilar) competition in anemia and neutropenia (against Amgen's Epogen, Neupogen, and Neulasta). Enbrel remains Amgen's single-largest product at roughly 16% of sales in 2022, but we expect two fairly significant patent cliffs for Amgen, including Prolia/Xgeva in 2025 and Enbrel and immunology drug Otezla in 2028. 

Countering these pressures are several newer products that continue to bolster Amgen's moat. Newer products like cardiology drug Repatha (approved in 2015) and immunology drug Tezspire (approved in 2021) are poised to be top products by 2030, in addition to oncology drug Lumakras (approved in May 2021). Despite cholesterol drug Repatha's slow start, we expect PCSK9 antibodies as a class could generate $7 billion in peak sales, with significant potential for volume growth to more than counter additional pressure on price as well as new competitive threats (like Novartis' new drug Leqvio). Osteoporosis drug Evenity was approved in 2019, and while cardiovascular side effects could limit broad uptake, the drug's bone-forming mechanism of action complements Amgen's Prolia. 

In addition, Amgen's own biosimilar portfolio is growing as it launches against Roche and AbbVie's mature oncology and immunology franchises, and we think Amgen's experience navigating regulatory, clinical, and manufacturing hurdles, as well as its strong reputation for its branded therapies, is helping the firm position itself as a leading biosimilar player.

Regarding pipeline productivity, we think Amgen has turned a corner, and we think it will be able to maintain its top line, despite pressure on current blockbusters, through at least 2030. Amgen historically has had a high failure rate for its pipeline, particularly its oncology pipeline between 2011 and 2014. Amgen’s decision to return brodalumab rights to Astra due to higher rates of suicide was also a hit to its late-stage pipeline in 2015. Current leading pipeline programs include small cell lung cancer drug tarlatamab (potential launch in 2024), cardiovascular drug olpasiran (in phase 3), and phase 2 obesity drug candidate maridebart cafraglutide. Beyond tarlatamab, Amgen is beginning to amass a pipeline of oncology therapies, with heavy investment in bispecific therapies that could more effectively harness the immune system to fight specific forms of cancer. However, this pipeline is still relatively early and has seen mixed data, and we therefore incorporate moderate sales into our valuation model from these pipeline candidates.

Wide

Economic Moat

Amgen

Amgen, Inc. is a biotechnology company, which engages in the discovery, development, manufacture and marketing of human therapeutics. Its products include the following brands: Aranesp, Aimovig, KANJINTI, EVENITY, AMGEVITA, AVSOLA, BLINCYTO, MVASI, Corlanor, Enbrel, EPOGEN, IMLYGIC, Kyprolis, Neulasta, NEUPOGEN, Nplate, Parsabiv, Prolia, Repatha, Sensipar, Vectibix, Otezla, RIABNI, and XGEVA. The company was founded by William K. Bowes, Jr., Franklin Pitcher Johnson, Jr., George B. Rathmann, and Joseph Rubinfeld on April 8, 1980 and is headquartered in Thousand Oaks, CA.

Earnings data Q1 2024

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Amgen, Inc. is a biotechnology company, which engages in the discovery, development, manufacture, and marketing of human therapeutics. It operates through Human Therapeutics segment. The company was founded by William K. Bowes, Jr., Franklin Pitcher Johnson, Jr., George B. Rathmann, and Joseph Rubinfeld on April 8, 1980 and is headquartered in Thousand Oaks, CA.

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