Amgen Stock – The Best Biotech Stock 2017?
The biotech industry is one of the more lucrative–if volatile–sectors around for heady investors. With so much depending on government regulation, competition, and public opinion, there’s a lot of room to make big gains in the biotech industry, and a lot of room to see your money evaporate before you can say “Phase III approval.” That’s why it’s so important to find a solid company with both longevity and strong growth potential; otherwise, you might find yourself on the losing end of a biotech trade. For me, Amgen, Inc. (NASDAQ:AMGN) stock is the best biotech stock for 2017 for exactly the reasons mentioned above.
Amgen is among the world’s largest biotechnology firms, and as such, AMGN stock is one of the more valuable tickers on the market. One of its flagship treatments is “Neulasta,” two drugs used to prevent infections in patients undergoing cancer chemotherapy.
Its leading seller is “Enbrel,” a tumor necrosis factor blocker used to deal with rheumatoid arthritis and other autoimmune diseases. Both Enbrel and Neulasta account for over $1.0 billion each in sales and are strong propellants of the AMGN stock price.
Amgen has a strong host of medicines that totaled $5.663 billion in sales during 2016, a six-percent increase from 2015. Amgen’s market cap is currently set at $133.2 billion. (Source: “Amgen Reports Fourth Quarter And Full Year 2016 Financial Results,” Amgen, Inc., February 2, 2017.)
We’ll dive a little deeper into the numbers later on, but suffice it to say that Amgen had a strong year. This has translated into AMGN stock growth, with the company gaining nearly 23% since the beginning of 2017 and nearly 25% over the past 12 months. Which is to say that 2017 has been quite good to Amgen so far as well.
Data courtesy of Amgen, Inc.
And there’s plenty of reasons to believe that 2017 will be a great year for Amgen.
New results from the “Repatha” (a heart medication) cardiovascular outcomes trial are forthcoming and likely to show positive results for the medication. Repatha was a big part of Amgen’s gains in the last year, growing from $10.0 million in sales during 2015 to $141.0 million in 2016. Being a newer drug, this coincides with the approval process of various government drug administrations, but shows promise for the company heading into 2017. (Source: “Amgen Highlights Landmark Repatha® (Evolocumab) Cardiovascular Outcomes Study Amongst Data To Be Presented At ACC.17,” Yahoo! Finance, March 6, 2017.)
“As cardiovascular disease remains the leading health burden in the world, we sought to answer whether adding Repatha would provide further risk reduction for patients who are already well-treated with statins,” said Sean E. Harper, M.D., executive vice president of Research and Development at Amgen, in a press release.
“The data from this large cardiovascular outcomes trial will provide a new understanding of the role that Repatha plays in the lives of the millions of people living with uncontrolled high cholesterol.”
Continuing on with good news in 2017 for Amgen and Repatha, the company announced positive data from a phase III study evaluating the drug in patients who were receiving apheresis to help control their low-density lipoprotein cholesterol. (Source: “Amgen’s Repatha Meets Primary Endpoint in Phase III Study,” Yahoo! Finance, March 14, 2017.)
The data demonstrated that Repatha significantly reduced the need for apheresis, which is an invasive procedure similar to dialysis. Often painful, time-consuming, and expensive for cholesterol patients, a Repatha treatment that reduces the need of these procedures would be a huge boon not only to patient outcomes, but also for AMGN stock.
The drawback on Repatha is the cost: the drug will run over $14,000 a year per patient. Considering that the drug helps reduce the rates of heart attacks, strokes and death in people with heart disease already taking maximum doses of cholesterol-lowering medication, this is a potentially long-term drug for patients, which only makes the cost that much more onerous. This all coming at a time when biotech companies are facing more scrutiny than ever before in the public eye when it comes to price gouging. Amgen stock would not be immune to such accusations.
The sales potential for Repatha is in the billions as heart disease is the leading cause of the death in the U.S. In fact, according to Centers for Disease Control and Prevention numbers, one if four deaths in the U.S. comes as a result of heart disease. The price, however, could present a barrier to adoption by insurance companies. (Source: “Heart Disease Facts,” Centers for Disease Control and Prevention, August 10, 2015.)
With such a huge need for more comprehensive treatments of heart disease, Repatha is uniquely situated to provide that extra help. While the price is high, the selling potential of the drug is astronomical and could shoot AMGN stock over the moon.
For now, insurers have been quick to reject covering the drug, instead providing patients with proven medicines from cheaper or generic brands. If Repatha’s results come in positive, however, that would help push insurance companies to begin providing coverage for the treatment.
And Repatha has a number of doctors on its side.
“What I care about is there are patients for whom the PCSK9 is absolutely vital,” said Dr. Leslie Cho, head of preventive cardiology and cardiac rehabilitation at the Cleveland Clinic, in an interview with Reuters. (Source: “Data on heart benefits of Amgen drug is key to unlocking sales,” Reuters, March 13, 2017.)
Another factor going in Repatha’s favor is that its main competitor, “Praluent,” was ruled to have infringed on Repatha patents. While Praluent remains on the market pending an appeal to the court’s decision, if it were to be removed, that would again help see Repatha surge forward, and AMGN stock along with it.
AMGN Stock Chart
Chart courtesy of StockCharts.com
As you can see from the above chart, things are going well for Amgen. A continuation of this course is what will make it the best biotech stock for 2017.
While November represented a hitch as the U.S. presidential election loomed large, it has since recovered, and with all the good news surrounding Repatha, AMGN stock should be in for a strong 2017.
In the most recent quarter, revenue was up eight percent versus Q4 of 2015, reaching $6.0 billion. Product sales grew six percent, driven by a number of drugs, including Enbrel and Repatha. On the year, total revenue increased six percent to $23.0 billion with a five-percent product sales growth.
GAAP earnings per share (EPS) increased nine percent in the fourth quarter to $2.59 and 13% for the full year to $10.24, driven by higher revenues and higher operating margins.
The company now maintains a total revenues guidance of $22.3 to $23.1 billion for 2017 and a EPS guidance of $10.45 to $11.31.
And the results were strong across the board for its drug selection. Only three medicines saw a reduction in sales from the previous year. Neulasta fell by one percent from 2015, mainly due to lower unit demand.
Epogen declined 31% due to competition and a shift by some U.S. dialysis customers to Aranesp. Neupogen also took a hit in 2016, with sales falling 27% on the year due to stronger competition in the U.S.
But aside from those three under-performers, the majority of Amgen’s slate of treatments grew in 2016.
Biotech Stocks in 2017
Amgen stock is the best biotech stock for 2017 due to its strong offerings and huge growth potential, especially with regards to Repatha.
But there are several factors outside of AMGN stock’s control that could see the company have a rougher 2017 than anticipated.
First, there’s the U.S. President Donald Trump factor. It wasn’t long ago that Trump had set his sights on attacking the biotech industry, to good effect. And Amgen stock is just as vulnerable as its compatriots.
“We have to get our drug industry coming back. Our drug industry has been disastrous, they’re leaving left and right. They supply our drugs but they don’t make them here, to a large extent,” Trump said during a press conference in January. “And the other thing we have to do is create new bidding procedures for the drug industry, because they’re getting away with murder.” (Source: “Trump says drugmakers are ‘getting away with murder,’ and biotech stocks plunge,” CNBC, January 11, 2017.)
That last bit is what is most worrying for biotech stocks. The media has never had more scrutiny on the biotech industry, especially with numerous stories coming out about price hiking and gouging and otherwise dirty dealings from “Big Pharma.”
Don’t forget that a single tweet–not from the president, mind you, but from Senator Bernie Sanders–sent Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) plunging by 15% after Sanders criticized the price raise of a life-saving leukemia drug to nearly $200,000 a year per patient. (Source: “Bernie Sanders tweet sends shares of Ariad Pharmaceuticals down 15%,” CNBC, October 15, 2016.)
Combine this with other problems in public perception, like infamous “Pharma Bro” Martin Shkreli and the various other scandals involving big pharmaceutical companies, and you have a climate that is certainly not friendly towards the biotech industry. One misstep can cost a company billions on the market, if they don’t play their cards right.
While Trump has been known to change his mind on many issues, the public’s ire with biotech is unlikely to soften any time soon. As such, Amgen is not immune to a potential public backlash if it does become the focus of a price gouge outrage.
But these are wildcard, unlikely scenarios, while all the aforementioned evidence at the beginning of this piece is pointing to a AMGN stock surge.
With that in mind, and while there are certainly reservations, I believe that Amgen is the best biotech stock for 2017.