Amgen After FY22 Earnings: Ambition Is Commendable But Debt Is Problematic

JHVEPhoto

Investment Overview

The Thousand Oaks, Calif.,-based pharma elephantine Amgen (NASDAQ:AMGN) has performed good for its shareholders complete nan past 5 years - its banal worth has risen by 27%, which underperforms nan S&P 500 - up 50% complete nan aforesaid play - but puts it among nan apical 3 ample Pharma firms - only Merck astatine +98% - and Eli Lilly (LLY) astatine +312% - person performed better.

Amgen besides is simply a dividend payer, presently paying an yearly dividend of $8.52, which yields 3.64% astatine existent traded stock value of $234. Only Pfizer (PFE) and AbbVie (ABBV) salary a higher yielding dividend among large pharmas presently.

Amgen shares deed their all-time precocious of $288 successful mid November 2022, aft gaining a startling 28% successful a small much than six weeks, apparently owed to hype surrounding its weight nonaccomplishment supplier campaigner AMG133, but respective factors person conspired to driblet nan banal backmost down beneath $235 astatine nan clip of penning - imaginable buying territory, perhaps.

Most Significantly, successful mid-December Amgen announced that it would get Horizon Therapeutics (HZNP) successful a woody worthy $116.5 per share, aliases ~$28.3bn, a premium of ~20% to Horizon's marketplace headdress valuation astatine nan time.

Horizon and Chemocentryx Acquisitions

Horizon markets and sells Tepezza, indicated for Thyroid Eye Disease ("TED"), and Krystexxa, indicated for gout, and these 2 narcotics earned respectively $1.47bn and $1.1bn of revenues for Horizon crossed nan first 3 quarters of 2022. Six different narcotics comprise Horizon's Orphan Drug Division which earned a full of ~$2.5bn successful nan 9m to Q322.

There are 4 inflammation conception narcotics which earned conscionable complete $100m complete nan aforesaid period, and respective intriguing precocious shape pipeline assets including UPLIZNA, progressing done a Phase 3 study successful Multiple Sclerosis, and Daxdilimab, successful a Phase 2 study for Systemic Lupus Erythmatosus ("SLE"), and Alopecia Areata.

Amgen has spent large connected Horizon successful portion owed to nan truth that its best-selling plus Enbrel - which earned $4.1bn of revenues successful 2022, accounting for 17% of Amgen's full merchandise revenues of $24.8bn - whitethorn suffer its patent protection successful 2023, owing to nan expiration of a "methods of curen utilizing aqueous formulations" patent, permitting generic versions of nan supplier to beryllium sold successful its place. Patent expiries typically origin nan original drug's income to autumn by ~20 - 25% per annum, fixed nan further title and nan truth nan drug's value must beryllium lowered to compete pinch nan generics.

Horizon has guided for FY22 revenues of ~$3.6bn, but nan apt support of its precocious shape assets UPLIZNA and Daxdilimab - which Horizon itself acquired via nan buyout of AstraZeneca (AZN) rotation retired Viela Bio, could consequence successful a highest gross publication of up to $7bn per annum - astatine slightest based connected Horizon management's forecasting.

In October past year, Amgen besides paid $3.7bn successful rate to get Chemocentryx and its lead plus Tavneos (Avacopan), approved to dainty ANCA Vasculitis. Back successful August past year I based on that nan woody was not needfully a favorable 1 for Amgen fixed Tavneos' support was somewhat arguable successful nan first place, and its first income capacity has been disappointing - Amgen records $21m of income successful FY22 for nan drug.

Tavneos does person explanation description opportunities successful e.g. hidradenitis suppurativa, C3 glomerulopathy and lupus nephritis, meaning it tin thief bolster Amgen's autoimmune section aft nan patent expiry of Enbrel - analysts person speculated Tavenos could yet gain ~$1.5bn successful highest yearly revenues.

Recent Performance / Portfolio Overview

Amgen merchandise revenues (my array utilizing Amgen 10K data)

As we tin spot supra Amgen had 9 products earning blockbuster (>$1bn per annum) revenues successful 2022, which is astir connected a par pinch astir of nan Big US Pharma companies - nan quality is that nan different Pharmas typically person 1 aliases 2 "mega-blockbusters" - arsenic shown beneath (and based connected 2021 sales).

best trading pharmaceutical products (my array utilizing information originated from institution 10K submissions)

Bristol Myers Squibb (BMY), for example, earns >$20bn from conscionable 2 products. AbbVie and Merck (MRK) gain >$18bn each from a azygous product. Johnson & Johnson earns >$20bn from 3 products and truthful on.

My constituent is that Amgen could usage a fewer much specified products if it wants to turn revenues agelong word and lucifer nan likes of Merck - $59bn revenues successful 2022 - Bristol Myers - $46bn revenues successful 2022 - aliases AbbVie - $58bn revenues.

Unfortunately for Amgen nevertheless its lead products Enbrel and Prolia whitethorn some soon look generic title - Enbrel perchance this twelvemonth and Prolia successful 2025 - while Otezla faces aggravated title successful its autoimmune markets and Xgeva - an osteoporosis supplier for illustration Prolia - will spot its patents expire astatine nan aforesaid clip arsenic Prolia.

Together these narcotics thrust >50% of Amgen's merchandise revenues truthful location must beryllium immoderate interest that Amgen is going to struggle to thrust maturation astatine slightest until nan extremity of nan decade.

Amgen insignificant merchandise income (Amgen 10K submission)

If we return a look astatine nan breakdown of Amgen's "other products" - which drove $5.57bn, aliases 23% of full revenues successful 2022 - location are not excessively galore reasons to beryllium optimistic astir early gross growth.

Aimovig - a migraine therapy - saw income amended by 27% successful nan US and besides launched successful Europe, though Eli Lilly's Emgality represents a major threat to its marketplace share. Blincyto income grew substantially, though this was a supplier first approved successful 2014 and truthful semipermanent maturation prospects are apt negligible.

Arguably nan astir important supplier successful nan supra array is Lumakras, nan first ever FDA approved supplier to target nan KRAS cistron and protein, heavy expressed successful a multitude of coagulated tumor cancers.

After its support past twelvemonth for later statement non-small compartment lung crab ("NSCLC") Lumakras was expected to deed nan crushed running, but income volumes person underperformed analysts' expectations and now Lumakras faces title from Mirati Therapeutics' (MRTX) Krazati, which besides targets KRAS / NSCLC and has an almost identical efficacy and information profile.

On a much affirmative note, Amgen's products do thrust exceptionally precocious margins. FY adjusted EPS was $17.69 - which implies a value to net ratio of ~13x - and is up 27% versus 2021. Operating income accrued from $7.6bn to $9.6bn, and GAAP operating separator accrued 7.2 percent points to 38.6%. Free rate travel was $8.8bn versus $8.4bn successful 2021.

With margins and rate procreation for illustration these, shareholders ought not beryllium excessively concerned pinch a deficiency of maturation among nan existing merchandise portfolio.

Looking Ahead - 2023 Forecasts and Pipeline Progress

Without including immoderate Horizon revenues, Amgen's Chief Financial Officer Peter Griffith guided for $26 - $27.2bn of revenues successful FY23, and non GAAP net per stock of $17.4 to $18.6. In different words, Amgen expects to go moreover much profitable, pinch immoderate respectable apical statement maturation thrown successful too. Griffith told analysts:

For merchandise sales, we task measurement maturation astatine a portfolio level, driven by beardown maturation successful our privilege products, TEZSPIRE, EVENITY, Repatha, Prolia and TAVNEOS

TEZSPIRE is an asthma therapy jointly developed by Amgen and AstraZeneca. If focuses connected nan much terrible extremity of nan asthma spectrum offering immoderate unsocial advantages and analysts believe it will execute blockbuster income by 2025.

EVENITY - different bony therapy that achieved exceptional 49% year-on-year maturation successful 2022, aft being approved successful 2019 to dainty post-menopausal women pinch osteoporosis, is apparently expected to person different beardown year, possibly capturing immoderate of Prolia's mislaid marketplace share.

Repatha - a cholesterin therapy - and Prolia, anterior to its patent expiry and recently approved Tavneos are expected to make beardown contributions to thief offset losses of Enbrel and Nplate - a COVID therapy - revenues, and lead nan company's growth. Lumakras, sadly, is not sanction checked by nan CFO.

Turning to nan pipeline, Amgen intelligibly hopes to go nan 3rd Big Pharma obesity giant, alongside Eli Lilly and Novo Nordisk (NVO).

With Repatha, Amgen has fought a running battle against Sanofi (SNY) and Regeneron's (REGN) Praluent successful nan courts complete contested patents, but five-year information released successful April past twelvemonth shows nan PCSK9 inhibitor helped >85% of patients execute an LDL-C level of <40 mg/dL. Repatha has been astir for astir a decade, but could yet beryllium successful a position to execute nan multi-billion dollar income analysts erstwhile thought it would.

Meanwhile, arsenic Eli Lilly and Novo Nordisk's stock prices deed nan heights owing to their copy glucosuria / obesity assets Mounjaro / Tirzepatide and Ozempic / Wegovy, which person analysts predicting all-time precocious highest income of >$25bn - successful each denotation - Amgen has its Phase 1 shape plus AMG-133, which early studies propose could go a facet successful these immense markets.

A objective proceedings of AMG0133 successful obese patients showed that by Day 85 of nan study, participants successful nan aggregate ascending doses ("MAD") arms knowledgeable mean percent alteration successful assemblage weight of -14.5% astatine its maximum dose of 420mg - comparable to nan likes of Wegovy, and Lilly's Tirzepatide - yet to beryllium approved successful nan obesity market.

AMG-133 has a somewhat different system of action to nan different 2 drugs, being a GLP-1R agonist that besides antagonises glucose-dependent insulinotropic polypeptide receptor ("GIPR"). Although analysts mostly respect Tirzepatide and Semaglutide arsenic years up of nan competition, if Amgen were to nutrient a amended merchandise a fewer years down nan line, shareholders ought to beryllium richly rewarded.

Finally, wrong cardiovascular, Amgen has been moving connected a cistron silencing merchandise - Olpasiran - that tin trim lipoprotein, pinch a Phase 2 study suggesting nan supplier tin execute a >90% simplification successful Lp(a). This is simply a competitory abstraction and erstwhile again Amgen is not leading nan title for approval - Danish Pharma Novartis (NVS) is - but Olpasiran tin beryllium considered a imaginable blockbuster plus successful nan making.

The Elephant In Amgen's Room - Debt

Amgen has been an acquisition quiet institution successful caller years, paying ~$13bn to get Otezla from Bristol Myers Squibb (as portion of BMY's acquisition of Celgene nan Pharma was forced to waste nan autoimmune therapy), and past twelvemonth acquiring oncology institution Five Prime Therapeutics for $1.9bn, and antibody supplier developer Teneobio for $900m.

The Horizon woody is by acold Amgen's largest, and a speedy look astatine Amgen's equilibrium expanse whitethorn make immoderate shareholders consciousness queasy. Whilst rate position is simply a respectable $7.6bn arsenic of FY22, and existent liabilities a manageable $15.6bn, location is $37bn of agelong word indebtedness to contend with, earlier nan Horizon woody completes.

Now, Amgen wants to rumor a $28bn jumbo enslaved to raise nan rate to bargain Horizon, apparently from Citibank and Bank of America. Current marketplace conditions do not look to beryllium perfect for borrowing immense sums of money and it whitethorn time off investors wondering if Amgen's profitability is apt to beryllium impacted by nan monolithic indebtedness repayments specified borrowing would entail. Additionally, successful that light, it's worthy asking whether Horizon's assets warrant specified an outlay.

While Wall Street encourages Amgen to spend, spend, spend, arguably, nan institution whitethorn beryllium amended disconnected allocating nan costs it has to accelerating improvement of immoderate of its perchance very lucrative pipeline assets, and trying to bargain a march connected its rivals.

With that said, though Amgen's indebtedness to equity is almost prohibitively precocious successful comparison to immoderate of its rivals, nan likes of Bristol Myers Squibb and AbbVie person borrowed acold much successful nan past than nan $28bn wants to raise to bargain Horizon.

BMY paid astir $80bn to get Celgene successful 2019, and AbbVie paid ~$66bn to get Allergan nan pursuing year. It's difficult to reason against either determination successful hindsight, though nan assets that came pinch these purchases - e.g. Botox successful nan lawsuit of Allergan, and Revlimid successful nan lawsuit of Celgene, were bona fide mega-blockbuster assets - and location were plentifulness of smaller blockbuster and pipeline products besides.

Conclusion - I'd Question The Wisdom Of The Horizon Deal But Amgen Looks A Solid Hold Regardless

The Pharma manufacture provides investors pinch a twelve aliases truthful very beardown companies that thrust very beardown profit margins, salary bully dividends, and person stock prices that typically inclination successful an upward direction.

As such, I would complaint Amgen's caller mini stock value illness arsenic a buying opportunity. With that said, I'm not overly amazed by an evident skepticism complete nan Horizon woody since Amgen whitethorn do good to extract highest income of >$5bn per annum from that company's products and pipeline.

It tin beryllium very tricky for large pharma to find beardown commercialized shape biotechs to return to nan adjacent level however, and possibly Amgen is acting successful nan belief that location is nary amended long-term, complementary opportunity retired there.

The indebtedness Amgen plans to return connected whitethorn beryllium restrictive to nan company's expertise to turn its stock value by overmuch successful nan adjacent 2-3 years, though location is ever nan dividend for shareholders to autumn backmost on.

Away from Horizon, though immoderate of Amgen's champion products - Enbrel, Prolia and Otezla, for example, look uncertain futures and immoderate newer assets - Lumakras, Aimovig, for illustration - person not delivered arsenic guidance whitethorn person hoped, nan weight nonaccomplishment / cardiovascular pipeline opportunities excite. It's very logical to presume that Lilly and Novo Nordisk attempts to predominate successful this >$50bn weighted marketplace - if we're being blimpish - will acquisition teething problems, and Amgen whitethorn beryllium timing its tally conscionable correct pinch AMG-133, positive Olpasiran, positive a rejuvenated Repatha.

In summary, I consciousness location is immoderate near-term downside consequence pinch Amgen arsenic it attempts to swallow and digest Horizon pinch nan thief of a jumbo bond, and I'm truthful not successful an contiguous unreserved to buy, but this is intelligibly a institution pinch an eager guidance that is already a awesome subordinate wrong respective cardinal pharmaceutical markets, and pinch a pipeline that whitethorn conscionable person that missing mega-blockbuster hiding successful plain sight.