Amgen Inc: As Good as It Gets?

A biotechnological pioneer since 1980, Amgen Inc. (AMGN, Financial) is now the world's largest independent biotechnology company. It is committed to unlocking the potential of biology for patients suffering from serious illnesses in the areas of supportive cancer care, nephorology and inflammation. Its approach begins with using tools such as advanced human genetics to unravel the complexities of disease and understand the fundamentals of human biology. In its discovering, developing, manufacturing and delivering innovative human therapeutics in different parts of the world, Amgen focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to find solutions that improve health outcomes and exponentially improve patients' lives. Last quarter Amgen presented a solid earnings report. It reached revenues 13.3% higher than last year's quarter, with products like Neulasta, Epogen, Enbrel, Prolia and Xgeva driving growth. Is this as good as it gets for Amgen, or does it still have some room for growth?

It's All About the Pipeline

Amgen's biggest threat right now is posed by biosimilars and generic competition. Versions of Amgen's Epogen and Neupogen have already entered the market in Europe and have started to have a negative impact in the firm's key products. As patents expire, the negative impact could be larger as more and more biosimilars enter the market. To contribute to this, there is the fact that President Obama signed into law the Patient Protection and Affordable Care Act in March 2010, which includes a provision that authorizes the FDA to develop abbreviated approval pathway for biosimilars. However, the company has successfully turned many patients to newer, more potent counterparts of these drugs.

A further negative impact on sales came and could continue to do so from the inclusion of a safety-related boxed warning on the labels of Amgen's erythropoiesis-stimulating agents (ESA) Aranesp and Epogen. After clinical data brought the safety of the entire ESA class of drugs into question, this led not only to restricted drug labels, and the consequent pressure on Amgen's sales, but to reimbursement cuts as well. Also, the implementation of a risk evaluation and mitigation strategy plan could limit Aranesp sales further.

Another fact that has raised some concern is the company's dependence on Xgeva and Prolia and its potential for future growth. With patent losses pending for the next few years, the company has a lot riding on the successful commercialization of these two drugs. Any headwind on this regard could weigh heavily on the shares. Both drugs were Amgen's fastest-growing products past year, and accounted for nearly $1.8 billion in sales, up 45% from 2012, and added up to the several drugs owned by the company that have annual sales surpassing $1 billion.

This success was possible thanks to label expansion that permitted wider use of the drugs, as well as international launches. Now, the company feels confident and claims it can win even more business overseas by more directly taking on Novartis AG (NVS, Financial)’s equivalent, Zometa, as well as win approval for additional indications for these drugs. If it succeeds in gaining approval for the prevention of bone metastases in prostate and breast cancer patients a major boost is expected with possible peak sales of $3 billion.

The company is rather full with many candidates being in their phase III stage, eight of which are expected to achieve significant milestones in 2014. Of these, roughly only half have the potential of becoming a blockbuster or generating sales over a billion per year in the coming decade. Without going back too long, just last week Amgen informed the market that late-stage tests of Evolocumab to treat patients with high cholesterol and with heterozygous familial hypercholesterolemia —Â who cannot be treated with "traditional" cholesterol drugs —Â met two main goals of the study. Some analysts have predicted that this drug can reach peak sales of $2.5 billion for 2020 when approved.

So, regarding Amgen's pipeline, truth is that it is filling up and it's getting deeper. Even more, between Amgen's efforts to drive growth and boost its pipeline there is a major number in deals and acquisitions. In March 2012, it acquired the biotech company Micromet Inc. which expanded its oncology pipeline. Through the acquisition of Onyx last October, the company strengthened its presence in this market as well. Now it has signed a collaboration deal with Merck & Co. Inc. (MRK, Financial) for a new skin cancer treatment. This, if successful, could go toe-to-toe against the dominant treatments in skin cancer, and peak sales are forecasted to be between $500 million and $1.5 billion on a melanoma approval alone, and could help Amgen diversify its portfolio away from Enbrel, which accounted for 25 percent of its products sales last quarter.

There's Still Potential

The blockbuster potential of Amgen's newest drugs and its deep pipeline will be key to a successful 2014, combined with its cost cutting and share repurchase initiative, as well as the company's target of having a presence in 75 countries by 2015. All of it together will help the company achieve stronger earnings and raise the stock value in the future.

Gurus Joel Greenblatt (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and John Hussman (Trades, Portfolio) do think that Amgen still has some growth to do and have invested in this stock.

Disclosure: Damian Illia holds no position in any stocks mentioned.