Morningstar | Amgen Faces Biosimilars, but Newer Drugs and a Growing Pipeline Support a Wide Moat
Amgen has its roots in providing supportive-care products to kidney disease and cancer patients. Free cash flow hovers at 40% of sales as the firm benefits from massive cost-cutting and improved manufacturing. Strong newer blockbusters like Prolia/Xgeva and future blockbuster cholesterol drug Repatha should defend Amgen's wide moat from erosion due to biosimilar and branded competition.Amgen's biologics are vulnerable to biosimilars because of their age and ease of manufacturing, and innovative branded drugs are also stealing share. Tougher labels and reimbursement had been affecting anemia drugs Epogen and Aranesp since safety concerns emerged in 2007, and the launch of Pfizer's biosimilar, Retacrit, in 2019 is weighing on sales. Neutropenia drug Neupogen has had biosimilar competition for years, but Amgen's key longer-acting drug, Neulasta, began seeing declines in the key U.S. market in 2019 due to two biosimilar launches. More effective branded competitors are poised to continue to erode Enbrel's share, and while Enbrel patents run to 2028, we think biosimilar Humira (expected in 2023 in the U.S.) could pull down sales of the TNF class.To address these headwinds, Amgen has invested heavily in more-efficient manufacturing and has undertaken a massive cost-cutting program to defend margins and reinvest in research and development and promotion in new areas, like cardiology. Amgen's own large biosimilar pipeline (which is beginning to launch in Europe) and low manufacturing costs could make it a viable biosimilar player, as well.Amgen's newer drugs and its pipeline will also be key to countering biosimilar versions of older drugs. Prolia (osteoporosis) and Xgeva (fracture prevention in cancer patients) each should see more than $2 billion in peak sales. Kyprolis--acquired with Onyx in 2013--is poised to become a $1.5 billion product in multiple myeloma. Repatha (cholesterol-lowering) looks like the biggest opportunity (we estimate more than $3 billion in peak sales). We're also bullish on Amgen's position with Aimovig (launched 2018, migraine), tezepelumab (phase 3, asthma), AMG 420/701 (phase 1, multiple myeloma), and AMG 510 (phase 1, lung cancer).Amgen is a biotechnology company that discovers, develops, manufactures and delivers human therapeutics. The company's products include: Enbrel? (etanercept), which is used in indications for the treatment of adult patients with moderately to severely active rheumatoid arthritis, patients with chronic moderate-to-severe plaque psoriasis who are candidates for systemic therapy or phototherapy and patients with active psoriatic arthritis; and Prolia? (denosumab), which is used for the treatment of postmenopausal women with osteoporosis at high risk of fracture or multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy.
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