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Morningstar | Amgen Looks Fairly Valued Following 2Q; Biosimilar Threats and Opportunities Rising

Amgen has raised top- and bottom-line guidance for the full year, as it cleared another quarter without impact from Neulasta biosimilars and as it continued a heavy repurchase program to boost earnings per share. We're encouraged by an uptick in the launch of cholesterol drug Repatha and positive commentary on the nascent launch of migraine drug Aimovig, although pricing will weigh on future performance of both therapies, given the existence of similar branded options. We're maintaining our $198 per share fair value estimate, and we think shares look fairly valued at recent prices. Amgen's broad portfolio protects its wide moat despite upcoming biosimilar threats.

Biosimilars are likely to weigh on Amgen's U.S. Neulasta, Epogen, and Aranesp franchises in the second half of the year, and Sensipar generics are also likely to launch in the U.S., although Amgen's own biosimilar versions of Herceptin and Humira are launching in Europe and could help offset some of the pressure. Neulasta Onpro delivery system held 63% of volume in the U.S. at the end of the quarter, and the device has now launched in several European countries. We expect this could slow erosion from Mylan's biosimilar Fulphila, which is launching at a list price 33% below Neulasta's (Amgen has noted that list price and average selling price can differ substantially, which implies that it's still difficult to tell whether Fulphila is launching at a true, significant discount). Pfizer's Retacrit (biosimilar Epogen) was approved in nephrology indications in May in the U.S., and therefore is poised to compete with both Epogen and Aranesp. However, Amgen has launched Kanjinti (biosimilar Herceptin) in Europe and will launch Amgevita (biosimilar Humira) in Europe later this year, which marks the start of the firm's biosimilar pipeline launches. We continue to model more than $3 billion in annual sales for Amgen's biosimilar portfolio by the end of our 10-year explicit forecast period.

Two significant executive transitions are hitting Amgen over the next two months, but we think the new team looks solid. Both Sean Harper (executive vice president of research and development) and Anthony Hooper (executive vice president of global commercial operations) are leaving Amgen, with Harper's departure from his role effective July 26 and Hooper's departure effective in September. David Reese will take over research and development; he already has 13 years of experience at Amgen, most recently as senior vice president of translational sciences and oncology, and he has been instrumental in building Amgen's early-stage oncology pipeline. Murdo Gordon, previously chief commercial officer at Bristol and 29-year veteran of the firm, is replacing Hooper; we think he's well-qualified for the position, particularly given the significant overlap in therapeutic areas (particularly cardiology and oncology) at the two firms.

To boost growth, Amgen is looking to Repatha, Aimovig, and an advancing pipeline, although we think any significant pipeline opportunities at this point are early-stage. Repatha sales are starting to significantly trend upward, with almost $150 million in sales in the quarter, and agreements with payers like CVS and Anthem should benefit growth in the second half, albeit at a lower price per patient. Amgen is just launching Aimovig in the U.S., and most patients are receiving their treatment for free, but Amgen is rapidly converting to paid prescriptions. In the pipeline, Amgen expects data from its PAC1 antibody (migraine prevention) in phase 2 by the end of the year, which could potentially be used in combination with Aimovig. In Alzheimer's, Amgen highlighted long-term studies of BACE1 inhibitor AMG 520 (in partnership with Novartis) in patients with APOE4 genetic variants, who are at higher risk of the disease; while data is not expected until 2024, and we do not include sales for the product in our valuation, we're intrigued by the strategy to move even earlier in treatment, particularly as 60% of patients have one or two APOE4 alleles.