Morningstar | Amgen's 2019 Poised to Be Its Toughest Year; Maintaining Our FVE on Cost Controls and Pipeline
We're maintaining our $205 fair value estimate for Amgen following in-line results for 2018 but disappointing guidance for 2019. While we've slightly reduced our sales forecasts for most of Amgen's legacy products in 2019 to reflect steep competition and pricing pressure, we're largely maintaining our forecasts for Amgen's newer branded portfolio, and we've slightly increased our biosimilar portfolio assumptions. However, Amgen's cost control is key to our valuation; despite heavy biosimilar pressure on Neulasta and Epogen in 2019, operating expenses are poised to stay relatively flat, which minimizes operating margin pressure and should allow Amgen to see positive EPS growth in 2019 with the help of share repurchases.The shares recently traded at a slight discount to our valuation, and we think Amgen's wide moat remains supported by core products (Prolia/Xgeva), newer launches (Repatha in cholesterol lowering, Aimovig in migraine), and an early pipeline (multiple oncology programs and asthma drug tezepelumab). Enbrel and Sensipar patent litigation remain risks to our valuation, although we already have substantial declines for U.S. Sensipar built into our model for 2019 and again in 2021 (patent settlement) and accelerating double-digit declines for the remainder of our forecast for Enbrel due to branded competition. On the upside, our Aimovig estimates remain below consensus, and launch acceleration in 2019 exceeding our estimates could increase our valuation. In addition, several early-stage oncology trials reading out in 2019 (including once-weekly BCMA-targeting biologic AMG 701) could boost our long-term pipeline growth forecast.
Neulasta is facing two biosimilar competitors in the United States in 2019 so far--Mylan's Fulphila and Coherus' Udenyca--and potentially a third by the end of the year; list prices for both Fulphila and Udenyca are about a third lower than Neulasta's. While Neulasta's discounts and its on-body delivery system (60% of the market) make biosimilars slightly less compelling, we've increased our U.S. Neulasta declines in 2019 to 20% from 15% based on initial traction for Fulphila and Amgen's cautious commentary and overall pricing commentary (which estimates mid-single-digit pricing pressure in 2019 on Amgen's portfolio). Epogen is facing Pfizer's Retacrit, a biosimilar that is offered at a similar discount as Neulasta biosimilars. While an Epogen contract with DaVita through 2022 offers some mitigation of potential volume declines (DaVita is 72% of Epogen sales), it also includes staged price declines.
For more detail on Amgen's patent exposure and pipeline, please see our recent healthcare Observer, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating." The report also discusses our view on large-scale M&A in the industry; Amgen's cash balance ($29 billion) and strong free cash flow generation give it the means to take action on lackluster internal growth.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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