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Morningstar | Strong Aimovig/Parsabiv Launches in Amgen's 3Q Counter our Lower Repatha/Kyprolis Estimates

We're maintaining our $198 per share fair value estimate for Amgen following a solid third-quarter performance, and we see Amgen's new product lineup and growing phase 1 pipeline as supporting a stable wide moat, despite biosimilar threats to older drugs. Management raised revenue and EPS guidance for the year, and we're slightly increasing our top and bottom-line assumptions, much of which hinged on stronger other revenue in the third quarter and a strong launch of kidney disease drug Parsabiv. However, we've slightly lowered our forecast for multiple myeloma drug Kyprolis based on disappointing recent performance in a competitive market, and we've also lowered our estimates for cholesterol drug Repatha to account for volume increases in 2018 that were slower than we had anticipated.

That said, we're encouraged by Amgen's decision to introduce a new National Drug Code for Repatha at a 60% lower price, which should help more patients with prescriptions afford the significant out of pocket costs, particularly in Medicare, where patient assistance programs aren't allowed. The roughly $6,000 price for this new Repatha code fits well with our previous assumptions on pricing. In addition, we're anticipating data at the annual meeting of the American Society of Hematology for Amgen's phase 1 BCMA-targeting bispecific, AMG 420, in multiple myeloma, and early data this fall from a handful of patients was very encouraging. Amgen has recently moved several new drugs to phase 1 development, and as data are reported for these programs and they advance to mid-stage development, we plan to incorporate them in our model.

Traction with any efforts to rein in U.S. drug spending, including the confirmed 2019 Medicare Advantage step therapy as well as recent proposals for more extreme changes to Medicare Part B, could affect Amgen more than other firms, given the firm's significant exposure the U.S. market and specifically to medical benefits. Please see our Healthcare Observer, "U.S. Drug Pricing Reforms Weigh on Valuations, but Moats Look Secure and Drug and Biotech Industries Look Undervalued," for more details. As far as other key risks to Amgen's performance in 2019, we believe we have incorporated reasonable headwinds, including the timing of Sensipar generic competition (we assume late 2018) and the extent of U.S. Neulasta erosion from new biosimilars (Mylan's Fulphila is already on the market, and we assume a 20% decline in 2019). We remain below consensus on migraine drug Aimovig's U.S. sales potential, despite a strong launch, given the tough competitive landscape, as Lilly and Teva both received approvals for similar drugs shortly after Amgen's first-in-class approval in May.