Thematic evaluation
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Amgen, Inc. (AMGN)

September 06, 2024

Compared to: Regeneron Pharmaceuticals, Inc. (REGN) | Vertex Pharmaceuticals, Inc. (VRTX) | Health Care Select Sector SPDR Fund (XLV)

Our reasoning

Amgen appears moderately undervalued based on its strong financial performance, robust pipeline, and leading market positions, which are not fully reflected in its below-average valuation multiples. The company's growth prospects, particularly in obesity treatment and rare diseases, offer significant upside potential that outweighs the risks from pricing pressures and competition.

Key takeaways
  • Amgen's revenue growth is strong, driven by volume growth and the Horizon acquisition, but faces headwinds from pricing pressures.
  • The company's profitability is declining due to increased expenses and pricing pressures, impacting ROA, ROE, and ROIC.
  • Amgen's operational efficiency is strong, with high asset utilization, but working capital and free cash flow are declining due to the Horizon acquisition and R&D investments.
  • The company has several growth opportunities, including market expansion, M&A, R&D pipeline development, and geographic expansion, but faces risks from pricing pressures, competition, and regulatory risks.
  • Amgen's valuation metrics suggest potential undervaluation relative to peers, but recent underperformance and continued pricing pressures could limit upside.
  • The company's stock price has underperformed the benchmark and peers over the long term, but has outperformed in the short term, suggesting cyclical performance.
  • Amgen's future outlook is positive, driven by its in-market portfolio, promising pipeline, and commitment to innovation, but faces significant headwinds from pricing pressures, competition, and regulatory risks.
Undervalued
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Evaluation summary

  1. Company Overview:

    • Amgen is a global biotechnology company focused on discovering, developing, manufacturing, and delivering innovative human therapeutics. Its primary business segment is human therapeutics, with a diverse portfolio of products targeting various disease areas, including bone health, inflammation, oncology, cardiovascular disease, and rare diseases. Amgen's products are sold primarily to pharmaceutical wholesale distributors in the U.S. and healthcare providers/distributors internationally. The company faces competition from biosimilars, generics, and other branded products targeting the same disease areas.
    • Amgen's key products include Prolia, ENBREL, XGEVA, Repatha, TEPEZZA, Otezla, KYPROLIS, Aranesp, EVENITY, Nplate, Vectibix, BLINCYTO, KRYSTEXXA, and TEZSPIRE. These products generate significant revenue for the company and are crucial to its overall financial performance.
    • Amgen's target market is primarily healthcare providers and patients with various chronic and life-threatening diseases. The company focuses on developing innovative therapies that address unmet medical needs and improve patient outcomes.
    • For comparative analysis, we are using the Health Care Select Sector SPDR Fund (XLV) as a benchmark and Regeneron Pharmaceuticals, Inc. (REGN) and Vertex Pharmaceuticals, Inc. (VRTX) as industry peers.

  2. Financial Performance:

    • Amgen's revenue has been consistently growing over the past few years, driven by volume growth and the Horizon acquisition. The company's in-market portfolio, particularly Repatha, EVENITY, TEZSPIRE, BLINCYTO, and the rare disease products, drove the revenue growth, with 12 products delivering double-digit sales increases. The Horizon acquisition contributed to the revenue growth, but integration and realization of expected synergies pose execution risks.
    • Amgen's profitability has been declining, reflecting the impact of increased expenses and pricing pressures. The Horizon acquisition is a major factor in both revenue growth and profitability decline. The company is facing pricing and reimbursement pressures, which are impacting profitability. The company is investing in R&D to support its late-stage pipeline, which is increasing expenses.
    • Amgen's return on assets (ROA) has been consistently above the industry average, indicating efficient asset utilization. However, the ROA has been declining in recent quarters, reflecting the impact of increased expenses and the Horizon acquisition.
    • Amgen's return on equity (ROE) has been significantly higher than the industry average, indicating strong profitability and efficient use of shareholder capital. However, the ROE has been declining in recent quarters, reflecting the impact of increased expenses and the Horizon acquisition.
    • Amgen's return on invested capital (ROIC) has been consistently above the industry average, indicating efficient capital allocation and strong profitability. However, the ROIC has been declining in recent quarters, reflecting the impact of increased expenses and the Horizon acquisition.
    • Compared to its peers, Amgen has generally underperformed REGN and VRTX over the past three years, particularly in the 2-year and 3-year periods. However, AMGN has outperformed its peers in the 6-month and 1-week periods, suggesting that its performance may be cyclical.

  3. Operational Efficiency:

    • Amgen's working capital has been increasing in recent quarters, reflecting the impact of the Horizon acquisition and increased investments in R&D. The company's working capital management efficiency has been declining, as evidenced by the increasing working capital days.
    • Amgen's cash flows from operations have been declining, which could be due to the Horizon acquisition and increased investments in R&D. The company's operating cash flow margin has been declining, reflecting the impact of increased expenses and the Horizon acquisition.
    • Amgen's capital expenditures have been increasing, reflecting the company's investment in new products and manufacturing capacity. The company's capital expenditure to revenue ratio has been increasing, reflecting the company's investment in new products and manufacturing capacity.
    • Amgen's free cash flow has been declining, reflecting the impact of increased expenses and the Horizon acquisition. The company's free cash flow margin has been declining, reflecting the impact of increased expenses and the Horizon acquisition.
    • Amgen's dividend payout ratio has been consistently above the industry average, indicating a strong commitment to shareholder returns. However, the dividend payout ratio has been increasing in recent quarters, reflecting the impact of declining earnings.
    • Amgen's short-term liquidity position is strong, with a significant amount of operating cash flow. The company's current ratio and quick ratio are both above the industry average, indicating a strong ability to meet its short-term obligations.
    • Amgen's long-term solvency is strong, with a healthy debt-to-equity ratio. However, the increasing debt levels could be a concern if not managed effectively. The company's debt-to-equity ratio has been increasing in recent quarters, reflecting the impact of the Horizon acquisition.

  4. Growth Opportunities:

    • Amgen is pursuing several growth opportunities, including market expansion, M&A, R&D pipeline development, geographic expansion, and strategic focus areas.
    • Amgen is expanding its market reach by targeting new disease areas and developing innovative therapies that address unmet medical needs. The company is also expanding its geographic reach by entering new markets and establishing partnerships with local healthcare providers.
    • Amgen has a strong track record of successful M&A activity, as evidenced by the Horizon acquisition. The company is actively seeking new acquisition opportunities that will enhance its portfolio and expand its market reach.
    • Amgen has a robust R&D pipeline with several promising drug candidates in late-stage clinical trials. The company is focused on developing innovative therapies that address challenging diseases and improve patient outcomes.
    • Amgen is expanding its geographic reach by entering new markets and establishing partnerships with local healthcare providers. The company is also exploring opportunities to expand its presence in emerging markets with high growth potential.
    • Amgen's strategic focus areas include developing innovative therapies for chronic and life-threatening diseases, expanding its market reach, and enhancing its operational efficiency. The company is also focused on improving its environmental, social, and governance (ESG) performance.
    • Amgen has made significant progress on its previously announced initiatives, including the Horizon acquisition and the development of its obesity drug MariTide. The company is committed to delivering on its strategic goals and creating long-term value for its shareholders.
    • Amgen's capital allocation strategy is focused on investing in R&D, expanding its market reach, and returning capital to shareholders through dividends and share repurchases. The company is committed to allocating capital in a way that maximizes shareholder value.
    • Amgen's management team has a strong track record of executing strategic plans and delivering on its commitments. The company has a history of successfully navigating challenging market conditions and achieving its financial goals.

  5. Risks and Threats:

    • Amgen faces several risks and threats, including pricing and reimbursement pressures, competition from biosimilars and generics, regulatory risks, reliance on third-party suppliers, cybersecurity threats, and ongoing tax disputes with the IRS.
    • Amgen is facing significant pricing and reimbursement pressures from government and commercial payers, particularly from U.S. government programs like Medicare. These pressures could negatively impact the company's top-line growth and profitability.
    • Amgen faces competition from biosimilars, generics, and other branded products targeting the same disease areas. This competition could erode the company's market share and reduce its profitability.
    • Amgen's products are subject to regulatory approval and post-marketing requirements. The company faces regulatory risks related to product approvals, safety, and efficacy.
    • Amgen relies on third-party suppliers for raw materials, medical devices, and components. The company faces supply chain vulnerabilities that could disrupt manufacturing and clinical operations.
    • Amgen is exposed to cybersecurity threats and information technology system disruptions. These threats could interrupt the company's business and expose sensitive data.
    • Amgen is involved in ongoing tax disputes with the IRS. These disputes could result in substantial additional liabilities for the company.

  6. Valuation Analysis:

    • Amgen's valuation metrics, such as P/E, EV/EBITDA, and price-to-sales, are currently below the industry average, suggesting that the company may be undervalued relative to its peers.
    • Compared to its peers, Amgen's valuation metrics are generally lower, suggesting that it may be undervalued relative to its peers. However, the company's recent underperformance and the potential for continued pricing pressures could limit its valuation upside.
    • Potential catalysts for Amgen's valuation include the successful launch of its obesity drug MariTide, the expansion of its rare disease portfolio, and the continued growth of its existing product lines.

  7. Price Performance:

    • Amgen's stock price has generally underperformed the Health Care Select Sector SPDR Fund (XLV) over the past three years. However, AMGN has outperformed its peers in the 6-month and 1-week periods, suggesting that its performance may be cyclical.
    • Amgen's stock price has been more volatile than XLV's, with periods of both outperformance and underperformance. The company's higher volatility is likely due to its exposure to pricing pressures, regulatory risks, and competition from biosimilars and generics.
    • Compared to its peers, Amgen's stock price has generally underperformed REGN and VRTX over the past three years. However, AMGN has outperformed its peers in the 6-month and 1-week periods, suggesting that its performance may be cyclical.

  8. Future Outlook:

    • Amgen's management team has provided guidance for revenue growth in the mid-single digits for the remainder of 2024. The company is also investing in manufacturing capacity to support the MariTide program, leading to an increase in capital expenditure guidance.
    • Analyst estimates for Amgen's revenue growth in 2024 are generally in line with management guidance. However, there is a range of estimates, reflecting the uncertainty surrounding the company's future performance.
    • Amgen's future outlook is positive, driven by the strength of its in-market portfolio, the promising pipeline across therapeutic areas, and the company's commitment to innovation. However, the company faces significant headwinds from pricing pressures, competition, and regulatory risks.

  9. Summary:

    • Amgen is a global biotechnology company with a strong track record of innovation and financial performance. The company has a diverse portfolio of products targeting various disease areas and a robust R&D pipeline with several promising drug candidates in late-stage clinical trials.
    • Amgen's financial performance has been strong, with consistent revenue growth and high profitability. However, the company is facing pricing pressures, increased expenses, and competition from biosimilars and generics, which are impacting its profitability.
    • Amgen's operational efficiency is strong, with efficient asset utilization and a strong commitment to shareholder returns. However, the company's working capital management efficiency has been declining, and its free cash flow has been declining, reflecting the impact of increased expenses and the Horizon acquisition.
    • Amgen has several growth opportunities, including market expansion, M&A, R&D pipeline development, geographic expansion, and strategic focus areas. The company is committed to delivering on its strategic goals and creating long-term value for its shareholders.
    • Amgen faces several risks and threats, including pricing and reimbursement pressures, competition from biosimilars and generics, regulatory risks, reliance on third-party suppliers, cybersecurity threats, and ongoing tax disputes with the IRS.
    • Amgen's valuation metrics are currently below the industry average, suggesting that the company may be undervalued relative to its peers. However, the company's recent underperformance and the potential for continued pricing pressures could limit its valuation upside.
    • Amgen's stock price has generally underperformed the Health Care Select Sector SPDR Fund (XLV) over the past three years. However, AMGN has outperformed its peers in the 6-month and 1-week periods, suggesting that its performance may be cyclical.
    • Amgen's future outlook is positive, driven by the strength of its in-market portfolio, the promising pipeline across therapeutic areas, and the company's commitment to innovation. However, the company faces significant headwinds from pricing pressures, competition, and regulatory risks.
    • Overall, Amgen is a well-established biotechnology company with a strong track record of innovation and financial performance. The company has a diverse portfolio of products targeting various disease areas and a robust R&D pipeline with several promising drug candidates in late-stage clinical trials. However, the company faces significant headwinds from pricing pressures, competition, and regulatory risks. Investors should carefully consider these factors before making an investment decision.
Peer fundamentals 
Fundamentals
Insights
  • Amgen's revenue growth is strong, driven by volume growth and the Horizon acquisition.
  • The company's profitability is declining, reflecting the impact of increased expenses and pricing pressures.
  • The company's liquidity position is strong, but the declining trend in cash could be a concern.
  • The company's long-term solvency is strong, but the increasing debt levels could be a concern if not managed effectively.
  • The company's asset utilization efficiency is strong, with a high return on assets.
  • The company's cash flows from operations are declining, which could be due to the Horizon acquisition and increased investments in R&D.
  • Capital expenditures are increasing, reflecting the company's investment in new products and manufacturing capacity.
  • The company's debt levels are increasing, reflecting its financing strategy.
  • The company's free cash flow is expected to remain strong, providing flexibility for investments, debt repayment, and shareholder returns.
  • The company is facing pricing and reimbursement pressures, particularly from U.S. government programs like Medicare, which could impact its ability to generate cash flow and repay debt.
  • The company's capital structure is heavily reliant on debt, which could be a risk factor in the future.
  • Ongoing tax disputes with the IRS represent a major legal and financial overhang that could result in substantial additional liabilities.
  • Reliance on single-source suppliers for key raw materials and components creates supply chain vulnerabilities that could disrupt manufacturing and clinical operations.
  • Cybersecurity threats and IT system disruptions pose operational risks that could interrupt Amgen's business and expose sensitive data.
  • Despite volume growth, Amgen faces headwinds from declining net selling prices across its portfolio, requiring the company to focus on cost management and productivity initiatives.
  • The company is focused on advancing its obesity drug MariTide, which could drive future revenue growth.
  • The company is closely monitoring the impact of the Part D redesign and changes in the competitive landscape.
Analysis
  • Revenue - Amgen's revenue growth is strong, driven by volume growth and the Horizon acquisition. - The company's in-market portfolio, particularly Repatha, EVENITY, TEZSPIRE, BLINCYTO, and the rare disease products, drove the revenue growth, with 12 products delivering double-digit sales increases. - The Horizon acquisition contributed to the revenue growth, but integration and realization of expected synergies pose execution risks. - The company is facing pricing and reimbursement pressures, particularly from U.S. government programs like Medicare, which will continue to negatively impact Amgen's top-line growth and profitability.
    • Profitability
      • Amgen's profitability is declining, reflecting the impact of increased expenses and pricing pressures.
      • The Horizon acquisition is a major factor in both revenue growth and profitability decline.
      • The company is facing pricing and reimbursement pressures, which are impacting profitability.
      • The company is investing in R&D to support its late-stage pipeline, which is increasing expenses.
    • Liquidity
      • Amgen's liquidity position is strong, with a significant amount of cash and short-term investments.
      • However, the declining trend in cash could be a concern.
      • The company's short-term liquidity position is strong, with a significant amount of operating cash flow.
    • Solvency
      • Amgen's long-term solvency is strong, with a healthy debt-to-equity ratio.
      • However, the increasing debt levels could be a concern if not managed effectively.
      • The company's long-term solvency is strong, with a healthy free cash flow margin.
    • Operational Efficiency
      • Amgen's asset utilization efficiency is strong, with a high return on assets.
      • The company's enterprise value to EBITDA ratio is declining, but it is still lower than the industry average. This suggests that the company is undervalued relative to its peers.
      • The company's enterprise value to sales ratio is declining, but it is still lower than the industry average. This suggests that the company is undervalued relative to its peers.
    • Cash Flow Analysis
      • Amgen's cash flows from operations are declining, which could be due to the Horizon acquisition and increased investments in R&D.
      • Capital expenditures are increasing, reflecting the company's investment in new products and manufacturing capacity.
      • The company's debt levels are increasing, reflecting its financing strategy.
      • The company's free cash flow is expected to remain strong, providing flexibility for investments, debt repayment, and shareholder returns.
    • Risk Factors
      • The Horizon acquisition has significantly impacted the balance sheet, increasing both assets and liabilities.
      • The company is facing pricing and reimbursement pressures, particularly from U.S. government programs like Medicare, which could impact its ability to generate cash flow and repay debt.
      • The company's capital structure is heavily reliant on debt, which could be a risk factor in the future.
      • Ongoing tax disputes with the IRS represent a major legal and financial overhang that could result in substantial additional liabilities.
      • Reliance on single-source suppliers for key raw materials and components creates supply chain vulnerabilities that could disrupt manufacturing and clinical operations.
      • Cybersecurity threats and IT system disruptions pose operational risks that could interrupt Amgen's business and expose sensitive data.
    • Future Outlook
      • Amgen's revenue growth is expected to continue, but profitability is expected to decline slightly.
      • The company is focused on advancing its obesity drug MariTide, which could drive future revenue growth.
      • The company is closely monitoring the impact of the Part D redesign and changes in the competitive landscape.
      • The company's cash flows are expected to continue to grow, driven by revenue growth and investments in new products.
      • The company's free cash flow is expected to remain strong, providing flexibility for investments, debt repayment, and shareholder returns.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-09-04)
Health Care Select Sector SPDR Fund (XLV)
  • Performance Comparison:
    • AMGN has outperformed XLV over the long term, with significantly higher returns over the past 3 years. However, in the short term, AMGN has underperformed XLV, particularly in the past month.
    • AMGN's performance has been more volatile than XLV's, with periods of both outperformance and underperformance.
  • Risk and Return Analysis:
    • AMGN has provided higher annualized returns than XLV over the past 3 years. However, AMGN's annualized volatility has also been consistently higher than XLV's, indicating a higher risk profile.
    • AMGN's maximum drawdown of 24.86% is significantly higher than XLV's maximum drawdown of 16.06%, further highlighting AMGN's higher risk profile.
  • Risk-Adjusted Performance:
    • AMGN's Sharpe Ratio has been consistently lower than XLV's, indicating that XLV has offered a better risk-adjusted return over the period.
    • AMGN's beta value below 1 suggests that it is less sensitive to market movements than the overall market, indicating a lower risk profile. However, its higher volatility and drawdowns suggest that it may be more volatile than XLV.
  • Overall Assessment:
    • AMGN has demonstrated strong long-term performance, outperforming XLV significantly over the past 3 years. However, its higher volatility and drawdowns suggest a higher risk profile.
    • XLV has consistently offered a better risk-adjusted return, as evidenced by its higher Sharpe Ratio.
    • AMGN's lower beta suggests a lower sensitivity to market movements, but its higher volatility and drawdowns indicate that it may be more volatile than XLV.
    • Investors seeking long-term growth potential with a higher risk tolerance may consider AMGN. Investors seeking a more stable investment with a lower risk profile may consider XLV.
Peers Price History(as of 2024-09-05)
Regeneron Pharmaceuticals, Inc. (REGN)Vertex Pharmaceuticals, Inc. (VRTX)
  • Performance Comparison: AMGN has generally underperformed REGN and VRTX over the past three years. This is particularly evident in the 2-year and 3-year periods, where AMGN's returns were significantly lower than its peers. However, AMGN has outperformed its peers in the 6-month and 1-week periods, suggesting that its performance may be cyclical.
  • Risk and Return Analysis: AMGN has provided lower returns than REGN and VRTX over the past three years. However, AMGN has also been less volatile than its peers, as evidenced by its lower annualized volatility and maximum drawdown. This suggests that AMGN may be a less risky investment than its peers, but it also comes with lower potential returns.
  • Risk-Adjusted Performance: AMGN's Sharpe Ratio has generally been lower than REGN and VRTX, indicating that it has not been as effective at generating risk-adjusted returns as its peers. However, AMGN's Sharpe Ratio has been increasing in recent quarters, suggesting that it may be becoming more efficient at generating risk-adjusted returns.
  • Overall Assessment: AMGN is a relatively low-risk, low-return investment compared to its peers. While it has underperformed REGN and VRTX in terms of overall returns, it has also been less volatile and has experienced less severe drawdowns. This suggests that AMGN may be a suitable investment for investors who prioritize capital preservation over maximizing returns. However, investors seeking higher returns may want to consider REGN or VRTX, despite their higher risk profiles.
Peers Fundamentals(as of 2024-06-30)
Regeneron Pharmaceuticals, Inc. (REGN)Vertex Pharmaceuticals, Inc. (VRTX)
  1. Market Position and Size:
    • AMGN is the largest company in the peer group, with a market cap that is approximately 38% and 44% larger than REGN and VRTX, respectively. This size advantage gives AMGN a significant competitive edge in terms of resources, brand recognition, and market reach.
    • AMGN's market cap is significantly larger than its peers, and this is reflected in its financial performance. AMGN's revenue, EBITDA, and net income are all significantly higher than its peers. This suggests that AMGN's size and market position give it a significant advantage in the industry.
  2. Profitability and Efficiency:
    • AMGN's profitability metrics are generally lower than its peers, despite its larger size and revenue. This suggests that AMGN may face challenges in managing costs or achieving optimal pricing for its products.
    • AMGN's efficiency in generating returns is mixed, with some metrics showing higher returns than its peers and others showing lower returns. This suggests that AMGN may have areas of strength and weakness in its operations.
  3. Financial Health and Stability:
    • AMGN's liquidity and debt position are concerning, with lower liquidity and a higher debt burden compared to its peers. This suggests that AMGN may face challenges in meeting its short-term obligations or managing its debt levels.
    • AMGN's balance sheet structure is significantly different from its peers, with a much higher proportion of debt. This suggests that AMGN may have a higher risk profile compared to its peers, as it is more reliant on debt financing.
  4. Valuation and Market Perception:
    • AMGN's valuation metrics are mixed, with some metrics showing higher valuations than its peers and others showing lower valuations. This suggests that the market's perception of AMGN's value is complex and may be influenced by factors such as its growth prospects, profitability, and financial stability.
    • AMGN's market cap is significantly larger than its peers, but its earnings per share are lower. This suggests that the market may be valuing AMGN based on factors other than its current earnings, such as its growth potential or its strong cash flow generation.
  5. Cash Flow and Capital Management:
    • AMGN's cash flow generation strength is significantly higher than REGN, considering their respective market caps. This suggests that AMGN is more efficient in converting its earnings into cash flow, which is a positive sign for investors.
  6. Growth and Future Prospects:
    • AMGN's growth trends are mixed, with some metrics showing higher growth than the peer group average and others showing lower growth. AMGN's sales revenue growth has been consistently higher than the peer group average over the past 5 years, with a 5-year CAGR of 5.52% compared to the peer group average of 14.48%. However, AMGN's EBITDA, net income, and basic earnings per share growth have been consistently lower than the peer group average over the past 5 years.
    • AMGN's growth is concentrated in sales revenue, while other key metrics such as profitability and earnings have shown slower growth. This suggests that AMGN may be facing challenges in translating its revenue growth into profitability.
    • AMGN's growth profile is mixed, with strong sales revenue growth but slower growth in profitability and earnings. This suggests that AMGN may need to focus on improving its operational efficiency and cost management to drive sustainable growth in profitability.
  7. Potential for Investment:
    • AMGN's investment attractiveness is mixed. While AMGN has a strong cash flow generation and a large market cap, its profitability and growth in profitability and earnings have been lower than its peers. This suggests that AMGN may face challenges in managing its debt levels and improving its profitability in the future. Investors should carefully consider these factors before making an investment decision.
  8. Key Risks and Considerations:
    • AMGN's high debt burden could increase its financial risk, particularly if interest rates rise or its profitability declines.
    • AMGN's lower profitability compared to its peers suggests that it may face challenges in competing effectively in the future.
    • AMGN's slower growth in profitability and earnings could limit its ability to generate shareholder value in the long term.
  9. Overall Assessment:
    • AMGN is a large and established player in the biotechnology industry, with a significant market cap and strong cash flow generation. However, its profitability and growth in profitability and earnings have been lower than its peers. This suggests that AMGN may be facing competitive pressures or inefficiencies in its operations. Investors should carefully consider these factors before making an investment decision.