Amgen (AMGN) is the largest independent biotech company in the world. Amgen discovers, develops, manufactures, and sells medicines that treat serious illnesses, observes Ben Reynolds, editor of Sure passive Income.
The company focuses on six therapeutic areas: cardiovascular disease, oncology, bone health, neuroscience, nephrology, and inflammation. Amgen generates annual revenue of more than $25 billion while the stock has a market capitalization of $115 billion.
Amgen reported third-quarter earnings on November 2nd, 2021. Revenue and adjusted profits came in slightly ahead of expectations. Revenue was up 4.5% to $6.7 billion, and adjusted net income of $2.7 billion, or $4.67 per share, was up from $2.5 billion, or $4.19 per share, respectively, in the year-ago period.
Product revenue was up 4% even as sales for Enbrel fell 3% and that drug continues to post market share losses. Neulasta was down 25% to due weakness in pricing and volume from biosimilar competition. Prolia saw its top line grow 15% and is now Amgen’s second-highest grossing product. Likewise, Repatha revenue soared 33% year-over-year.
Amgen continued to buy back its own shares, this time retiring 4.6 million shares in the third quarter at an average price of $239 million. The company has $2.9 billion remaining on its current buyback authorization and ended the quarter with almost $13 billion in cash on the balance sheet.
Amgen’s competitive advantages include its strong pharmaceutical assets as well as its robust pipeline. Amgen spent 17% of its 2020 sales on research and development. The company also expects capital expenditures of $900 million for 2021, up from $600 million in 2020.
As a result, it has a well-stocked pipeline to fuel its future growth. Amgen is the largest biotech company in the world, giving it size and scale over its peers. This allows the company to reduce its net selling price on products, such as with Repatha, to take market share.
The company has demonstrated resilience during recessions, as people will seek treatment for their health issues regardless of economic conditions. The company also has a reasonably low expected payout ratio of 42% for 2021, which will allow it to continue to raise its dividend going forward, even in a prolonged recession.
We expect 9% annual earnings-per-share growth over the next five years for Amgen. This earnings-per-share growth could be achieved through a combination of rising revenue as well as share repurchases. We also expect the company to increase its dividend by 9% per year over the next five years, in-line with its earnings-per-share growth rate.
While Amgen is struggling with weak sales for legacy products such as Neulasta and Enbrel, new products are generating growth.
In addition, share buybacks will boost earnings-per-share growth. In total, we see Amgen as a strong income stock with a robust yield and safe dividend that is likely to be raised for many years to come, along with a strong growth pipeline and reasonable valuation.
