A market perception that has held Amgen (AMGN) in check is that future growth may be weak due to sales declines in its older drugs, cautions Scott Chan, contributing editor to Investing Daily's The Complete Investor.

While there is merit to that concern, we believe that contribution from upcoming drugs in its broad pipeline will make up for the difference and the company’s strong financial position and fast-growing dividend make it one of the more dependable stocks at a tumultuous time for the stock market.

Meanwhile, two significant recent launches of potential blockbusters (annual sales of at least $1 billion), Lumakras in mid-2021 and Tezspire early this year, are stark reminders that the company is by no means standing still.

Lumakras was approved by the FDA ahead of schedule last May. The drug treats non-small cell lung cancer (NSCLC) that has metastasized or cannot be surgically removed, and whose tumor has a specific gene mutation (KRAS G12C).

The KRAS G12C mutation (estimated to be present in about 25% of NSCLC patients) is associated with resistance to standard treatment and poor prognosis. Lumakras is the first approved drug to target cancer with that mutation, so it’s a medical breakthrough.

Because the mutation is seen in multiple other cancers, naturally Amgen is seeking to expand the label to other indications, including pancreatic and colorectal. Further, Amgen is studying Lumakras as a first-line treatment for NSCLC. If successful, that would increase the number of treatable patients.

Amgen’s latest quarterly reading shows Lumakras sales reached $62 million in the first quarter of 2022 and has been prescribed to more than 2,500 patients. The drug has a good chance to surpass the $1 billion milestone within 3 years. If the label-expansion efforts are successful, there’s multibillion potential upside here.

Tezspire was co-developed with AstraZeneca, with the two companies splitting costs and profits equally after AstraZeneca pays a single-digit percent royalty to Amgen. The drug, administered as a shot once every four weeks, gained FDA approval last December and soon reached marketing channels by January.

Tezspire is notable for being the first asthma treatment to target thymic stromal lymphopoietin, a molecule involved in airway inflammation. It’s also the first such treatment that is not limited to a specific type of severe asthma.

Elsewhere in its drug portfolio for the first quarter, Amgen saw double-digit sales increases in relatively new products such as Prolia (osteoporosis) and Repatha (cholesterol and heart disease) and Kyprolis (multiple myeloma). All are blockbusters.

By 2026, we estimate Amgen revenue will approach $30 billion. This represents annualized growth of around 3%, certainly not breathtaking, but also not declining as some others may fear.

With continued cost management and share repurchases, we estimate EPS can grow steadily in the mid-single digits per year. Free cash flow will likely surpass $12 billion. Note that the figure is after dividend payment to shareholders.

Speaking of the dividend, in the past five years, Amgen has increased its dividend at a rate of 11% per year. Over the next five years, even if it lowered the annual rate of increase to 8%, that would mean a dividend of about $11.50 per share by 2027.

Investors seeking investment income growth to offset inflation could do a lot worse. Indeed, when investor risk aversion increases, Amgen’s diversified portfolio, steady though unspectacular growth trajectory, excellent balance sheet, and dividend outlook suddenly appear much more attractive than when investors were chasing the next big growth stock.

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