Buying the Biotech Dips

06/17/2016 8:00 am EST


Chloe Jensen

Chief Analyst, Cabot Dividend Investor

Our latest featured stock is one of the world’s largest biotech companies; the stock has been publicly traded since 1983 and has a market cap of over $110 billion, notes Chloe Lutts Jensen, editor of Cabot Dividend Investor.

Amgen (AMGN) is developing technologically advanced treatments for serious diseases, like tumor-targeting antibodies to fight cancer.

Its most important products include Enbrel for arthritis, Prolia for osteoporosis and numerous oncology drugs.

Most sell for very high prices — hundreds of dollars per dose — but are for serious conditions, are covered by insurance, and are taken infrequently or for short periods.

While many of the key drugs in Amgen’s mature portfolio are now facing generic or biosimilar competition, the company is constantly looking for new treatments to bring to market and has over 30 potential new drugs in its development pipeline.

The most recent additions to Amgen’s drug portfolio include the oncology drug Kyprolis, under patent protection until 2025, and Repatha, a new class of cholesterol treatment just launched last year.

In addition, the complexity of Amgen’s therapeutics means generics and competing treatments aren’t always as effective or popular.

Many of Amgen’s older drugs, including Enbrel, Prolia and cancer drug XGEVA, remain the preferred treatment option for their conditions despite losing patent protection, and their sales continue to grow.

Amgen is also growing through global expansion. Previously focused on North America, its drugs are now sold in over 100 countries, up from 50 five years ago.

Amgen’s drug portfolio is a stellar cash flow generator. Revenues have increased every year since 2009, while net income has grown every year since 2011.

Free cash flow, which is calculated after capital expenditures, has also grown steadily since 2011, averaging 17% growth each year.

Over the next five years, analysts expect Amgen to generate EPS growth around 8%. Amgen’s latest earnings report beat estimates easily, and prompted numerous analysts to increase their longer-term EPS estimates in recent weeks.

Beginning in 2011, Amgen began funneling some of this steady stream of cash to investors as a quarterly dividend. Since then, management has increased the dividend by an average of 29% per year.

AMGN is one of the highest-quality stocks in the group and is stable. It is appropriate for medium- or long-term investors with moderate risk tolerance who are interested in dividend growth and total return.

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By Chloe Lutts Jensen, Editor of Cabot Dividend Investor

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