AMGEN Inc.

Fundamentals

Written by Ophir Gottlieb, 10-26-2015
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Update 10-28-2015
Amgen Inc said on Tuesday that the U.S. Food and Drug Administration approved its cancer immunotherapy, Imlygic, for use in patients with the most deadly type of skin cancer (Source: Reuters).

The drug itself only showed to extend lives by ~4.5 months, but that's not the huge win here, it's how it works.



Antonio Chiocca, a neurosurgeon at Brigham and Women’s Hospital, called it "a totally new class of weapons that we can now use."

If there's one megacap biotech aiming to be the end-all cure-all for cancer, it's Amgen. And it's getting frighteningly close and several fronts.

Amgen has the largest pipeline in late stage trials of all biotechs and while the stock price was actually down from 2005 through 2011, since then it has nearly tripled and if we look at the company as of today, there's no reason it can't keep rising. Let's learn about this remarkable company which has earnings due out 10-28-2015 after the close and an FDA decision on a cancer treatment due out 10-27-2015 with Europe right behind it.

Overview
First, let's start with revenue over the last 15-years and then we'll get to the transformational treatments it has for cancer.



Amgen is now generating over $20.7 billion in annual sales. But there's more coming...

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If we plot all of the large cap biotechs with the number of Phase II trials on the x-axis and the number of Phase III trials on the y-axis, we can see that AMGN does in fact have themost Phase III trials. Here's that chart.



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Let's Cure Cancer, Why Don't We?
Before we get into exiting products, let's cure cancer, why don't we?

Amgen is at the forefront of oncology with its first-of-a-kind cancer therapy, talimogene laherparepvec (T-Vec). The final decision will be handed down by the FDA on October 27, with a likely European approval coming in the next few months (Source: 24/7 Wall St.)

The way an FDA approval works is after all of the trials and data, an independent committee will meet with the company and that committee will make a recommendation to the FDA. It is often the case that the recommendation is accepted, but it's not a sure thing. In this case, the United States panel voted 22 to 1 in favor of approving T-Vec in April of 2015. here's how T-Vec is described:



There was some troubling data from T-Vec in a Phase 3 trial where it fell short of its secondary (not primary) endpoint of overall survival. Take from that what you will. The primary endpoint was durable response rate, and that showed statistically significant improvement.

Update: 10-28-2015: This drug was approved by the FDA:



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The REALLY Big Cancer Pipeline
Amgen has a ten year collaboration with Kite Pharma, and friends, this is where we all get really excited. Here we go:

Kite Pharma (KITE) is approaching cancer not to treat it, but to cure it in a radical, revolutionary, promising and in the very sense of the word, transformational way. In an incredibly bold step, Kite management, though a year away from completing clinical trials, has just signalled its unambiguous belief that it has in fact found a cure for non-Hodgkin's lymphoma (NHL), a cancer which affects half a million people right now and more than 70,000 new cases every year.

Keep in mind, the clinical trials will conclude at the end of 2016, meaning even the most optimistic projections are for a yet to be FDA approved treatment to generate revenue in early 2017. But, if you're wondering how bullish management is regarding the current clinical trials check this out:



Yes, there is no other way to say this: The company is basically saying out loud that it believes it has cured non-Hodgkin's lymphoma (NHL). Period.

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Amgen has provided $60 million to KITE upfront for covering early-stage development costs and could contribute up to $525 million if milestones are met. While Amgen has a huge pipeline of drugs, this is one of the most exciting parts of its future and reminds us that Amgen is committed to curing cancer.

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More Cancer Pipeline
As if we needed more, Amgen and Merck have a collaboration in place to combine their drugs to cure carcinoma of the head and neck. And yes, again, both treatments are immunotherapies, which use the body's immune system to destroy tumors. There is a Phase I trial in place to test Amgen's talimogene laherparepvec with Merck’s Keytruda. There is also a Phase III trial set to evaluate the drug combination in melanoma patients (Source: WSJ).

More Pipeline
Believe or not, cancer treatments aren't necessarily the biggest part of the pipeline. Kyprolis is Amgen's multiple myeloma drug. While sales rose 53% to just under $120 million last quarter, we must note that the drug is actually only being sold on its third line indication. In English, the FDA requires strict labelling of the drug for usage. The Motley Fool did a wonderful job summarizing the addressable market of the drug as the FDA expands its label for second-line status.



Yes, this $199 million drug has the potential to be a mega-billion hit. The one thing to note is that JNJ also has a myeloma drug which seems to be presenting significant competition to Amgen and of course, Celgene's Revlimid. When earnings come out for Amgen, pay attention to details on Kyprolis for its second line indication -- this is a game changer if it goes well. In any case, the market has room for more multiple drugs and the upside is enormous.

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What's Going on Right Now
Alright, the pipeline is the fun stuff, but the guts are still the actual sales results, and they are very impressive.

As of right now, the company's revenue is driven by several products: Chemotherapy infection fighter Neulasta®/ NEUPOGEN®, Rheumatoid arthritis drug ENBREL, Anemia drug EPOGEN, Osteoporosis drugs XGEVA®/ Prolia®, another anemia drug Aranesp and a long list of others. Here's a breakdown of sales for existing products from the company's quarterly report.



In its latest earnings release Amgen reported $5.37 billion in revenue and raised its guidance for the full year from $20.3B - $20.9B to $21.1B - $21.4B. The company also crushed EPS estimates by $0.15 ($2.57 actual vs. $2.42 expected), which, for those of you that follow Amgen know is basically the standard at this point.

It's number one drug, Neulasta® saw revenue drop ever so slightly but still brought in a robust $1.4 billion for the quarter. Number two drug ENBREL grew 8% year-over-year, much of which was due to price increases. The company reiterated its guidance that ENBREL will drive $5 billion in annual sales this year.

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Exciting Current Product Growth
Amgen's newest products Prolia and Xgeva saw strong growth and then some really (really) good news. Prolia revenue rose 29% year-over-year and Xgeva grew revenue 11% year-over-year. But here's where it gets interesting. Prolia is an Osteoporosis drug and the first approved therapy that specifically targets RANK Ligand, an essential regulator of bone-removing cells (osteoclasts) and is often used for patients who have failed or are intolerant to other available osteoporosis therapy.

More Good News on Prolia
On October 11th AMGN announced the findings from a Phase 4 study. The study found that Prolia caused higher gains in bone material density than the intravenous bisphosphonate zoledronic acid in postmenopausal women with osteoporosis (Source: CNA Finance). What does any of that mean? Try this: Paul Miller, M.D. the medical director of the Colorado Center for Bone Research, Lakewood, Colorado and lead investigator said:



Yeah, he's saying, "hey, doctors, use Amgen's treatment, it's better."



Conclusion
Amgen has a huge product line, well diversified and for the most part growing. It has a huge pipeline of drugs including truly ground breaking cancer treatmentsand so many others. The firm is essentially a biotech mutual fund and has stunning growth possibilities ahead.

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