A drug giant to own that’s not about Covid
Pandemic research grabs the headlines, but companies like this one are doing great work.
24th March 2021 09:53
by Rodney Hobson from interactive investor
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Pandemic research grabs the headlines, but companies like this one are doing great work.
Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.
Amid all the controversy about Covid-19 vaccines, it is easy to overlook other less exciting but seriously promising drugs companies. Investor could do worse than consider Amgen (NASDAQ:AMGN), a health group that has found several niches to operate in.
Amgen discovers, develops and manufactures a range of drugs, originally specialising in treatments for renal diseases and cancer care. It has widened its scope to include red blood cell boosters, immune system boosters and treatments for inflammatory diseases. Other drugs in its portfolio include treatments for strengthening bones, lowering cholesterol and easing migraine.
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Having several irons in the fire is vital for pharmaceutical companies, whose new products must clear several hurdles before they are licensed for use. Testing on human beings is very expensive and time-consuming. The rushed approval of vaccines for Covid-19 is very much the exception.
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Amgen has inevitably had its share of disappointments. For example, in December Amgen and partner AstraZeneca (LSE:AZN) reported disappointing phase III trials for one possible use for their tezepelumab asthma drug.
Before that, in October, omecamtiv mecarbil, a treatment for heart failure, also fell short of hopes in tough phase III tests.
However, in both cases there were positive results for some aspects of treatment and neither drug has been abandoned. Both did better than a placebo, tezepelumab produced a reduction in severe asthma cases and omecamtiv mecarbil results are being analysed further. We have not heard the last of either.
It seems odd for a drugs company, but Amgen has been adversely affected by the pandemic. Despite not being directly involved in Covid-19 treatments, it has managed to increase sales of its products. However, this has been done by reducing prices, so that profits have suffered a little.
So, in the three months to 31 December, the California-based biopharmaceutical firm recorded net income down 5% from $1.7 billion to $1.62 billion, despite a 7% rise in total revenue from $6.2 billion to $6.63 billion. This continued the trend from the third quarter, when revenue rose 12% but pre-tax profits slipped 3.1%.
The good news is that Amgen kept its production lines rolling throughout 2020 despite the pandemic disruptions, and sales of key products increased. Inevitably, there were sales declines in mature products where patent protection has ended and generic competition was stepped up, but that is another bane of pharmaceutical companies’ lives and something they all have to cope with.
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Amgen chair and chief executive Robert Bradway has sounded increasingly optimistic as 2020 drew towards its close, although he warns that recovery will vary from quarter to quarter, depending on how the Covid-19 vaccinations are rolled out and how rapidly treatment for other ailments bounces back.
The first quarter could be the worst, since a year ago there was $100 million worth of stockbuilding among customers panic buying in the face of the looming pandemic, a phenomenon that will not be repeated this time.
Bradway forecasts that total revenue will rise from $25.4 billion to around $26 billion with earnings per share at $12.12 to $13.17. He is sufficiently confident to promise a quarterly dividend of $1.76 compared with $1.60 in 2020, a repeat of last year’s 10% increase. He also proposes $3-4 billion of share repurchases.
Well done anyone who bought stock in February 2017, following an article on this website, when the shares were around $170. They have since topped $260 and shareholders have enjoyed solid dividends in the meantime.
At $245 they are below their peak and offer a yield of 2.6%.
Hobson’s choice: Buy up to $250. The shares could push higher during 2021.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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