Amgen Inc.

Moat: 4/5

Understandability: 3/5

Balance Sheet Health: 5/5

Amgen Inc., referred to as “Amgen”, “the Company”, or “we”, is a global biotechnology company, discovering, developing, manufacturing, and delivering innovative human therapeutics to treat serious illnesses, with a focus on medicines to treat severe diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Amgen operates in a sector where innovation is paramount, and where a strong moat is essential for long-term success.

Business Description

Amgen is a biotechnology company focused on discovering, developing, manufacturing, and commercializing human therapeutics. Their portfolio spans various therapeutic areas, with a strong emphasis on biologics. Amgen operates in three geographical segments- United States, Europe, and International.

Revenue Distribution and Trends

Amgen’s revenue is broadly distributed across various therapeutic areas and geographical regions, which provides diversification.

Product Sales: Amgen’s primary revenue driver is the sales of its own products. The company offers drugs across different therapeutic areas such as oncology, cardiovascular, bone health, and nephrology. Some of their major commercial products include Enbrel, Prolia, Otezla, Repatha, and Neulasta.
Geographic Revenue: Amgen reports its revenue in three different geographical areas: the U.S., Europe, and International. Europe’s share of total sales, which was ~24% in the fiscal year of 2021, has since been slightly increasing; the US market accounts for 74% in 2021, with the international market accounting for the rest. As they continue to expand, especially into Latin America and Asia, their international segments should grow higher.
Biosimilars: Biosimilars have gained importance as a growth driver for Amgen, particularly for international markets. As the patents for their major drugs expire, biosimilars offer a lower-cost alternative, and the company has launched multiple biosimilars that are sold in Europe.

Amgen’s geographic revenue is diversified with a small, but increasing, international revenue share.

Margins

Gross margins: Amgen is a highly profitable company and this can be seen through their gross margins, which are typically close to 80% and have been fairly consistent for many years.
Operating margins: Amgen’s operating margins average around 50% and have also seen stability across the years.

Competitive Landscape The biotechnology sector is highly competitive, with other big names such as Johnson & Johnson, Bristol-Myers Squibb, and AbbVie all fighting for market share.

Intangible Assets and Patents are key parts for success in the biotech sector, with companies requiring strong brand recognition to attract patients and doctors to their products. Companies often invest heavily in R&D to maintain a pipeline of new patented products as older ones get competition from generics and biosimilars.

What Makes Amgen Different

R&D Strength: Amgen has consistently invested heavily in research and development, resulting in a strong pipeline of innovative biologic drugs. They have a proven track record for delivering first-in-class or best-in-class medicines in highly competitive sectors. They do not just rely on one or two high profile drugs.
Strong Pipeline of Biologics: Amgen’s core strength is in producing and marketing biologics, which are more complex and difficult to replicate than traditional small-molecule drugs.
Manufacturing Expertise: Amgen has made strategic investments into developing its manufacturing pipeline, creating in-house manufacturing and development capabilities that helps the company keep high production quality.
Global Reach: Amgen has a global presence, with operations and sales throughout the world that allows them to leverage the success of their drugs to a broad audience.
Biosimilar development: Amgen is making significant moves into biosimilars, which is an area of high future potential that helps the company protect future profits.

Amgen is an innovator and a leader in biotechnology that has a proven history of launching highly profitable new drugs. They are also among the leaders in the biosimilar category that will allow them to maintain profits.

Financial Analysis

Recent Financials (as of their latest report on September 30, 2023)

Revenue Amgen revenue was 6.85 Billion in the third quarter of 2023, a rise of 4% year-over-year and 8% on a constant currency basis. Revenue is driven mostly by the US market.
Operating Expenses Operating Expenses have seen a significant 19% increase in this quarter (6.081 Billion in 2023, from 5.107 Billion in 2022), mainly due to significant increases in cost of sales, cost of goods sold, and R&D spending.
Net Income: Net income was 1.112 Billion in the third quarter of 2023, down from 2.371 Billion in the same quarter of 2022. This steep drop was due to a fall in gross margins and a large increase in operating expenses.

Amgen also expects adjusted operating expenses for the full year of 2023 to be between 5.4 - 5.5% of revenues. They are also increasing investments into innovation through increased R&D.

Balance Sheet Health

Assets: Amgen has a strong asset base composed of cash and cash equivalents, investments, and intellectual property. Total assets are approximately 90 Billion as of September 30, 2023. The main drivers for the increase in assets was in growth in marketable securities, investments, and property, plant, and equipment.
Liabilities: Amgen’s liabilities are well managed, with a balance between short-term and long-term debt. Liabilities are around 68 Billion as of September 30, 2023. While debt is significant, the company’s strong profitability and cash flow make it manageable.
Shareholder’s equity: Amgen has a large shareholder equity balance, mostly due to retained earnings that reflects consistent performance. Shareholders equity currently stands at 32.5 Billion.

Amgen’s financials are rock-solid, they have a large and diverse asset base, manageable debt and a strong book equity.

**Cash Flow and Capital Allocation**

Cash Flow: Amgen is a cash-generating machine, with consistent profits and strong cash flows from operations. For the three months ended September 30, 2023, cash flows from operations were approximately 3.4 billion dollars, which showcases the company’s ability to generate funds.
Capital Allocation: The company’s primary priorities are investing in R&D to support their pipeline, acquisitions to complement their current lineup, and returning value to shareholders through dividends and share repurchases. The company has also been using its large cash pile to make new acquisitions that can help boost growth. They recently bought Horizon therapeutics for $27.8 billion that adds a new focus area on rare diseases, and is expected to increase profits significantly in the coming years. This deal is expected to help Amgen meet its growth expectations and boost its share price in the long run.

Recent Concerns/Controversies

Pricing Pressures and Drug Price Legislation: Like all pharmaceutical companies, Amgen faces increasing pressure on pricing from governmental and public authorities. New regulations such as the Inflation Reduction Act could significantly impact drug pricing and reduce returns for pharma companies. Management continues to push back and work against this legislation.
Patent Expirations and Biosimilar Competition: As major patents expire, Amgen could see competition from biosimilars that will negatively impact their revenues and returns.
Acquisition of Horizon: Though acquisition of Horizon Therapeutics, is expected to improve Amgen’s bottom line in the long run, they face risks pertaining to integrating a new company and have also taken on debt to make the deal happen. There could also be increased interest and pushback on drug prices for newly acquired drugs.

Moat Rating - 4/5

Amgen has built a strong moat, consisting of its R&D expertise, manufacturing capabilities, diverse global operations, biosimilar dominance, and strong IP protection, thus giving it a stable future.

Amgen possesses a strong, albeit not impenetrable, economic moat. The company’s competitive advantages stem from several factors:

Patents and Regulatory Approvals: The biotechnology industry is highly regulated, which results in high barriers to entry for potential competition. Amgen has a long history of developing and obtaining FDA approvals for their drugs.
Proprietary R&D Pipeline: Amgen’s significant investment in R&D creates a strong barrier against competitors replicating their pipeline. They have a track record of identifying, developing, and launching new drugs that provides a very high value for the company.
Biosimilar Dominance: As an original developer of biologics, Amgen has a head start in biosimilar development.
Global Brand Recognition: Amgen is also a leader in the biotechnology field and its brand name carries substantial value. While all the above points are strong for Amgen, there are significant risks that can jeopardize Amgen’s success in the long term, thus preventing a rating of a 5. The key risks are based on increasing competition, potential regulatory problems, and other business and operational risks.

Understandability Rating - 3/5

Amgen’s business is moderately complex for the everyday investor to fully understand due to the high R&D expenses and complex clinical trial process. It requires a certain degree of understanding about drug development, the pharmaceutical sector, and biotechnology to gauge the company’s prospects correctly. While it is possible to understand the underlying concepts, it still requires a lot of effort from investors in learning its core drivers. The information disclosed in the reports is also very technical and may require domain knowledge. The business is not as straightforward to understand as a retailer like Walmart or a consumer staple business like P&G.

Balance Sheet Health Rating - 5/5

Amgen exhibits a robust and healthy balance sheet. They are able to fund operations, research, acquisitions, and shareholder returns. Their balance sheet shows that the company has a strong asset base, reasonable liabilities, and a healthy level of equity. The firm’s consistent positive financial performance has led to long term stability and allowed them to build such a robust balance sheet.