Three Takeaways From This Biotech Giant's 2012 Earnings

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Amgen (NASDAQ: AMGN) recently released its full-year 2012 earnings and, overall, the report made for good reading with an 11% top line gain and 22% bottom line advance. The company has graduated from a small biotech firm looking for a big hit to the industry giant, boasting an impressive portfolio of products and a solid drug pipeline. There were three important takeaways from the company's full year results.

Three Sentences
On the positive side, overall sales were up on the strength of Enbrel, XGEVA, and Prolia. Demand for Neulasta, NEUPOGEN, Aranesp, and EPOGEN, meanwhile, was weak, although price increases helped to offset some of the impact of unit sales declines. The pipeline continues to make important progress and Amgen acquired three promising companies during the year and announced the proposed purchase of deCODE Genetics, which should bolster the company's research efforts.

Take Away 1: The Current Portfolio
The company's current roster of products is the key to its near-term future. The list is impressive for a biotech company, as it includes ten notable active drugs. Three of the company's drugs, Neulasta, NEUPOGEN, and Enbrel account for about two thirds of the company's drug sales. The 14% growth in the sales of Enbrel was impressive, as it came from a mixture of price increases and increasing demand for the product.

Enbrel, which is used to treat inflammation, appears to be on the upswing with future growth underpinned by the potential for the drug to be used in additional patient populations. For example, when first released, the drug was approved for rheumatoid arthritis. Today, its indications include chronic moderate to severe plaque psoriasis, active psoriatic arthritis, and active ankylosing spondylitis.  Inflammation is believed to be an important aspect of a number of different ailments, which suggests that Enbrel's growth isn't over yet.

In addition, this drug is currently marketed in the United States under an agreement with drug giant Pfizer (NYSE: PFE). That deal is set to expire, which should allow Amgen to see more of the revenue from the drug. Clearly this is an increasingly important drug for the company. Note, however, that Pfizer submitted a new drug application to the Food and Drug Administration for a competitive drug. Since Pfizer helped establish Enbrel as a product, it will clearly know how to best attack it as a competitor.

On the flip side, weakening demand for Neulasta and NEUPOGEN is a concern. So far, the company has been able to implement price increases to blunt the impact. This duo already faces generic competitors, called bio-similars in the biotech space, in Europe and are likely to see similar competition in the United States in the near future from well-heeled generic companies like Teva Pharmaceuticals. This is in addition to competitive products from other firms. Continued sales declines are, thus, possible.

Aranesp and EPOGEN, which both stimulate red blood cell production, also experienced sales declines. Both are notable drugs for the company, though not to the degree of Enbrel, Neulasta, and NEUPOGEN. These two round out the company's billion dollar drugs.

So, of the company's five most important drugs, only one seems to be growing at present. That said, the others continue to throw of cash that can be used to search for new drug candidates. And management seems to be pleased with the progress of all five drugs, so they at least seem to be progressing through the product life cycle as planned. Still, investors should keep an eye out for patent expiration issues and competition led price weakness.

The remainder of the company’s marked drugs is smaller, but all experienced sales increases. This is a positive, as declines from some of the above drugs are easily being offset by the strength of the company's entire product portfolio.

Investors need to watch these products closely to ensure that the portfolio's performance continues in the right direction overall. Take note that the company is marketing some drugs that are likely to see competition over the near term. It is also worth monitoring companies like Teva, which is well positioned to benefit as drugs come off patent. Although Teva has been trying to push into selling private label drugs, generics are still a vital component of its business. It will likely be one of the first to pounce when it senses an opportunity and has already been sniffing around NEUPOGEN.

Take Away 2: The Pipeline
Almost 40% of Amgen's employees are involved in the company's research efforts. That alone should show just how important this aspect of the company's business is. The vast majority of these research efforts are in support of new drug candidates, with profits from existing drugs providing the funding.

Amgen spent 6% more on research and development efforts in 2012 than it did in 2011. In the biotech space, this is usually a sign of good things to come. In fact, much of the increase can be attributed to clinical progress with drug candidates AMG 145 and romosozumab (AMG 785). This pair has progressed into later-stage clinical trials, moving that much closer to market. Although there is no guarantee of success with any drug, shareholders should be pleased to see the continued advance of this pair.

Overall, the company has eight notable drugs, including the two above, in phase II or phase III trials. Some of the indications that it is testing around include postmenopausal osteoporosis, psoriasis, and various cancer, all of which have notable addressable markets. Although management declined to elaborate on its research efforts, since it is holding a meeting on that specific topic in early February, their comments on their pipeline remained upbeat. This is a long-term positive, though investors should keep a watch for late stage setbacks.

Take Away 3: Mergers and Acquisitions
Amgen has long shed the role of desperate biotech trying to get a single drug to market. This has given it a great deal of flexibility and it now has the financial heft to use mergers and acquisitions to further its business. In 2012, the company completed three such transactions.

The acquisition of KAI Pharmaceuticals brought that company's KAI-4169 into the fold. This drug is intended to treat secondary hyperparathyroidism in patients with chronic kidney disease who are on dialysis. With “compelling” Phase II results, it was a nice addition in a space that is likely to expand as baby boomers age.

Buying Mustafa Nevzat Pharmaceuticals, a privately held Turkish company, expanded the company's position in that country. Management considers Turkey and the surrounding region high priority markets, so augmenting its market position with this acquisition should support the company's long-term growth plans.

The purchase of Micromet allowed Amgen to gain control of blinatumomab, a Bispecific T cell Engager antibody being tested for the treatment of acute lymphoblastic leukemia and non-Hodgkin's lymphoma. The drug is in Phase II trials for the former indication and may have additional indications for which it may be useful.

In addition, the company also inked a deal to purchase of Iceland's deCODE Genetics. The company doesn't come with any drug candidates, but it is a leader in genetic research. Although the deal isn't completed yet, deCODE's addition should help Amgen better target its drugs, which, in turn, should help improve the chances of drug effectiveness and approval.

A Decent Year
Overall, Amgen had a decent year and its results prove that out. Particularly impressive was the company's decision to continue returning value to shareholders via a dividend increase and share buybacks. In an industry known for not paying dividends and issuing shares to fund research, these shareholder friendly acts are telling.


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