[Biotech&Pharma] The Biggest Biotech Just Touched A Record High — Is Amgen Stock A Buy?

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Amgen stock, the biggest biotech company out there, touched an all-time high in December.




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Shares of Amgen (AMGN) broke out Oct. 31 and surged to several record highs after the biotech company announced a $2.7 billion stake in Chinese biotech BeiGene (BGNE). The drugmakers will team up to sell medicine in China and develop cancer drugs.

Earlier in the summer of 2019, a U.S. judge sided with Amgen in a patent battle vs. Novartis (NVS) over Amgen's inflammation drug Enbrel. Now, Enbrel is protected from a biosimilar — a copycat rival drug — until 2028-29, analysts say.

U.S. patent officials are also reviewing Amgen's challenge to several patents protecting Alexion Pharmaceuticals' (ALXN) rare-disease medicine Soliris. If successful, Amgen could launch a biosimilar copycat of Soliris much sooner than anticipated.

Further, the biotech company completed its $13.4 billion buyout of Celgene's psoriasis treatment Otezla. In all of 2019, Amgen stock popped nearly 24%.

So, is now the time to buy Amgen stock?

Amgen Stock Fundamentals: Amgen Sales Pressured

Despite recent successes, biotech company Amgen is struggling to grow.

Its biggest moneymakers are facing a slew of patent challenges. In the aftermath of those battles, biosimilars have launched efforts to knock off key Amgen products like Neulasta and Neupogen. Biosimilars are nearly identical copies of biologic drugs. Biologic drugs use organic materials.

The third quarter was lackluster for Amgen. Adjusted profit dipped a fraction to $3.66 a share. For the second straight quarter, Amgen sales slipped. On a year-over-year basis, the biotech company's revenue slid 3% to $5.74 billion. Both metrics, however, topped analyst estimates.

Before that, Amgen's second-quarter sales slid 3% and earnings crept up 4%.

The profit trend could turn around in the fourth quarter. Then, analysts polled by Zacks Investment Research expect Amgen earnings to inch up 1.5% to $3.47 per share. Sales, on the other hand, are still projected to dip

The trend is expected to continue in the fourth quarter. Then, analysts surveyed by Zacks Investment Research expect Amgen earnings to slide a fraction to $3.39 per share. Sales are projected to dip 4% to $5.98 billion as biosimilar rivals continue to take their toll.

Biosimilar Rivals Chip Away At Sales

Coherus Biosciences (CHRS) and Mylan (MYL) launched copycat versions of Amgen's Neulasta, which treats patients after chemotherapy who experience a decline in a type of white blood cells. Novartis also recently gained approval for a Neulasta biosimilar.

Further, Pfizer (PFE) and Novartis have biosimilars of Amgen's bone-marrow-stimulating drug Neupogen.

As a result, Neulasta sales plunged 32% in the third quarter. Neupogen sales tumbled 36%.

To Amgen's credit, already approved biosimilars of Enbrel from Samsung/Biogen (BIIB) and Novartis can't launch in the U.S. until around 2028-29. In August, patent officials sided with Amgen, reaffirming protection for the inflammation drug.

That's important because Enbrel is Amgen's biggest product. In the third quarter, Enbrel brought in $1.37 billion in sales. Still, total sales and earnings are well below CAN SLIM rules for investing, which insist that companies have roughly 20%-25% sales and earnings growth in recent quarters.

What Does 2018 Say About The Biotech Company?

In 2018, Amgen posted 4% sales growth as revenue hit $23.75 billion. That improved from a 1% drop in 2017. But that was still among the weakest sales growth periods the biotech company has seen in years. Sales last grew by a double-digit percentage in 2012, when they rose 11%.

Meanwhile, adjusted earnings per share popped 14.5% to $14.40. That was better than the prior two years when adjusted profit climbed 8% and more than 12%, respectively.

Cash flow was $18.30 per share in 2018, which was 27% above adjusted earnings. Top-performing stocks tend to have cash flow at least 20% above earnings. So, that's a positive for Amgen stock.

On the negative side, the biotech company is expected to report a 2.5% decline in sales for the year ended in December 2019. The Street is calling for $23.16 billion in full-year revenue. But adjusted Amgen earnings are expected to rise 1.3% to $14.58 per share.

Amgen Stock Technical Analysis: 2 Promising Ratings

In late October, Amgen stock topped a buy point at 212 out of a flat base. As of the close on Jan. 3, shares of the biotech company were about 12.5% extended from that entry. Investors are advised to take some profits when a stock rises 20%-25% above its buy point.

Amgen stock has an Investor's Business Daily Composite Rating of 94 out of a best-possible 99. The CR measures a stock's key technical and fundamental growth metrics. On that scale, Amgen stock ranks in the top 6% of all stocks.

By comparison, the top-rated biotech company is Arrowhead Pharmaceuticals (ARWR), which has a perfect Composite Rating of 99.

Amgen stock had a Relative Strength Rating of 86 out of a best-possible 99 as of midday Jan. 6. Investors are encouraged to seek stocks with RS Ratings above 80, showing the stock has had a strong 12-month performance. This puts Amgen stock toward the front of the pack.

Amgen stock is also above its 50-day and 200-day moving averages.

Less encouraging, Amgen stock has a middle-of-the-road EPS Rating of 72. EPS Ratings track a company's recent profitability. Although the biotech company is solidly profitable, quarterly earnings growth has generally stayed below 25% since 2007.

Recent News Surrounding Amgen Stock

News has been mixed recently for Amgen.

The biotech company recently closed a collaboration deal with China's BeiGene to develop 20 cancer drugs. BeiGene will develop and commercialize the drugs in China. In exchange, Amgen took a $2.7 billion stake in the company. BeiGene will also sell three other Amgen drugs in that country.

Amgen is testing a drug that inhibits a protein called KRAS. That protein can mutate, making it tricky to target. In June 2019, Amgen said it tested a high dose of the drug, known as AMG 510, in three patients with a form of lung cancer. All three patients partially responded to the drug.

But during an update in September, Amgen said two of those patients worsened about 12 to 16 weeks after treatment. Still, it added 10 new patients to the high-dose group. Across 13 patients, seven had partial responses. The others were considered stable. In response, Amgen stock slipped.

Also in September, Amgen said one patient out of 12 with colon cancer partially responded to treatment with the KRAS inhibitor. Ten patients were considered stable. The response rate lagged expectations.

Patent Battles Are Ongoing

More bullishly, as noted above, in August 2019, Amgen won the patent battle vs. Novartis subsidiary Sandoz, which had been hoping to launch its version of Enbrel. Now, Enbrel is protected for another decade.

Further, patent officials agreed to review Amgen's challenge to secondary patents covering Alexion's blockbuster drug Soliris. Soliris is an important drug for Alexion and brought in $3.56 billion in sales last year. If successful, Amgen is aiming to take a chunk of those sales.

Earlier in the month, rumors suggested Amgen could seek to acquire Alexion. Instead, Amgen said it would pay $13.4 billion to buy Celgene's psoriasis and psoriatic arthritis drug Otezla. In 2018, that drug generated $1.61 billion in sales. Analysts say it could reach $2.45 billion in 2021 sales.

That deal wrapped in late November, helping solidify Bristol-Myers Squibb's (BMY) takeover of Celgene for $74 billion. The Federal Trade Commission expressed concerns that owning both Otezla and Orencia would give Bristol a monopoly on the market.

But analysts note that Amgen already sells Enbrel, which, among its many uses, is a psoriasis treatment. The Otezla buyout will give Amgen a large chunk of the market targeting inflammatory diseases.

So, Is It Time To Buy Amgen Stock?

No, now is not the time to buy Amgen stock.

Shares are currently hovering above a buy zone — less than 5% above a buy point — in this case, anywhere from 212-222.60. If the stock drops 8% or more below its buy point — at 195.04 or below — that would trigger the loss-cutting sell rule.

Investors should watch for Amgen stock to return to a buy zone before adding shares. Further, the biotech company's stock could rise as much as 20%-25% from its buy point. That would signal an opportunity to take some profits.

It will also be important to watch how earnings and sales progress. Third-quarter earnings declined, and Wall Street expects sales to dip and profit to inch up in the fourth quarter. Full-year earnings could rise, though analysts still predict a sales decline. This would be out of line with CAN SLIM rules.

Also keep an eye on the development of biosimilars — both from Amgen and its rivals. Amgen also has a promising pipeline of cancer drugs, but the volatile election season could rock the broader segment of biotech companies.

To find the best stocks to buy and watch, check out IBD Stock Lists. Make sure to also keep tabs on stocks to buy or sell.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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The post The Biggest Biotech Just Touched A Record High — Is Amgen Stock A Buy? appeared first on Investor's Business Daily.

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