Amgen 1Q numbers - beat expectations

Amgen, one of the world's leading biotech companies reported results for their first quarter of the 2016 financial year on Thursday evening. This is not a company that we have owned for a long time, it is a relatively recent acquisition for our clients. In fact, we have only been buying this company for clients for around a year. The nearly four decade old company, as per their mission statement are involved in producing cost effective therapies that are based on advances in cellular and molecular biology. If you were not paying attention in those respective subjects, biology and chemistry, then I suppose like most of us without the advanced studies in the respective fields, we will have to understand what the therapies do, whether or not there will be greater need for them, whether or not the company is on the right track, whether or not importantly that the company is a good investment at this juncture.

You may know the company for the production of one of their most successful blockbusters, in fact in their field of pharma, one of the greatest therapies so far in the short history of biotech, EPOGEN. Lance and his friends, well, almost everybody who rode le tour de Farce for a number of years knows the therapy. It is supposed to be used on patients who are struggling, not "healthy people". Remember that from 1999 to 2005 there are no winners of the tour, as a result of excessive doping. Sigh. Cheats, money, power and fame.

Their number one current drug is Enbrel, you can get a complete run down of their therapies via their website, under products. Of course as an investor you will be very excited to know what is in the pipeline, remembering that the process is a tough old one. It is important to look under phase 3 to look at therapies like Repatha and Xgeva, even something like AMG 334, which might alleviate migraine sufferers constant pain.

In the world of biotech, things can get a little hairy sometimes for the shareholders. The nature of the beast determines the volatility associated with the smaller listed stocks, one FDA rejection or approval for a small business with a single therapy results in dramatic moves in the share prices. And recently the well documented Valeant woes have put a cloud over the whole sector. The sub sector as a whole is down nearly 20 percent over the last 12 months.

Amgen is one of the big hitters in the sector, with a market cap of 117 billion Dollars, the company is larger than the amount that AB InBev is shelling out for SABMiller. And is on a lower multiple, Amgen currently trades on a 17 times historical earnings multiple, with a two and a half percent yield. In the earnings release, the company guided higher for the year, adjusted earnings per share is expected to be between 10.85 to 11.20 Dollars, meaning forward the stock trades on a 14.4 multiple in the middle of the earnings range. That is hardly expensive, in fact for a business that has managed to grow Q1 comparable revenues by 10 percent year on year and adjusted EPS by 17 percent, the stock may well look very cheap.

Added to that is the fact that the stock price has not moved a single iota in the last 12 months, it is essentially flat. Whilst it may seem counterintuitive, a lower share price over a period of time where their peers have done worse (a few cases here and there) is actually a good thing for the prudent investor. An investor wants to accumulate quality for as long as they can at lower share prices, when the stock is cheaper. Obviously you want the stock to go higher in time, and be rewarded for putting your money at risk, with quality businesses, it is only a matter of time before that happens. This is one such business, we continue to recommend a conviction buy on the stock.