Amgen Q1 - Pause Before New Drugs Take Off

Last week Vestact's direct exposure to the pharmaceutical industry, Amgen, reported their Q1 numbers. Currently, the company is in a bit of no-mans land, where some of their big-name patents have recently expired, and the company is waiting for their new big-name drugs to ramp up in scale.

Neulasta, which is used post chemo to boost your white blood cell count, had its patent expire in 2015. Competing drug companies have created biosimilar drugs, dropping the sales of Neulasta by 12% to $1 billion for the quarter.

Amgen is hitting back by creating its own biosimilar products of competing drugs that have come off patent. The unit had zero sales last year this time, in Q1 it had $55 million in sales. This unit should continue to scale as current drugs gain market share and as Amgen goes through the process of getting other biosimilars approved.



Looking at the company as a whole, it had flat revenues of $5.6 billion. Due to increasing R&D from 13.8% of revenue to 16.3% of revenues, their operating profit margin decreased from 51% to 47%. I don't think anyone will complain about operating margins of 47%, especially given that the drop in margins was due to an increase in research costs. The company is investing in its future.

On a profit side, Net Income dropped 10% but thanks to share buy-backs, EPS increased from $3.47 to $3.56. Based on the managements' forecast, the share trades on a forward P/E of 14 times. The lower multiple means that the share price is less sensitive to changes in earnings and it has a high dividend yield. Amgen is a solid foundational stock for your portfolio.