AI Integration Will Improve Efficiency And Accelerate Future Drug Development

Key Takeaways

• Amgen's growth is driven by its oncology portfolio expansion and rare disease product approvals, addressing unmet needs and bolstering revenue.
  
• Integration of AI and R&D investments in the late-stage pipeline could enhance efficiency, reduce costs, and impact long-term earnings positively.
  
• Amgen faces challenges from declining prices, patent expirations, and acquisition-related costs, which could impact revenue, margins, and market position.

Catalysts

Amgen Inc. discovers, develops, manufactures, and delivers human therapeutics worldwide.

• Amgen is positioned to experience substantial growth from its innovative oncology portfolio, which includes several products that are moving into new indications and therapy lines. This expansion is expected to drive revenue growth given the unmet needs in oncology.
  
• The company anticipates approvals and launches for key products in rare diseases, such as TEPEZZA and UPLIZNA, which are set to bolster revenue growth and strengthen the business's rare disease trajectory.
  
• Amgen's cardiovascular portfolio, particularly Repatha, is expected to benefit from improved access and global market expansion, contributing to revenue upside as more patients receive treatment for lowering LDL-C.
  
• The ongoing integration of artificial intelligence into Amgen's operations, including research, development, and commercial processes, aims to enhance efficiency and innovation, which could improve net margins by reducing costs and accelerating drug development.
  
• The company's strong focus on advancing the late-stage pipeline with significant R&D investments, including MariTide, olpasiran, and others, is poised to impact long-term earnings as these potential blockbusters reach the market.

Amgen Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amgen's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.2% today to 24.4% in 3 years time.
• Analysts expect earnings to reach $8.9 billion (and earnings per share of $15.35) by about March 2028, up from $4.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $12.9 billion in earnings, and the most bearish expecting $6.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.4x on those 2028 earnings, down from 41.9x today. This future PE is greater than the current PE for the US Biotechs industry at 19.6x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

Amgen Future Earnings Per Share Growth

Risks

• Amgen faces challenges from declining net prices and losses of exclusivity, which could impact revenue growth and profit margins in the future.
  
• The upcoming patent expiration for denosumab presents a risk of sales erosion due to biosimilar competition, potentially affecting revenue and market dominance in bone health.
  
• The focus on increasing R&D investments, while necessary for innovation, could pressure net margins, especially if the anticipated returns from late-stage pipeline assets like MariTide and olpasiran do not meet expectations.
  
• The integration of recent acquisitions, such as Horizon and the pursuit of cost synergies, may pose execution risks that could impact operational efficiency and overall earnings.
  
• Elevated interest expenses following the Horizon acquisition could impact net earnings and cash flow, affecting Amgen's ability to invest in future growth and shareholder returns.

Valuation

• The analysts have a consensus price target of $315.949 for Amgen based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $389.0, and the most bearish reporting a price target of just $185.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $36.4 billion, earnings will come to $8.9 billion, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 6.8%.
• Given the current share price of $318.65, the analyst price target of $315.95 is 0.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.