Breakthrough Therapies Like MariTide Will Target Broader Markets In The Future

Key Takeaways

• Diverse pipeline and oncology breakthroughs position Amgen for long-term revenue growth by targeting broad markets and innovative treatments.
  
• Geographic expansion and efficient operations enhance margins and support earnings and shareholder returns through strategic capital management.
  
• Increased competition and integration risks could pressure pricing, impact margins, and strain resources, with high R&D investments adding to financial challenges.

Catalysts

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

• Amgen's diverse pipeline, including many potentially first-in-class or best-in-class medicines such as MariTide, positions the company for long-term revenue growth, especially as these new drugs target broader markets like obesity and type 2 diabetes.
  
• Strong performance in oncology with breakthrough therapies like BLINCYTO and IMDELLTRA is expected to drive future revenue and earnings growth, solidifying Amgen's position in innovative oncology treatments.
  
• Expansion into rare disease markets with newly approved treatments like TEPEZZA in Japan provides potential for geographic revenue growth and margin improvement due to the specialized nature of these medicines.
  
• Strategic investments in advancing a broad range of late-stage clinical trials, such as those for MariTide and TEZSPIRE, are expected to significantly boost future earnings by introducing high-demand therapies across various therapeutic areas.
  
• Efficient operations with a focus on cost synergies, especially post-Horizon acquisition, are anticipated to enhance net margins, supporting overall earnings growth and shareholder returns through strategic capital allocation and cash flow management.

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 13.0% today to 24.5% in 3 years time.
• Analysts expect earnings to reach $8.7 billion (and earnings per share of $16.12) by about December 2027, up from $4.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $11.3 billion in earnings, and the most bearish expecting $3.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.6x on those 2027 earnings, down from 33.8x today. This future PE is greater than the current PE for the US Biotechs industry at 16.6x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.89%, as per the Simply Wall St company report.

Amgen Future Earnings Per Share Growth

Risks

• Increased competition from new entrants in markets like diabetes and obesity could pressure pricing and reduce revenues and net margins.
  
• Potential for declining net selling prices in key segments, as seen with Enbrel, could impact overall earnings despite volume growth.
  
• Integration risks and cost synergies not meeting expectations from the Horizon acquisition might lead to increased operating expenses and impact net margins.
  
• High R&D investment requirements for large-scale Phase III trials like MariTide, without guaranteed results, could strain financial resources and affect earnings.
  
• Supply chain disruptions, as seen with competitors, might present a risk to consistent revenue generation if Amgen faces similar issues.

Valuation

• The analysts have a consensus price target of $325.35 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 $405.0, and the most bearish reporting a price target of just $195.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $35.5 billion, earnings will come to $8.7 billion, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 6.9%.
• Given the current share price of $265.95, the analyst's price target of $325.35 is 18.3% higher.
• 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.