Pricing Pressures Will Erode Revenue Amid Biosimilar Competition

Key Takeaways

• Intensifying pricing pressures, biosimilar competition, and expiring patents threaten Amgen’s revenue stability, margin preservation, and future market share.
  
• Failure to adapt to new therapeutic modalities and rising R&D costs increases risk of obsolescence, pipeline setbacks, and sustained profit margin compression.
  
• Diversified portfolio, strong R&D, new market expansion, and operational efficiency investments position Amgen for sustained growth and increased profitability in evolving healthcare sectors.

Catalysts

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

• As governments and payers intensify scrutiny of healthcare costs, Amgen faces a challenging environment where ongoing global pricing pressures and heightened regulatory focus on drug affordability threaten its ability to maintain premium pricing on both established and new therapies, leading to stagnant or even declining revenue and long-term margin compression.
  
• The rapid acceleration in biosimilar adoption—bolstered by payers increasingly favoring cost-effective alternatives—poses a significant risk to Amgen's future revenue streams, particularly as biosimilar competition erodes exclusivity for mainstay biologic brands such as Enbrel, Neulasta, and potentially new launches, resulting in a sustained decline in market share and net profit.
  
• Patent expirations and the aging of Amgen’s core portfolio—coupled with the risk that its current late-stage pipeline underperforms or faces delays—raise the prospect of revenue decline, diminished earnings growth, and impaired long-term margin stability, especially as key assets approach the end of their life cycle.
  
• The industry is rapidly evolving towards advanced therapeutic modalities (including gene editing, RNA therapeutics, and cell therapies) that may supersede traditional biologics, exposing Amgen to the threat of obsolescence and eroding competitive relevance, with potential loss of revenue and compression of long-term earnings if its portfolio cannot adapt effectively.
  
• Escalating research and development costs, extended clinical timelines, and increasingly conservative regulatory approvals not only strain Amgen’s return on investment but also raise the risk of expensive pipeline setbacks, leading to further pressure on profit margins and volatility in future earnings.

Amgen Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Amgen compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Amgen's revenue will decrease by 0.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 17.4% today to 20.0% in 3 years time.
• The bearish analysts expect earnings to reach $6.8 billion (and earnings per share of $12.78) by about May 2028, up from $5.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.5x on those 2028 earnings, down from 24.5x today. This future PE is greater than the current PE for the US Biotechs industry at 18.3x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.73%, as per the Simply Wall St company report.

Amgen Future Earnings Per Share Growth

Risks

• Strong volume and revenue growth across a broad portfolio, including double-digit sales increases from 14 medicines and 35% year-over-year growth in biosimilars, demonstrates resilient demand and diversified product streams, supporting the outlook for continued revenue and earnings growth.
  
• Multiple positive late-stage (Phase 3) clinical results, new product launches, and filings for additional indications highlight robust R&D productivity and pipeline momentum, pointing to sustained long-term growth in revenue and net margin as new therapies reach the market.
  
• Expansion initiatives in key growth areas such as obesity (MariTide), rare diseases (UPLIZNA), and oncology (IMDELLTRA, BLINCYTO) position Amgen to benefit from secular healthcare trends including the aging population and rising demand for advanced biologic and specialty therapies, supporting long-term profit expansion.
  
• The successful integration of recent acquisitions (Horizon Therapeutics) is on track to deliver significant cost synergies and faster portfolio diversification, enhancing operational efficiency and margin improvement, while expanded international launches (Tepezza, IMDELLTRA) open new revenue streams.
  
• Investment in manufacturing capacity, AI-driven innovation, and biosimilar development is strengthening Amgen’s competitive advantages and operational agility, enabling the company to adapt to market volatility and policy changes while supporting stable to expanding free cash flow and margins over the long term.

Valuation

• The assumed bearish price target for Amgen is $213.53, which represents two standard deviations below the consensus price target of $313.62. This valuation is based on what can be assumed as the expectations of Amgen's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $400.0, and the most bearish reporting a price target of just $185.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $34.2 billion, earnings will come to $6.8 billion, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $270.44, the bearish analyst price target of $213.53 is 26.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.