Harnessing Global Expansion And Innovation For Sustained Revenue Surge

Key Takeaways

• Amgen's product performance and expansion into new medical sectors and international markets suggest a robust foundation for future revenue growth.
  
• Strategic initiatives in pipeline development, biosimilars, and addressing unmet medical needs indicate a focus on diversification and competitive advantage enhancement.
  
• Amgen faces risks including delayed drug approvals, competition, supply chain issues, and expansion challenges, affecting revenue, market share, and margins.

Catalysts

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

• Amgen's strong product performance across general medicine, oncology, inflammation, and rare disease sectors indicates a solid foundation for future revenue growth.
  
• The imminent filing for TEPEZZA approval in the European Union and the pursuit of new markets and indications for first-in-class early-life cycle medicines suggest potential international expansion and diversification, impacting revenue positively.
  
• The advancement of promising new medicines in Amgen's pipeline, in particular, tarlatamab’s anticipated approval for small cell lung cancer, signifies potential breakthroughs enhancing the company’s competitive advantage and future earnings.
  
• Amgen's focus on developing a biosimilar to KEYTRUDA, leveraging its global leadership in biosimilars, could offer a new revenue stream and further diversify its portfolio, impacting future growth positively.
  
• The elaborate plans for a broad Phase III program for MariTide in obesity and obesity-related conditions, including diabetes, along with efforts to expand manufacturing capacity, signify Amgen’s strategic initiatives towards tapping into large, unmet medical needs with substantial commercial potential, likely boosting long-term revenue and margins.

Assumptions

• Analysts are assuming Amgen's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.7% today to 21.0% in 3 years time.
• Analysts expect earnings to reach $7.3 billion (and earnings per share of $14.44) by about July 2027, up from $3.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $9.4 billion in earnings, and the most bearish expecting $5.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.7x on those 2027 earnings, down from 47.9x today. This future PE is greater than the current PE for the US Biotechs industry at 28.1x.
• Analysts expect the number of shares outstanding to grow by 0.39% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

Risks

• The reliance on successful Phase II results and swift regulatory approvals for new drugs, including MariTide, introduces significant risk, potentially impacting revenue and earnings if these approvals are delayed or denied.
  
• Competition in the oncology and rare disease markets could affect the company's ability to gain and retain market share, potentially impacting revenue growth from key products like tarlatamab and TEPEZZA.
  
• Manufacturing and supply chain constraints could impact the company's ability to meet demand for new and existing products, potentially affecting revenue and net margins, especially for high-demand areas like obesity treatment with MariTide.
  
• Expanding into new geographic markets, as with plans for TEPEZZA in the European Union, involves execution risks that could influence revenue growth and profitability due to regulatory hurdles, distribution challenges, and local market competition.
  
• Investment in diverse clinical pipelines and advanced technologies, while necessary for long-term growth, could strain operating margins in the short to medium term if the rate of product approvals or market uptake does not meet expectations.

Valuation

• The analysts have a consensus price target of $317.4 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 $380.0, and the most bearish reporting a price target of just $170.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $35.0 billion, earnings will come to $7.3 billion, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $335.67, the analyst's price target of $317.4 is 5.8% 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.