Years of patience are finally paying off for
shareholders, whose shares jump by more than 160% over the past
Amgen's shares have rallied on the prospect of
delivering late-stage data on 10 new compounds
before the end of 2016, as well as its aggressive purchase of Onyx
Pharmaceuticals for $10.4 billion, which Wall Street expects will
put some pep in Amgen's step.
But what stakeholders may fail to realize is that headwinds
exist in Amgen, as they do with every stock, which could knock it
off its recent pedestal and send its shares lower. Of course, you
won't find these headwinds from reading a simple earnings report.
Instead, you need to look deeper, beyond just the headline figures,
to discover what factors might work against Amgen achieving its
Today we're going to look at three catalysts that I suspect are
most likely to send Amgen's stock lower. But before we do that,
it's important to remind readers that stocks can go up just as
easily as they can go down. As you read this bearish thesis here
today, keep the other side of the coin in mind, and understand that
just because a company faces challenges doesn't mean that it
necessarily will see its share price head lower.
Kyprolis, Kyprolis, Kyprolis!
reading that correctly. Just as multiple myeloma drug Kyprolis was
singled out as one of the
that could send Amgen higher, it's also a factor that could lead to
its stock falling considerably from its current price.
Source: Deutsche Bank Healthcare Conference presentation /
Amgen's Kyprolis, which was acquired when it bought Onyx
Pharmaceuticals, is on pace to deliver close to $350 million in
revenue this year, but is looked upon by Wall Street as a drug with
peak annual sales potential of between $2 billion and $3 billion.
In order to hit these lofty annual figures Kyprolis needs to see
its label expand beyond its current Food and Drug
Administration-approved indication of treating third-line multiple
myeloma and into second-line multiple myeloma and small-cell lung
"What might the hold-up be in that expansion?" you ask? The
answer to that lies in the company's recently announced FOCUS
study. As Amgen noted earlier this month, Kyprolis missed its
primary endpoint of a statistically significant improvement in
overall survival in second-line multiple myeloma patients, although
in the ASPIRE study it showed a notable improvement of 8.7 months
in progression-free survival over the control group. In addition,
even though treatment discontinuation was similar in both arms of
the FOCUS study, there was a notable increase in renal adverse
events in the Kyprolis arm during the late-stage study.
Though Amgen feels confident the ASPIRE data should be enough to
get Kyprolis the critical second-line indication in the U.S. and
EU, the European Medicines Agency is a
when it comes to experimental drugs demonstrating improvements in
overall survival. This could make an approval tougher to come by,
especially in Europe, and it could stymie Kyprolis' sales
Questionable faith in Amgen's management
The second factor that I suspect could play a role in pushing
Amgen's stock lower is investors' lack of faith in management to
take the company down the right path.
On one hand, Bob Bradway, the current CEO of Amgen, has only
been leading the company as CEO since May 2012. In the time since
he took over shares have doubled. A great number of existing
shareholders won't complain about that performance.
But look back more than three years and you'll see a more mixed
Between 2000 and 2012 Amgen investors essentially witnessed
their stock trade nominally flat. Of course, Amgen was also buying
back shares and, as we've seen in recent years, paying out a
dividend to provide a reward for faithful investors.
Although Bradway was clear during the
company's conference call
that Amgen is a well-oiled machine from both an internal and
external pipeline status, the historic figures speak for themselves
and point to a management team that's failed to exceed investors'
expectations for a long time.
Little ex-U.S. exposure
Lastly, and this topic gets very little exposure, Amgen is heavily
reliant on the U.S. for its growth. In fact, I'd say too
Source: Bryan Pocius via
In the second quarter, Amgen reported total product sales of
$4.95 billion, an 8% increase over the previous year. The company's
U.S. sales, however, accounted for $3.76 billion, or 76% of total
It's not all bad news that Amgen's largest market is the United
States. In fact, a good number of drugmakers would refer to the
U.S. as their primary revenue source. Yet Amgen's rest-of-world
category, which includes Europe and other emerging markets, managed
just $1.19 billion in product sales. This ROW category is what
includes the possibility of faster-growth markets than the U.S.,
and also allows Amgen some geographic diversity in case another
economic downturn in the U.S. causes consumers to cut back on
Let's not forget, as well, that insurers in the U.S. are
potentially seeing their margins pinched by the implementation of
the Affordable Care Act (you may know it better as Obamacare). In
response to the uncertainties associated with Obamacare and the
expectation of higher medical costs, insurers and pharmacy-benefit
management companies have gone on the offensive against big pharma
and biotech companies in an effort to keep drug prices from
soaring. In some cases it's resulted in select insurers dropping
coverage on popular drugs because their selling price was simply
too high. Being so focused on the U.S. market Amgen is potentially
susceptible to these pricing pressures, which full-well could weigh
on its stock.
Tying things together
Amgen's been a welcome holding for investors over the past three
years, but these three headwinds might imply that it's run is about
to come to a grinding halt. With plenty of
on the horizon, but the quality of its Onyx purchase, its lack of
geographic diversity, and its history of weak growth also in the
forefront, it gives current investors, and those on the outside
looking in, some serious catalysts to mull over.
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3 Reasons Amgen Inc.'s Stock Could Fall
originally appeared on Fool.com.
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