The biotech industry has been in a slump over the past two years, but Amgen (AMGN -0.11%) has performed comparatively well. That’s not to say this leading drugmaker hasn’t had its share of issues. It has struggled with stiff competition for some of its products and slow revenue growth.
However, the market has faith in Amgen, as evidenced by its rising stock price. Is this faith justified? Let’s determine whether buying shares of the biotech giant is worth it.
Amgen is turning over a new leaf
In the third quarter, Amgen’s revenue increased by just 4% year over year to $6.9 billion. Older products, such as psoriasis arthritis treatment Otezla, are seeing their sales drop, while newer medicines, like cancer drug Lumakras, are failing to make a meaningful impact. But there is some hope for Amgen.
Last year, it acquired rare diseases-focused Horizon Therapeutics for about $28 billion in cash. Horizon has many exciting pipeline products and a key approved medicine called Tepezza that targets thyroid eye disease. Tepezza has only been approved since January 2020. Between Tepezza and Horizon Therapeutics’ pipeline, Amgen hopes to find its next blockbuster.
The company isn’t just relying on acquisitions for that purpose, though. Amgen has several promising candidates of its own. One of the more exciting is maridebart cafraglutide, a potential weight-loss therapy whose phase 2 results are due later this year. The anti-obesity market is projected to skyrocket in the coming years, so it’s not surprising to see Amgen trying to dip its toes in these waters.
Amgen is also close to earning approvals for brand-new products. Last year, it submitted an application to the U.S. Food and Drug Administration for tarlatamab, a potential therapy for lung cancer. The agency set a PDUFA goal action date — the date by which it will complete the review of Amgen’s application — of June 12.
Newer products will eventually allow Amgen to exit its top-line growth slump. The company will also count on Tezspire, an asthma medicine first approved in the U.S. in late 2021. Amgen developed this treatment in partnership with AstraZeneca. It isn’t contributing significantly to Amgen’s financial results yet. In the third quarter, Tezspire’s revenue increased by almost 193% year over year to $161 million.
However, Tezspire is aiming for several label expansions that could help boost its sales. Elsewhere, Amgen is developing biosimilars for several blockbusters, including cancer drug Opdivo, eye medicine Eylea, and more. The prevalent opinion holds that drugs are too expensive in the U.S. That’s why there is a massive market for companies looking to change that situation, and Amgen is looking to be a leader.
This represents yet another potentially lucrative opportunity for the biotech.
The dividend is rock-solid
Amgen’s financial results may not have been outstanding over the past couple of years, but it’s not odd for drugmakers to go through such periods. The company is doing what it is supposed to do to turn things around: market new medicines, either developed internally or acquired from other biotechs. Amgen’s underlying business remains solid and should continue supporting its dividend. The company currently offers a yield of 2.89%, higher than the S&P 500‘s average of 1.47%.
Amgen has increased its dividend by almost 269% in the past decade — that’s excellent. The biotech’s cash payout ratio remains very reasonable at 47.5%. There is plenty of room for more dividend hikes.
Between Amgen’s dividend and its robust underlying business that will benefit from important long-term trends (such as the world’s aging population), the company is an excellent stock for low-risk, income-seeking investors. However, those looking for high-growth stocks may want to look elsewhere.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends SPDR Series Trust – SPDR S&P Biotech ETF. The Motley Fool recommends Amgen and AstraZeneca Plc. The Motley Fool has a disclosure policy.