Insights

1 Green Flag and 1 Red Flag for Amgen

Amid a gloomier performance from the broader market, the healthcare industry has presented a few bright spots for investors. Amgen (NASDAQ: AMGN), a biotech pioneer that uses living cells to make biologic medicines, has seen its stock rise 10% year-to-date. For context, the S&P 500 has dropped nearly 12% in the same time frame.
Let’s look at what’s going right for the company and one obstacle it could face.
Image source: Getty Images.

An optimistic eight-year outlook for earnings growth
In February, the company announced that its 2021 revenue increased by 2% to $26 billion compared to 2020, driven by revenue from collaborations with Eli Lilly (NYSE: LLY). Product sales were flat on a year-over-year basis due to a decrease in net sales price. While osteoporosis treatment Evenity generated $143 million in sales, accounting for 59% year-over-year growth, that win wasn’t enough to make up for a decline in the sale of other products. Enbrel, which is historically Amgen’s leading sales generator and used to treat rheumatoid arthritis, saw a 13% reduction in sales. 
Amgen hopes this decline will be offset in the future by additional sales of Otezla, which treats various forms of psoriasis. Otezla received FDA approval for plaque psoriasis and actually impeded Enbrel sales. For the year, Otezla brought in $520 million compared to Enbrel’s $1 billion, but the 2% year-over-year increase in Otezla wasn’t enough to make up for the 13% decline in Enbrel’s sales.
Although a 2% increase in revenue may not be eye-catching, the company caught the attention of some investors by projecting that earnings would climb by high single digits — and potentially even low double digits — year over year through 2030. That equates to upwards of $35 billion in sales and per-share earnings of $30 by the end of the decade, 50% above what analysts are expecting. That’s a number that many investors surveyed by Japanese bank Mizuho (NYSE: MFG) don’t actually think is achievable, but the stock spiked up for a day on the announcement nonetheless. It has since climbed steadily, grabbing a 6% gain since early February.
The IRS comes calling for over $7 billion
There’s a cloud hanging over Amgen right now, though, and it’s led to a one-day share price drop of nearly 6% this week. The IRS is looking into the company for back taxes. Amgen could be looking at a total of $7 billion owed to the IRS for taxes and penalties related to how the company reported profits between its U.S. and Puerto Rico entities between 2013 to 2015. This isn’t the first Amgen has run into this kind of trouble: this snag comes on the heels of the IRS having levied $3.6 billion in back taxes in August related to the reporting of profits between 2010 and 2012.
It’s not clear when or if Amgen will be found to owe the taxes and penalties, but the company has made clear that it believes the charges are without merit. For investors, it might calm nerves a bit to know that the company ended 2021 with $8 billion in cash, which could take care of the majority of the money Amgen may owe — though I doubt the company would just simply cut a check out of its cash reserves. It could be years before we know the result.
What’s the net net?
Projections for earnings growth into double digits can be helpful to investors in gaining an idea of where the company thinks it can go. And a 15.8% compound annual growth rate for the global biotech market through 2028 can certainly help support Amgen’s goals. But the current situation represents an opportunity for investors to obtain shares that will pay an annual dividend of $7.76 per share at a dividend yield of 3.1%, making this one of the top biotech stocks to buy right now as investors move toward safer income.
An inquiry by the IRS is a bit frightening because it could result in a setback to the company achieving its goals, but it’s likely to come with a drawn-out investigation, and a lengthy process should any appeals be necessary. It should not take away from what the company is doing with its product pipeline and sales collaborations.
Jeff Little has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy. –

Amid a gloomier performance from the broader market, the healthcare industry has presented a few bright spots for investors. Amgen (NASDAQ: AMGN), a biotech pioneer that uses living cells to make biologic medicines, has seen its stock rise 10% year-to-date. For context, the S&P 500 has dropped nearly 12% in the same time frame.

Let’s look at what’s going right for the company and one obstacle it could face.

Image source: Getty Images.

An optimistic eight-year outlook for earnings growth

In February, the company announced that its 2021 revenue increased by 2% to $26 billion compared to 2020, driven by revenue from collaborations with Eli Lilly (NYSE: LLY). Product sales were flat on a year-over-year basis due to a decrease in net sales price. While osteoporosis treatment Evenity generated $143 million in sales, accounting for 59% year-over-year growth, that win wasn’t enough to make up for a decline in the sale of other products. Enbrel, which is historically Amgen’s leading sales generator and used to treat rheumatoid arthritis, saw a 13% reduction in sales. 

Amgen hopes this decline will be offset in the future by additional sales of Otezla, which treats various forms of psoriasis. Otezla received FDA approval for plaque psoriasis and actually impeded Enbrel sales. For the year, Otezla brought in $520 million compared to Enbrel’s $1 billion, but the 2% year-over-year increase in Otezla wasn’t enough to make up for the 13% decline in Enbrel’s sales.

Although a 2% increase in revenue may not be eye-catching, the company caught the attention of some investors by projecting that earnings would climb by high single digits — and potentially even low double digits — year over year through 2030. That equates to upwards of $35 billion in sales and per-share earnings of $30 by the end of the decade, 50% above what analysts are expecting. That’s a number that many investors surveyed by Japanese bank Mizuho (NYSE: MFG) don’t actually think is achievable, but the stock spiked up for a day on the announcement nonetheless. It has since climbed steadily, grabbing a 6% gain since early February.

The IRS comes calling for over $7 billion

There’s a cloud hanging over Amgen right now, though, and it’s led to a one-day share price drop of nearly 6% this week. The IRS is looking into the company for back taxes. Amgen could be looking at a total of $7 billion owed to the IRS for taxes and penalties related to how the company reported profits between its U.S. and Puerto Rico entities between 2013 to 2015. This isn’t the first Amgen has run into this kind of trouble: this snag comes on the heels of the IRS having levied $3.6 billion in back taxes in August related to the reporting of profits between 2010 and 2012.

It’s not clear when or if Amgen will be found to owe the taxes and penalties, but the company has made clear that it believes the charges are without merit. For investors, it might calm nerves a bit to know that the company ended 2021 with $8 billion in cash, which could take care of the majority of the money Amgen may owe — though I doubt the company would just simply cut a check out of its cash reserves. It could be years before we know the result.

What’s the net net?

Projections for earnings growth into double digits can be helpful to investors in gaining an idea of where the company thinks it can go. And a 15.8% compound annual growth rate for the global biotech market through 2028 can certainly help support Amgen’s goals. But the current situation represents an opportunity for investors to obtain shares that will pay an annual dividend of $7.76 per share at a dividend yield of 3.1%, making this one of the top biotech stocks to buy right now as investors move toward safer income.

An inquiry by the IRS is a bit frightening because it could result in a setback to the company achieving its goals, but it’s likely to come with a drawn-out investigation, and a lengthy process should any appeals be necessary. It should not take away from what the company is doing with its product pipeline and sales collaborations.

Jeff Little has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.

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