Pharmaceutical research, development, sales and marketing is one of the truly global industries, with competition from almost every corner of the globe striving to treat disease that affect the global population. And no wonder, as the prizes on offer for years of meticulous research and commercialization can be “blockbuster drugs” that earn over one billion dollars of revenue per year. Amgen Inc is one of the few remaining independent American multinational pharmaceutical companies. Staring from humble beginnings in Thousand Oaks, California, it has now grown to be one of the 100 largest businesses in the United States by market capitalization with its public equity worth close to USD 127 billion.
So what has driven the stock from its lows earlier this year of $135 to its recent high just below $190, which is a return of over 40%, comfortably beating the stock market as a whole.
And after this stellar run, can a respected stock option trading service like ours help you invest in a stock like Amgen (AMGN) at the right time so you can maximize your gains?
Understanding the Business
Amgen Inc (AMGN) was formerly incorporated as Applied Molecular Genetics, which provides a big clue about the area of the pharmaceutical industry that they operate in. Currently, Amgen is not only America’s, but the world’s largest independent biotechnology firm.
The business of a company like Amgen follows some very distinct, reasonably easy to understand steps.
First of all, the company must invest large amounts of money up front on researchers, support staff, high tech facilities and equipment in order to identify new molecules and treatment pathways that have not already been patented and investigated.
Next, these “first stage” molecules go through broad based testing to see whether they could potentially fill a current therapeutic need. Around 10,000 possible compounds might reach this stage.
After this, early stage testing takes place on subjects in order to see whether the molecule can be tolerate in a clinical setting. Further testing takes place over an ever increasing intensity to prove efficacy, clinical need and tolerance among patients. This process is known as phase I to phase III testing.
These phases of testing can take between 4 and 7 years, and not guarantee clinical success. Only one of every 10,000 compounds makes it to this stage, and it can cost hundreds of millions of dollars to advance to this stage.
After this rigorous and intensive process, the company can apply to regulators like the FDA to have the drug cleared to be marketed and sold to consumers. Companies also need to negotiate with pharmaceutical benefits managers in order to gain favorable placement on their formula plans. This is because these companies bear the largest share of the cost for high value therapies and medicines and recoup their costs from the insurance premiums they charge their clients.
Once these approvals are gained, the company can move to their sales and marketing effort. In the modern era, this typically comprises two things: first of all a mass media marketing campaign on television, social media and / or newspapers. The other major aspect to marketing is the education and information campaign aimed at medical professionals who can prescribe the drug to their patients.
If all of these steps work as they should, and the new drug meets an unmet or under-served need, the potential to have a drug that earns billions of dollars every year from all over the world is a very real possibility. Of course, the downside is that if any of these steps fails or is delayed for a long time, the commercial viability of the drug falls heavily, and the many millions invested can go to waste.
Metrics and Measures
The most recently reported results for Amgen Inc (AMGN) provided the stock market and stock options advisory services with plenty of reasons to like the stock. Total revenues were a very high $5.8 billion for the second quarter alone. This number was driven by sales growth in three key product lines with the brand names Prolia, Repatha and Kyprolis.
Earnings per share rose a stellar 15% to $3.27 per share because the business was able to earn higher margins on their sales. This means that while the revenue rose, costs did not rise at the same rate, resulting in earnings expansion.
The second quarter earnings report also revised full year guidance to a high end estimate of $23 billion, which was positively received by the market. Full year earnings per share guidance also rose to a high end estimate of $12.65 per share. In addition, one of the other pleasing aspects of the quarterly report was the $2.1 billion of free cash flow. Free cash flow allows companies the flexibility to reinvest in growing their advantages, or paying down debt to reduce expenses or to pay a dividend. Whichever it is, free cash flow is advantageous for investors.
The Investment Case
Using the previous numbers for a pharmaceutical company to forecast the future is perilous. This is because many companies are constantly seeking new innovations and investments, and any one of those options can result in a new wonder drug that displaces existing options.
If that happens to a leading drug for a particular company, the earnings can fall rapidly. In addition, pharmaceutical companies naturally lose what is called “patent exclusivity” over their drugs after a certain amount of time. That means that cheaper generic copies can be made, which naturally reduces market share and also sales and margins.
However, Amgen is somewhat immune from these factors due to the long patent expiry times on some of its key drugs as well as the highly specialized areas in which it chooses to focus its research and development spending. It has particular strengths in oncology, cardiology and neurosciences, which are all growth areas of the industry.
Amgen Inc (AMGN) is an American pharmaceutical company that operates in a highly competitive global industry with many highly skilled, motivated and funded competitors. However, it’s research history, standing with medical professionals and patent protected products have driven a competitive advantage in recent years that has resulted in the stock price outperforming the broader market.
To find out about the prospects for Amgen in the future, and know when to buy it so that you can benefit from it, it is crucial that you are a regular subscriber to a high quality, in-depth stock options trading services like Financial Markets Wizard.