Amgen

Recipe for Success: GENius Genetic Engineering

I often talk with various investors who all have a different investment approach. There's no right or wrong investment style - what matters is that you don't constantly throw your strategy overboard and blindly chase after some new trend. By now my investment style should be well known: I pick out successful, rock-solid, yet strongly growing companies that also maintain an exemplary dividend policy. Others, on the other hand, like the thrill of more speculative stocks or financial products.

The biotech industry in particular has countless such hot stocks. Tomorrow, for example, company xy could bring a drug against Alzheimer's to market, and its stock could go completely through the roof. Yes, that could happen. But since I want to invest and not speculate, let's take a look today at the world market leader in the biotech segment, Amgen.

The Origins and Business Model of Amgen Inc.

George Blatz Rathmann was born in Wisconsin, USA, in 1927. After school, he originally wanted to study medicine, but then decided on a chemistry degree at Northwestern University in Illinois instead. Two of his older brothers were already working as chemists at the time and talked him into it. He then moved to New Jersey to write his doctoral thesis in physical chemistry at Princeton University. He successfully completed it at the age of just 24. Shortly before that, he had been hired as a research chemist by the conglomerate 3M. He worked there for a full 21 years and developed, among other things, the stain-repellent spray Scotchgard. In 1972, he became president of Litton Medical Systems. However, since he was very unhappy there, he moved to Abbott Laboratories in 1975. Here Rathmann worked in the diagnostics division and came into contact with recombinant DNA and other biotechnologies for the first time. Because he was so fascinated by biotech, in 1980 he decided to found the company Applied Molecular Genetics Inc. together with various venture capitalists. 3 years later, the company name was changed to Amgen Inc.

Even the company's location was chosen carefully - in Thousand Oaks, California, right next to up-and-coming research centers of nearby universities. Perfect for snapping up interested students. These "young guns," as they were often called, did research on all sorts of things. That's how it came about that they even researched curious things like shark repellents, Spider-Man-style spider silk production, and growth hormones for bigger chickens. The long-awaited breakthrough, however, only came in the mid-80s with Epogen, a drug based on erythropoietin that had significantly fewer side effects in cancer and kidney disease therapy than treatment with blood transfusions. A license to market the new active ingredient was sold to Johnson & Johnson, which initially flushed a good amount of money into Amgen's coffers. Just a few years later, in 1991 to be exact, the drug Neupogen came onto the market, which stimulated the production of white blood cells in the bone marrow. Both Epogen and Neupogen developed into Amgen's first blockbuster drugs (annual sales > 1 billion US dollars).

Over the years, Amgen developed many more effective drugs. Currently, it can look back on a product portfolio of more than 20 drugs. In addition, Amgen still has a number of preparations in the pipeline that could come onto the market in the next few years. This makes it significantly more broadly diversified and safer than some other biotech stocks.

What's Next for Amgen?

On average, we're all getting older and older. That's without question a great development, but unfortunately it's also the reason why more and more people are getting cancer. Amgen has not only developed several new active ingredients in the field of cancer treatment itself, it has also been busy buying. For example, the German biotech company Micromet Inc., which specializes in an innovative cancer therapy using antibodies. But also Onyx Pharmaceuticals Inc., which brought the important cancer drug Kyprolis along with it in the takeover. Amgen made a very special acquisition in May of this year. For a total of 167 million dollars, it bought the Danish company Nuevolution, which has developed a technology for demonstrating the effectiveness of potential drugs at an early stage. This will save Amgen quite a bit of time and money in the future. Amgen pulled off another very lucrative acquisition in August. Due to merger conditions imposed by the antitrust authorities, the pharmaceutical company Celgene had to sell one of its drugs. The psoriasis drug Otezla cost Amgen a hefty 13.4 billion dollars, but it's expected to bring in around 2 billion dollars as early as this year. Furthermore, the drug is still patent-protected until 2028.

Sounds Great, So Why Did the Stock Move Sideways for So Long?

Simply put, it's because Amgen struggled for a long time with declining sales of various blockbuster drugs in recent years. Above all, the two top revenue generators Neulasta and Enbrel (combined annual sales of around $10 billion) have been weakening for quite some time. Especially in the pharmaceutical industry, it's extremely important not to rely on individual drugs. Amgen has therefore always continued its research and has already sent several new hopefuls into the race. For example, the cholesterol drug Repatha, the osteoporosis drug Prolia, or the migraine drug Aimovig. To give the share price a bit of a boost again, Amgen also launched an expensive share buyback program. In 2018, around 10% of the shares disappeared from the market this way.

And How Stable Is the Dividend?

Very many technology and research companies don't pay a dividend for a long time. Profits are usually reinvested right away until the business is running so stably that at some point shareholders can be given a share in the form of dividends. Amgen has only been doing this since 2011 - but since then it has been raised year after year (avg. last 5 years: 19% increase/year). The current dividend yield is 2.6%, which is very solid with a payout ratio of around 45%. I think Amgen took its time before starting the dividend. They certainly wanted to play it safe here so they wouldn't have to cut the dividend in the first minor crisis.

Conclusion:
Amgen is a broadly diversified biotech group that has made it to the top of the industry with a variety of drugs. In addition, it has several promising preparations in the pipeline. So if you want to add a biotech stock to your portfolio, in my opinion you should go for the market leader.