Amgen, Inc. (AMGN): Is It Too Hot to Handle?

These 3 Stocks Could be Tomorrow's High-YieldersShares of Amgen, Inc. (NASDAQ:AMGN) have returned over 65% in the past year; 109% if dividends are included. The S&P 500 has returned just over 13%. Those market beating returns aren’t easy to find just anywhere, but investors may be wondering if Amgen, Inc. (NASDAQ:AMGN) stock has any more room to run. Let’s take a look at catalysts and headwinds to see if we can come to a conclusion.

The case for grabbing oven mitts
Just because shares have enjoyed a steady climb upwards doesn’t necessarily mean the ride is over. There is no doubt that investors are confident in the company’s recent developments and future prospects. Amgen, Inc. (NASDAQ:AMGN) is currently 2-for-3 in phase 3 trials this year — and it’s just getting started. Here’s a shortlist of major announcements in the last year:

Date Announcement Outcome
June 8, 2012 Phase 3 results for Sensipar/Mimpara Failed
June 12, 2012 Acquisition of Mustafa Nevzat Pharma. Acquisition
July 5, 2012 Acquisition of KAI Pharma. Acquisition
Aug. 8, 2012 Phase 3 GAMMA study Terminated
Nov. 5, 2012 Phase 2 results for cholesterol drug Succeeded
Dec. 10, 2012 Acquisition of deCODE Genetics Acquisition
Jan. 16, 2013 Phase 3 results for Aranesp Failed
Jan. 26, 2013 Phase 3 results for Neulasta trial Succeeded
March 19, 2013 Phase 3 results melanoma trial Succeeded

Source: Amgen.

You can see that plenty of failed trials have been announced, but don’t forget that the odds are stacked against even the most promising phase 3 trials. Failure is expected. All in all, Amgen had a productive 12 months.

One key development that will be a driving force in the company’s growth is the adoption of a “Biology First” policy. Biologics, already a hotspot in the pharmaceutical industry, treat the underlying causes of disease rather than symptoms. They also offer originators more security than small molecules, since it is generally more difficult to manufacture generic proteins and antibodies, although that barrier will weaken as the industry matures.

Nonetheless, 12 of Amgen, Inc. (NASDAQ:AMGN)’s 13 ongoing phase 3 trials involve biological compounds. That leads the industry and easily paces peers traditionally associated with biotechnology. Celgene Corporation (NASDAQ:CELG) has seven biologics in phase 3 trials spread across three separate molecules, compared to 11 molecules for Amgen. Celgene Corporation (NASDAQ:CELG) is still my favorite biotech for 2013, but Amgen’s flurry of activity is certainly worth a hard look.

The case for letting it cool
Let’s face it. Shares have risen higher in large part to earnings surprises, not trial activity. Amgen has posted double-digit gains — or close to it — from the prior year period in EPS and revenue for the last four quarters. That pushed net income to $4.34 billion on $16.6 billion in revenue in 2012 (profit margin of 26%) compared to just $3.7 billion on $15.3 billion in 2011 (profit margin of 24%). That’s where the good news for Amgen stock ends.

You can blame it on the market’s obsession with short-term performance (one year is convenient for analysis, but it is woefully inadequate for sizing up complex pharmaceutical companies), but Amgen’s year-over-year performance becomes much less exciting when compared to previous years. In fact, on a shorter time frame, Amgen, Inc. (NASDAQ:AMGN)’s profit margin has actually declined in each quarter since peaking in the first three months of 2012. Is that a sign of things to come?

Year Revenue Net income Profit margin
2012 $16.64 billion $4.34 billion 26.1%
2011 $15.30 billion $3.68 billion 24%
2010 $14.66 billion $4.63 billion 31.5%
2009 $14.35 billion $4.60 billion 32%

Source: Google Finance.