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Building A Better Drug Portfolio: Merck & Co., Inc. (MRK), Pfizer Inc. (PFE), Amgen, Inc. (AMGN)

The Wild West

The cutting edge of the drug industry, however, tends to be biotechnology. So pairing a core pharmaceutical or two with a good biotech firm would make a much better and more representative portfolio. There is, however, only one biotech that is large enough and financially strong enough to fit that bill, Amgen, Inc. (NASDAQ:AMGN).

The company just reported 2012 earnings and, overall, it had a decent year. Particularly impressive was the company’s decision to continue returning value to shareholders via a dividend increase and share buybacks. In an industry known for not paying dividends and issuing shares to fund research, these shareholder friendly acts are the attributes of a leader that has matured beyond the hit or miss stage of so many of its competitors.

A Little About Amgen

Amgen has an impressive list of active drugs, particularly for a biotech company. With ten notable drugs, it has plenty of firepower to keep funding its research efforts. Although three of the company’s drugs, Neulasta, NEUPOGEN, and Enbrel, account for about two thirds of the company’s sales, such dependence isn’t uncommon in the pharmaceutical space either. All three of the drugs are billion dollar products. Aranesp and EPOGEN, two other key drugs for the firm, are also billion dollar drugs. That’s an impressive list.

Of the five major drugs, only Enbrel appears to be growing, with 14% sales growth in 2012 on the strength of price increases and, more importantly, increasing demand. Enbrel treats inflammation, with future growth underpinned by the potential for the drug to be used in additional patient populations. For example, when first released, the drug was approved for rheumatoid arthritis. Today, its indications include chronic moderate to severe plaque psoriasis, active psoriatic arthritis, and active ankylosing spondylitis. Since inflammation is believed to be an important aspect of a number of different ailments, Enbrel’s growth probably isn’t over yet.

The other four drugs, however, don’t appear to possess as inspiring long-term potential, with sluggish sales and potential near-term threats from patent expirations and generic competition, called biosimilars in the biotechnology space. That said, the company’s other, smaller, drugs all experienced sales increases in 2012. This is a positive, as declines from some of the above drugs are easily being offset by the strength of the company’s entire product portfolio.

Those up and coming approved drugs aren’t the only arrow in Amgen’s quiver, however. The company has been spending more on research and development lately because of the successful progress of drug candidates AMG 145 and romosozumab (AMG 785) into later stage clinical trials. In addition to these two drugs, the company has another six that appear to have material promise. Some of the indications that Amgen is testing around include postmenopausal osteoporosis, psoriasis, and various cancers, all of which have notable addressable markets.

Amgen’s financial strength also allows it to make use of mergers and acquisitions to bolster its industry leading position. For example, it completed three purchases in 2012: KAI Pharmaceuticals, Mustafa Nevzat Pharmaceuticals, and Micromet, Inc. It also recently announced plans to add the genetic research specialist deCODE Genetics. That company doesn’t come with any drug candidates, but it should help Amgen better target its drugs, which, in turn, should help improve the chances of drug effectiveness and approval.

A Good Portfolio

Investors looks for broad exposure to the drug space would do well to consider adding pharmaceutical giants like a Pfizer or Merck to their portfolios. Even JNJ would be a good choice, especially if one is looking for diversification. However, not including a company from the emerging biotechnology field would be a notable weakness. Although there is only one truly large option, it happens to be a good candidate to round out one’s drug exposure.


The article Building A Better Drug Portfolio originally appeared on and is written by Reuben Gregg Brewer.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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