Biotech Amgen Inc. (NASDAQ: AMGN) has been expanding its portfolio through acquisitions in recent years, giving it access to blockbuster drugs but also adding to its debt load.
Amgen uses acquisitions as a way to strengthen its competitive position. In 2023, it completed its $27.8 billion acquisition of Horizon Therapeutics, giving the company control of Tepezza, a blockbuster drug for treating eye and thyroid conditions. Wall Street projects that the drug could generate $3.9 billion in sales by 2028. Amgen also acquired ChemoCentryx in 2022 for $3.7 billion. The acquisition gave the company rights to Tavneos, a promising treatment for severe, active vasculitis, which causes inflammation of the blood vessels. It’s another potential blockbuster drug, and its sales could exceed $1.1 billion by 2034. However, as Amgen has grown through acquisitions, its debt load has also increased. A rising debt load is a negative factor in an environment where interest rates are likely to be high for a long time. This could impact Amgen’s revenue and future growth opportunities.
In early February, Amgen reported 2023 results. Revenue rose 7% year over year to $28.2 billion. The results included gains from the Horizon Therapeutics acquisition. However, revenue from Amgen’s top-selling drug of last year, Enbrel, fell 10% to $3.7 billion in 2023. That could be an even bigger problem going forward, as the rheumatoid arthritis treatment could lose patent protection before the end of the decade.
Amgen forecasts 2024 revenue of $32.4 billion to $33.8 billion, up more than 17% at the midpoint of that estimate. The downside is that because of acquisition-related expenses, the company is forecasting earnings per share of $8.42 to $9.87, down significantly from last year’s earnings of $12.49 per share. It’s this debt-fueled decline in profitability that has some Amgen investors worried. The company’s shares are down 7% year to date, though Amgen’s dividend yield remains at 3.3%.
Thus, investors’ attitude towards Amgen is cautious, which puts pressure on the stock. Investors’ attitude is unlikely to change significantly as long as current interest rates are in effect.
On the April 12th market, AMGN shares were trading at $267.28.
