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From the DividendInvestor news file this week: On Wednesday, Philip Morris International PM declared a quarterly dividend of $1.17, a 2.6% increase from its previous quarterly rate of $1.14. Also this week, Morningstar Research Services increased its fair value estimate for Amgen AMGN from $214 to $221. Please see the update below. Best wishes, David Harrell Editor, Morningstar DividendInvestor
News and Research for Dividend Select Portfolio Holdings
A Fair Value Increase for Amgen
by Karen Andersen, CFA | Morningstar Research Services LLC | 09-09-19
We're raising our fair value estimate to $221 per share from $214 after incorporating the pending acquisition of immunology drug Otezla, partly countered by a slight decrease in our assumptions for Repatha following strong data for competing drug inclisiran. We think the firm is capable of averaging 2% top-line growth and 6% bottom-line growth through 2023. With Enbrel profit share to Pfizer ending and significant cost-cutting, non-GAAP operating margins improved from 38% in 2013 to peak at nearly 54% in 2017. We expect future margins to remain near 50%, even with additional investment in R&D and selling, general, and administrative expense, due to stronger manufacturing efficiencies. Manufacturing improvements also give us increased confidence in the potential of Amgen's biosimilar pipeline, and we include nearly $4 billion in biosimilar sales in 2028.
With pricing power eroding, we think Enbrel sales will continue to decline following a near-term benefit from pricing in 2019, and branded Aranesp competition (Mircera) as well as Epogen biosimilar launches (2019) will weigh on anemia drug sales. We expect double-digit Neulasta sales declines beginning in 2019 to extend through our 10-year forecast as biosimilars launch in the U.S. market, and we assume 12% average annual declines for Amgen's neutropenia franchise (Neulasta and Neupogen) over the next 10 years.
We expect combined Prolia/Xgeva sales to peak at $5 billion and forecast peak cholesterol-lowering sales at $2.7 billion (including Repatha sales as well as an assumed 10% royalty on U.S. Praluent sales), peak U.S. sales of migraine drug Aimovig around $1 billion, and peak global sales for osteoporosis drug Evenity below $1 billion. We also see newer cancer drugs like Blincyto and Imlygic as smaller opportunities (under $1 billion peak). We assume a 7% cost of capital. We rate the systematic risk surrounding Amgen shares as below average, and our 7.5% cost of equity assumption aligns our capital cost assumptions with the returns equity investors are likely to demand over the long run. Now that Amgen has access to previously offshore cash, we expect it to emphasize both dividends and share repurchases. We model slightly declining gross debt in the near term but note that debt levels could easily increase if Amgen undertakes a large-scale acquisition. We assume a 5.5% pretax cost of debt to reflect a more normalized long-term rate environment.
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