AMGN Amgen
Steady cash machine priced for obesity success; the base business alone justifies roughly 15% less.
The story
Amgen is a scaled biotech with a diversified franchise (Repatha, Evenity, Tezspire, the Horizon rare-disease portfolio, oncology biologics and a growing biosimilars arm) that throws off heavy cash flow. It is a mature firm in late middle age: Prolia/Xgeva and later Enbrel face biosimilar and pricing erosion, offset by newer growth brands and real but unproven optionality in obesity (MariTide). Its moat is biologics manufacturing scale, commercial reach and a deep late-stage pipeline, but growth has to be bought through R&D and M&A, which keeps reinvestment needs high.
Growth of 5% steps down toward 2.5% as Horizon synergies and new brands run against Prolia/Xgeva and Enbrel erosion; the 11.8% five-year CAGR was inflated by the Horizon deal and should not be extrapolated. The 33% margin is in line with TTM levels and large-cap pharma economics once acquisition amortization normalizes. Sales-to-capital of 0.7, slightly above the trailing 0.6, reflects a lighter deal cadence while Amgen deleverages, and beta of 0.85 sits a little under the 0.95 industry anchor because Amgen's cash flows are defensive.
Value drivers
| Revenue growth (Y1) | 5.0% |
| Terminal growth | 2.5% |
| Forecast horizon | 8y |
| Target operating margin | 33.0% |
| Years to target margin | 3 |
| Sales-to-capital | 0.70 |
| Beta | 0.85 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 8.7% |
| Terminal WACC | 9.2% |
Valuation bridge
| PV of explicit FCFF | 58.83B |
| PV of terminal value | 95.49B |
| Equity value | 107.75B |
| ÷ shares → per share | $199.31 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 40.00B | 5.0% | 33.7% | 11.57B | 2.72B | 8.85B | 8.14B |
| 2 | 41.86B | 4.6% | 33.3% | 11.99B | 2.65B | 9.33B | 7.91B |
| 3 | 43.65B | 4.3% | 33.0% | 12.37B | 2.56B | 9.81B | 7.65B |
| 4 | 45.37B | 3.9% | 33.0% | 12.86B | 2.45B | 10.41B | 7.47B |
| 5 | 46.99B | 3.6% | 33.0% | 13.32B | 2.31B | 11.01B | 7.27B |
| 6 | 48.50B | 3.2% | 33.0% | 13.75B | 2.16B | 11.59B | 7.04B |
| 7 | 49.88B | 2.9% | 33.0% | 14.14B | 1.98B | 12.16B | 6.80B |
| 8 | 51.13B | 2.5% | 33.0% | 14.49B | 1.78B | 12.71B | 6.55B |
Key risks
- Biosimilar erosion of Prolia/Xgeva and Enbrel arrives faster or deeper than expected
- IRA Medicare negotiation and US drug pricing reform compress margins on key brands
- MariTide fails to differentiate in an obesity market led by Lilly and Novo, and roughly $45B of net debt limits flexibility
Catalysts
- Phase 3 MariTide readouts showing competitive weight loss and tolerability with less frequent dosing
- Faster deleveraging plus Tezspire/Evenity/Repatha volume growth beating erosion