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Amgen's Humira Biosimilar Approved in Europe

- By Alberto Abaterusso

Amgen Inc. (AMGN) announced in a news release published on its website that Amgevita, the company's biosimilar to AbbVie Inc.'s (ABBV) Humira (adalimumab), has been approved by the European Commission.


The medication received approval from the U.S. Food and Drug Administration during the third quarter of 2016.

Sean E. Harper, the company's executive vice president of research and development, said that "the approval of our first biosimilar by the European Commission is a major milestone not just for Amgen as a company, but for the millions of patients with chronic inflammatory diseases who need alternative treatment options. In addition, Amgevita holds the potential to offer patients with chronic inflammatory diseases an additional treatment option. This milestone exemplifies our ongoing dedication to the development of high-quality biologic medicines."

The global biopharmaceutical company's biosimilar is now competing against Humira in two markets. This will create apprehension among AbbVie's shareholders as it may reduce Humira's market share in U.S. and Europe. They have no reason to fear, however, since Amgevita is a biosimilar to Humira and not an interchangeable product.

Last Friday, Amgen closed at $165.74, down 30 cents or -0.18% from the previous trading day, with a volume of 2,521,587 shares traded on the Nasdaq.

The company closed fiscal year 2016 with total revenue of $22.99 billion, a 6.1% increase compared to 2015. Earnings per share for the year were $11.65 and the price-earnings ratio (ttm) is 16.19.

The company is trading at 5.31 times its sales and 4.1 times its book value. The forward P/E ratio is 13.01. For 2017, analysts forecast adjusted EPS of $12.31, a 5.7% increase compared to 2016 EPS. As a reseult, Amgen seems to be slightly overvalued based on the most recent share prices. Analysts assign an average target price of $185.79 per share, which represents a 12% upside from the current share price, and the recommendation rating is 2.3. The recommendation rating ranges between 1.0 (Strong Buy) and 5.0 (Sell).

In 2016, Amgen had $38.09 billion in cash and securities, $6.7 billion higher compared to 2015. In contrast, the total debt amounts to approximately $34.6 billion, a 10% increase on a year-over-year basis, of which $4.403 billion is due by the end of 2017.

The company generated approximately $10.354 billion from operations in 2016. Using $837 million as capital expenditure, it was left with free cash flow of $9.52 billion. Part of this was used to refund the portion of short-term obligations of $2.25 billion and distribute $2.9 billion in dividends to the shareholders.

Amgen currently distributes an annual dividend of $4.60 per share through quarterly payments of $1.15, for a dividend yield of 2.78%.

AbbVie is trading around $65.62 per share with a price-sales ratio of 4.08 and a price-book ratio of 22.54. The forward P/E ratio is 10.13. For 2017, analysts forecast AbbVie will generate EPS of $5.5, a 14.1% increase compared to 2016. AbbVie also looks overvalued when analysts' expectations on 2017 EPS and the forward P/E ratio are taken into consideration. The analysts' average target price per share is $70.11.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.