Amgen, Mylan and Biosimilars

Biosimilars are a big topic among investors in pharmaceutical companies. Biosimilars have been in use in Europe for some time, but the first approval by the FDA for a biosimilar was made last week. Most drugs are small molecules, with a few (less than 100 or so) atoms. But some drugs are large molecules, typically proteins, and not small proteins at that. Some have been around for a while, like insulin and various hormones, but in the last few years there has been an explosion of use of monoclonal antibodies (MABs).

Generic drugs must be identical atom by atom to the name-brand drugs they substitute for. Biosimilars don't need that atom-by-atom identity, but they must undergo Phase 3 (large scale) human trials to prove that they are as safe and effective as what they would substitute for.

Amgen (AMGN) has large molecule commercial products that have already or will at some point go off patent. My assessment of Amgen's situation has been published at Seeking Alpha:

Why Amgen is a biotechnology portfolio cornerstone

I followed Amgen for a long time, but did not like the stock price given the pipeline and patent expiration issue. I changed my mind last year after I realizes Amgen had greatly improved its pipeline. I bought at $119.85 on March 24, 2014, and they added some more later. Today it closed at $152.70, so I am happy so far, and hope I am right that 2016 will be a banner year for the company.

Yesterday I added to my Mylan (MYL) position on a hunch at $55.09 per share. Today there was an investor presentation and the stock soared, ending at $59.00. My reasoning was not particularly addressed at the presentation. Since Mylan is one of the companies best situated to take advantage of the sale of biosimilars in the U.S., I believe the FDA approval of its first biosimilar (even though it was Novartis's Zarxio, which will compete with Amgen's Neupogen) means that other biosimilars in the pipeline may be acted on sooner rather than later.

My worry about biosimilars is litigation. Large molecules often are covered by more than one patent, including patents related to how they are manufactured, which are often filed long after the original patent. If everyone litigates to keep biosimilars off the market, then only the lawyers win. My hope is that in most cases companies will sign cross-licensing agreements of the type we have seen in the electronic device industry. Certainly that should be possible among the originators of the molecules, and license revenue from pure generics players would help ease the pain of competition.

Unlike generic drugs, biosimilars will not be as disadvantageous to the name-brands. In Europe they have typically been sold at a 20% to 30% discount. They are expensive to manufacture, and of course the generic makers want a decent profit margin.

Which reminds me that Mylan's presentation emphasized how margins are continuing to improve due to the efficiency of its world-wide manufacturing and distribution network. That and guidance for 2015 were the likely reasons the stock did well today.

My last published article on Mylan was back on August 27, 2014:

Mylan: Deeply undervalued on unwarranted approval concerns

Mylan (MYL) added to portfolio

Today I added a small initial stake in Mylan (MYL) to my portforlio. Note my trading activities are nowhere near large enough to effect stock prices.

I wrote a positive article about Mylan at Seeking Alpha, Mylan Pursues Global Generics Dominance Strategy, back on September 6, 2013. The price is way up since then.  I now wish I had bought MYL back then.

Still, today's price in the $52 range is well off the 52 week high of $57.52. If it goes cheaper (without good reason) I'll buy more when the opportunity arises.

Mylan is a large cap (near $20 billion) company that manufactures and markets generic drugs. I am better known for writing and investing in small caps like Dot Hill, Adept Technologies, and Inovio. But most of my portfolio is in middle and large cap stocks.

While I don't plan to write another article on Mylan anytime soon, I am covering their analyst conferences, and your are always welcome to read my summaries at:

Mylan analyst conference call summaries

Mylan Surges on 2014 Guidance

Mylan (MYL) reported decent Q4 results and strong guidance for 2014 and beyond this morning. For details see my notes on the Mylan Q4 2014 analyst conference call.

Mylan sees a relatively flat (from year-earlier) Q1, but full year 2014 is expected between $7.8 and $8.2 million. Non-GAAP EPS is expected between $3.25 and $3.60.

The growth is based on new product ramps and expected approvals. Mylan sells generic drugs, so it has a large base of offerings and adds many new therapies each year. The FDA has a bit of a backlog, but that has been taken into account in the guidance. There is likely upside to the guidance if all the new therapies are approved and introduced in a timely fashion.

As of 11:37 A.M. Pacific Time, Mylan is trading at $56.47, up $5.05 or 9.8%.

In the long run Mylan looks even better. Management believes non-GAAP EPS can hit $6 per share in 2018. If you can wait that the long the stock should be worth roughly $120 per share.

Intuitive Surgical, Mylan, and Regeneron

I have had three Seeking Alpha articles published since my last post:

Regeneron Pipeline Worth Tens of Billions in Market Capitalization

Mylan Pursues Global Generics Dominance Strategy

Intuitive Surgical Market Saturation Could Be Brief

All three of these biotechnology companies are part of the Nasdaq 100, which I have been plowing through, looking toward my next round of investment. Each has something unique to offer. As detailed in the articles, each of them, at the current price and based on current information, looks like a good long-term investment. But I'll be doing considerably more research before making any actual purchases.