Analysis: AMGN

Shortly after the opening bell, we will be selling 50 shares of Amgen (AMGN) at a bid/ask of $194/195.92. Following the trade, AMGN (250 shares) will represent 1.81% of the portfolio.

At the time this was written, Amgen shares were trending higher pre-market trading Wednesday morning in reaction to Tuesday's news that the U.S. FDA has approved the drug Evenity for the treatment of osteoporosis in postmenopausal women at high risk for fracture. We believe this approval is incremental to Amgen's overall story, however we think the sales potential of the product does not justify the strong price action we are seeing this morning. For example, analysts at BMO projected Evenity worldwide peak sales of $436 million, while RBC Capital markets took a more bullish estimate of $605 million. Solid numbers, but not enough to move the needle for a $120+ billion market cap company in our view. Therefore, we'll use this morning's strength to trim our position.

This sale will also further de-risk our exposure to the pending Enbrel decision, which we previously wrote about here. At first this decision was thought to be announced in the first quarter, but now is expected to come in the second quarter. We prefer to take a more risk-management approach with Amgen because of this biosimilar risk, opting to decrease our exposure to a downside ruling compared to capturing a relief rally in an upside case. Protecting against losses is just as important as looking for gains. Once the Enbrel ruling is known, in either decision, we may look to buy back what we previously sold because we think management's very conservative 2019 earnings guidance has set the company up for beats this year, and we still hold a very strong opinion on the migraine prevention drug Aimvoig, which exists in one of the fastest expanding drug classes.