Amgen Is a Healthy Buy - Barron's

Amgen (AMGN) is working on a promising bone-loss treatment called denosumab. If, as expected, the treatment gets FDA approval, Barron's Dimitra Defotis explains how the stock could climb from a recent $58.95 to $78.

Denosumab could one day be a blockbuster if tests prove it can halt the spread of cancer to the bone. In the shorter term, the more important question is whether denosumab will be approved for other bone-related conditions. The FDA is supposed to approve these treatments as soon as mid-October, which could boost sales above $3B.

Skeptics are unsure denosumab will be able to compensate for several key drugs that are showing slowing sales as they approach their patent expirations. As a result, Amgen trades around 11 times estimated 2010 earnings, a lower P/E ratio than biotech rivals.

An FDA rejection of denosumab could send shares down to $45, but approval is expected and the drug is likely to surprise nay-sayers with its growth potential. Amgen makes five of the world's top-selling biotech drugs and continues to innovate; Sensipar, a thyroid treatment, and Vectibix, a treatment of colorectal cancer, also have potential to grow substantially.

Compared to rivals, Defotis write that Amgen "offers the likelihood of greater earnings growth at a discount - plus an option on a potential blockbuster. That's a good prescription for many portfolios."
Analyst Geoffrey Porges, of BernsteinResearch, expects denosumab to make up over $3.8B of Amgen's roughly $6.3B in new-product revenue by 2013, more than offsetting a slide of $900M in the sale of existing drugs in the next four years. Amgen deserves a higher P/E ratio, given the potential for 15% compound annual growth in earnings per share. Porges' price target is $78.

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Some additional points of interest for those considering a stake in Amgen:

• An FDA panel met in August about denosumab, and analysts said the panel was surprisingly cautious, pointing to a more modest adoption than expected. The panel voted in favor of using the drug to treat post-menopausal women with osteoporosis, and men with prostate cancer, but against using it for breast cancer patients and for post-menopausal women at risk of osteoporosis.
• On July 28, Amgen announced it would collaborate with GlaxoSmithKline (GSK) to commercialize denosumab internationally. During its Q2 earnings call, Amgen addressed the collaboration, noting "Glaxo has multinational presence and their expertise primary care markets in particular will be central to maximizing the value of denosumab. The agreement will also provide the sustained P&L benefit for Amgen allowing us to retain our significant financial flexibility to invest in other programs."
• Zacks.com names Amgen as one of the stocks that could benefit from health reform, noting the pharmaceutical lobby "has made certain that it has a seat at the table, and it seems probable that any new laws will benefit them."

Comments

[cyberclark:]

I will use Healthy as a segway into this important subject:

The Alberta Conservatives are well on their way to changing the Canada Health Act into a guideline rather than a law. When this is done anything can be changed. Their program is not about de-listing services; it is about doing away with the Canada Health Act as we know it which will affect every province in the country as a whole and, Stephen Harper is on side!

Health care has been the Conservative holy grail of privatization for many years.

Alberta has legislation in place to allow US Health Care Companies to sell insurance in Alberta and the Alberta Capital Health Authority made a long list of what to de-list from health services (and hand off to the private sector)

Mr. Duckett was hired In Alberta from Queensland Australia where he was instrumental in bringing the US health coverage companies into Australia. This was called "building partnerships".

The word from Australia is do not let them in; your state coverage is greatly reduced and more expensive and, you cannot get rid of them!

The Canada Health Act must be changed by the Federal Government to enable this. The present course is to change the Canada Health Act into a guide line for provinces away from a law which must be followed.

If the Conservatives are sitting (between October and December of this year) the Canada Health Act will be changed dramatically by the Conservatives and public health care as you know it will disappear!

My guess is you will have a change of Government in Canada.

Sep 06 12:46 PM

[Albertarocks:]

"The word from Australia is do not let them in; your state coverage is greatly reduced and more expensive and, you cannot get rid of them!"

I fear we're quickly going to get off topic here and I sure hope Rachael isn't offended. But I just had to respond to the excellent post by "cyberclark".

Australia is already one of the world leaders in censoring the internet. They are being used on several fronts to set the pace of a much larger and darker agenda that's so scary that 95% of the population won't even consider it as possible. Yet it's happening right before our eyes. Look at how the constitution in the USA is being trampled upon on a daily basis now.

If word is coming from Australia "not to let them in", I'm going to take that advice.

Sorry for getting off topic Rachael. About Amgen - big pharma is one of the biggest monsters of fascism in the world, and they have the FDA in their back pocket. So we already know denosumab will be approved whether it works or not, whether it could cause cancer or not. Based on that fact, and on the fact that during the market crash from Nov. '07 until March '09 Amgen barely even got bruised, I'd have to say (and this goes against every grain of my logic) Amgen is probably a buy.

The vaccine known as Tamiflu doesn't work on the man made virus now being called H1N1, but it's still being touted as the savior. It's proven to be far more harmful than beneficial, but that doesn't matter because the makers of that poison is Gilead Sciences. And one of the largest shareholders in that criminal firm is none other than Donald Rumsfeld. So we know denosumab is going to get green lighted. The question is whether or not we have the conscience to profit on an increase in Amgen shares when we know their agenda is not to help humanity, but to line their greedy pockets regardless of any cost to humanity.

I won't! Thanks for the report, I'm pretty darned sure you're right.

Sep 06 09:11 PM

[spald_fr:]

[The panel voted in favor of using the drug to treat post-menopausal women with osteoporosis]

To do so, Rachel, one would have to reverse the ketone supply and build up. That, one would think, would require a hydrogenation of an alkylketone (something like 100psi). Women are strong no doubt but we don't need to blow up the people to save them. One would need the 100psi to complete the chemical process; however perhaps 30psi could offer the absolute chemical minimum. Here again, the human condition would fail. Utterly fail.

Sep 07 09:30 PM

[Moon Kil Woong:]

Amgen has had healthy sales all through the recession. In fact rising profitability. It is not Denosumab that gives it a lot of value at this time. In fact its shares dropped because it can only be used on patients in critical condition because of it's profile of weakening the immune system.

The reason it trades at such a low value is because it's new drug pipeline is weak and it has gone through a bout of failed drugs.

As a value, I like Amgen as I mentioned before. However, I caution people not to buy on Denosumab hype. The reality is it's not the wonderdrug of tomorrow. Every analyst says it will only allow Amgen to get a small slice of the osteoporosis market (the people in the most critical conditions) and other similar drugs by other pharmas are in the pipeline.

If you want to play the FDA roulette game I suggest some other stock. Amgen has been quite bad at picking winning numbers.

Sep 07 10:53 PM

[BioGuy:]

Profitability: Denosumab is an antibody, which are expensive to manufacture. Also, we don't know the royalty payments to GSK. Fosamax is cheap.
Technology: I don't argue with the Mayo Clinic- www.businessweek.com/t...

I do not see long term growth in Amgen stock value until they buy a pipeline.

Sep 24 08:46 PM