Seeking Alpha
Profile| Send Message|
( followers)  
An FDA panel recommended stronger warning labels and further clinical studies on Amgen’s (NASDAQ:AMGN) Arenesp drug and Johnson and Johnson’s (NYSE:JNJ) Procrit drugs. In typical Wall Street fashion, shares of Amgen sold off on the recommendations.

The clinical studies and new warning labels are sure to impact Amgen’s top and bottom line. The question is how much impact? Analysts and sometimes the panel seemed confused about the whole situation. According to Forbes.com, the panel asked several times “what was the question?” and the questions themselves were “vague.” The shares of Amgen have now become very attractive despite the recent selloff.

Amgen Inc., a biotechnology company, engages in the discovery, development, manufacture, and marketing of human therapeutics based on advances in cellular and molecular biology. It markets human therapeutic products in the areas of supportive cancer care, nephrology, inflammation, and oncology worldwide.

The company’s principal products include Aranesp and EPOGEN that stimulate the production of red blood cells to treat anemia; Neulasta and NEUPOGEN, which selectively stimulate the production of neutrophils, a type of white blood cell that helps the body fight infections; ENBREL that blocks the biologic activity of tumor necrosis factor by inhibiting TNF, a substance induced in response to inflammatory and immunological responses, such as rheumatoid arthritis and psoriasis; Vectibix, which binds specifically to the human epidermal growth factor receptor and interferes with signals that stimulate growth and survival of the cancer cell; and Sensipar for treating chronic kidney disease patients on dialysis.

Amgen has a joint venture with Kirin Brewery Company, Limited (OTCPK:KNBWY), for the development and commercialization of products based on advanced biotechnology, as well as a co-promotion agreement with Wyeth (WYE) related to the manufacture, supply, inventory, and allocation of bulk supplies of ENBREL. The company also entered into a collaboration agreement with Cytokinetics, Inc. (NASDAQ:CYTK) to discover, develop, and commercialize novel small-molecule therapeutics that activate cardiac muscle contractility for potential applications in the treatment of heart failure. Amgen, Inc. was founded in 1980 and is based in Thousand Oaks, California.

When evaluating a biotech company, one has to pay special attention to Research and Development [R&D] and its pipeline. According to its recent annual report, Amgen spent 3.36 billion on R&D, compared to 2.314 billion the prior year. The bears will argue that Amgen’s pipeline is dry. But that argument is as old as the hills. Amgen’s pipeline is one of the strongest, if not the strongest in the industry.

Using three years of clinical data, Amgen plans to file for FDA approval in 2008 for denosumab in osteoporosis (Phase III). Denosumab will be the premier osteoporosis drug in the market once it is approved. Amgen is also on track to file for AMG 531 (Phase III), the treatment of immune thrombocytopenic purpura (a rare bleeding disorder). The filing is set for this year. In addition, A Phase III trial to prolong survival in prostate cancer patients whose cancer has spread to the bones during treatment is also ongoing.

Lazard Capital analyst Joel Sendek lowered 2007’s EPS estimates from 4.30 to 4.09. Using the same 21 cent decrease for 2008, we arrive at EPS of 4.48 (4.69-.21). Multiplying the new EPS (4.48) by a conservative P/E of 19 we arrive at a price of $85.12. Why the P/E of 19? Amgen’s current ttm P/E is 22. The past 10 years, the P/E for Amgen has been as high as 60 and as low as 23. In conclusion, Amgen is still a bargain despite the recent events.

Disclaimer: I am long Amgen.


AMGN 1-yr chart:

amgn may 07

Source: Amgen: Still A Bargain Despite New Warning Labels