Amgen Still Looks Attractive Despite Recent Interest

Biotechnology powerhouse Amgen, Inc. (AMGN) has seen its stock price appreciate over 16% year-to-date in what has otherwise been an abysmal market. This stellar performance followed a period of very rocky performance as the company suffered from FDA decisions that restricted the use of some of its products such as Aranesp and EPOGEN. There is also a potential FDA issue with Enbrel, a drug used to treat rheumatoid arthritis [RA], which is in a class of drugs feared to pose a carcinogenic risk to children. It is not known how severe the FDA risk to Enbrel is, given the fact that RA is generally not a disease which afflicts children. Adverse rulings by the FDA and a sales slow-down in many of their core products forced AMGN to cut costs and reduce staff over the past few years.

Apparently, AMGN shares in the low forties became a value too appealing to pass up and the stock has rebounded nicely in 2008.

Despite the run-up in AMGN shares, Ockham Research still finds the shares a compelling investment. The company’s product pipeline is strong as they have promising new drugs in the works for treatment of RA, osteoporosis and cancer-related skeletal disorders and colorectal cancer. Given that the U.S. population is aging, AMGN’s pipeline offers potential treatments for a host of afflictions which tend to plague the elderly. Sales growth over the last 5 years has been steady yet impressive, and should the pipeline of drugs continue to produce, the future looks very bright.

Ockham has found AMGN’s valuation attractive for some time. Even after its solid year-to-date performance, the stock is still attractively valued based on our metrics. AMGN’s historic price-to-cash flow range is 19.31 – 29.27 and it is currently trading at 16.3x. Its price-to-sales range is 6.44 – 10.2 and it currently trades at 4.065x. Based on our methodology, were Amgen stock to return to the lower end of its historic valuation, it would trade at around $97 a share, almost eighty percent higher than the stock’s current valuation. This is a long term price and underlying fundamentals may change in the time, but compared to what the market has historically been willing to pay for Amgen, it certainly looks attractive at these levels.