Having had the good fortune to work with chemist George Rathmann on numerous
occasions when we were both at Abbott Laboratories (NYSE: ABT ), this reporter
bought shares in Amgen (NASDAQ: AMGN ), the company Rathmann co-founded in 1980
after leaving Abbott. When Amgen's stock dropped shortly after I purchased it,
I sold, intending to buy back later when the price dropped further.
Unfortunately for me, it never did. Not one of my best decisions. Today, Amgen
is up some 17,000% since its IPO in 1983. Is there still an opportunity for
investors to make money in the world's biggest biotechnology company? It's
unlikely that Amgen is going to match the price appreciation it enjoyed during
the past 28 years, but the company does appear on the upswing after being
shunned by investors the past few years. While Rathmann is long gone and current
CEO Kevin Sharer has his critics, Amgen this week posted some nice results for
the third quarter, topping estimates and raising its full-year outlook. The
company earned $1.40 a share on revenue of $3.9 billion, and raised its revenue
and EPS guidance to $15.4 billion-$15.6 billion and $5.15-$5.30, respectively.
It also appears Amgen is heeding analyst advice to bring its
research-and-development budget more in line with that of other research-based
pharmaceutical companies. Many think the nearly 19% of sales Amgen spends on R&D
is too high and would like to see it trimmed back. And it looks as though Amgen
is doing just that, saying during this week's earnings call that it was
reducing its headcount in R&D to refocus its research program on those projects
that will likely have a near-term clinical impact. Analysts were cheered by
Amgen's willingness to live within its means and focus on increased
profitability. RBC Capital Markets analyst Michael Yee estimated that for every
$100 million or 3% of R&D cuts, Amgens earnings per share could increase by
between 8 cents and 10 cents; he has forecast Amgens 2011 EPS at $5.20. BMO
Financial Group also is optimistic about Amgen's prospects, this week boosting
its estimates and assigning Amgen a $73 price target with an outperform rating.
The bank believes that core growth could reaccelerate during the next several
quarters. Meanwhile, analysts at Citigroup have a buy rating on the stock and a
$65 price target, which represents a P/E of more than 11 times non-GAAP 2012 EPS
of $5.58. Amgen is trading at $57.93, up just 2.5% YTD. The planned R&D cuts are
likely to have little impact on Amgen's robust pipeline. Four drugs in
development that the company is touting as the most promising are: AMG-785. This
is a humanized monoclonal antibody that is being developed for bone-related
conditions, including postmenopausal osteoporosis and fracture healing. The
company had great Phase II trials with it, and is currently in discussions with
the FDA regarding Phase III trials. XGEVA. Already approved, XGEVA is in Phase
III trials to expand its use into the prevention of bone metastases in breast
and prostate cancer. AMG-145. This Phase I antibody is being investigated for
the treatment of high cholesterol. Ganitumab. This antibody targets pancreatic
cancer by blocking cell growth via inhibition of the type 1 insulin-like growth
factor receptor (IGF-1R). It is in Phase II trials. As of this writing, Barry
Cohen was long AMGN.
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