Amgen (AMGN): A biotech bellwether

In biotechnology, corporate success is a function of approved drugs, pipeline activity and positive cash flow. By those standards, one of the most successful firms in the industry is a 27-year-old Thousand Oaks, California outfit that was among the first developers of blockbuster biopharmaceuticals.

Amgen (NASDAQ: AMGN) is a biotechnology firm engaged in the discovery and manufacture of human therapeutics. It markets products in the areas of supportive cancer care, nephrology, inflammation, and oncology. Principal offerings include anemia treatments Aranesp and Epogen, rheumatoid arthritis drug Enbrel, and white blood cell stimulator Neupogen. Amgen has marketing alliances with Hoffmann-La Roche and Kirin. Competitors include Baxter International (NYSE: BAX) and Novartis (NYSE: NVS).

The stock popped last month on word an FDA advisory panel had rejected a proposal to set a specific target for red blood-cell levels in kidney-failure patients being treated with Aranesp, Epogen and Procrit. The latter is manufactured by Amgen, but sold by Johnson & Johnson (NYSE: JNJ). The panel's decision, if accepted by the FDA, could boost sales of the medications. Since the initial gain, the AMGN share price has been defining a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the stock with six "strong buys," six "buys," 18 "holds" and one "sell." The AMGN P/E ratio (16.19), PEG ratio (1.50), Price to Book ratio (3.73), Price to Cash Flow ratio (12.07), Price to Free Cash Flow ratio (16.98), Operating Margin (32.57%), Net Profit Margin (27.35%), Return on Assets (12.65%), Return on Investment (15.02%), Return on Equity (24.41%) and Net Income per Employee ($203.25k) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 76% of the outstanding shares. The stock is one of those used to calculate the S&P 100, S&P 500 and Nasdaq 100 Indexes. Over the past 52 weeks, it has traded between $48.30 and $77. A stop-loss of $48.65 looks good here. Note that the firm is expected to release third quarter results on October 25, after the close.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.