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Savings Experiment: Snow Removal"While the stock has rebounded a bit from its August lows, we view this as a great opportunity to buy Amgen (NASDAQ: AMGN), one of the premier names in a key industry," says George Putnam.
In his The Turnaround Letter, he explains, "An interesting list of value investors, including David Dreman and Bill Miller, have accumulated the stock. We recommend joining them." Here is his review.
"Deriving its name from Applied Molecular Genetics, Amgen began in the early 1980s developing products based on advances in recombinant DNA and molecular biology. The company's Epogen and Neupogen products became the biotech industry's first two blockbuster therapies.
"Today, Amgen is the world's largest biotechnology company. From its IPO in 1984, the stock went on a 16-year run from a split adjusted $0.08 to over $80 by late 2000! But Amgen's revenue growth rate slowed following the turn of the century, and investors began lowering the premium they were willing to pay for the stock.
"More recently, investors were spooked by regulatory questions about two of the company's key drugs Epogen ($2.5 billion in 2006 sales) and Aranesp ($4.1 billion). As a result, in August the stock dropped below 50 for the first time since early 2003.
"Not only are the short-term regulatory issues abating, but more importantly, Amgen has the drug pipeline, the manufacturing capability and the financial resources to remain a leader in providing biotech solutions to the many health problems faced by the graying population across the developed world.
"While there is still a risk that Medicare and private insurers might impose restrictions that would hurt sales of the drugs, those risks are pretty well priced into the stock. Moreover, the physician community appears to favor continued widespread use of these drugs. The company is also reducing costs, which should help offset any loss of revenues from these two drugs.
"Longer term, Amgen's pipeline of products in development – targeting conditions from osteoporosis to diabetes to prostate cancer to Alzheimer's disease – is widely considered to be the strongest in the biotechnology industry.
"Over the last few years, the pipeline has more than doubled in size and become much more diverse. In 2006 the company spent $3.4 billion on research and development, and it is also willing to make acquisitions that boost the drug pipeline.
"For example, in 2006 Amgen spent $2.1 billion to purchase Abgenix, thereby greatly expanding the company's expertise with human monoclonal antibodies. Now Amgen is poised to launch Denosumab, a monoclonal antibody that helps prevent the loss of bone-mineral density, and it is viewed as having the potential to be a revenue blockbuster.
"Another strength of Amgen is its manufacturing capability. Producing biologic drugs is more complex than many other kinds of pharmaceuticals. With nearly $6 billion invested in plants and a highly trained workforce, the company is well positioned to prosper as the industry grows.
"In addition, Amgen has the financial resources, including more than $5 billion in cash, to support all aspects of its business. Today, as in 2000, Wall Street is wondering how fast Amgen will be able to grow in the years ahead. There's a big difference today, though: in 2000, the P/E ratio was as high as 77; now, it's a much more attractive 16."
Each day, Steven Halpern's TheStockAdvisors.com website features the latest investment commentary and favorite stock picks of the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
12-01-2007 @ 7:24AM
starlightmica said...
Denosumab is not yet FDA approved and when launched will be going up against generic Fosamax. Health plans aren't going to go for the $10k biologic when the $10 per month prescription is available.
Heard from someone who got laid off from Amgen, that they're still a one-product company (erythropoetin) looking for their next big hit. Lots of groupthink and unwarranted optimism inside the company - he gave denosumab as an example where management thinks it's a multibillion dollar drug, but very unlikely given the competition.
12-04-2007 @ 12:44PM
InRecovery said...
After more than a decade with the company I chose a voluntary transition package. In the last 5 years I've seen the "culture" of the company transition (through reward and recruitment) to a culture of testosterone-junky duplicitous narcissists. There truly aren't enough corners for these self-importent shmoes to pee on. Regarding the Abgenix buyout, all the talent was fired... so much for gaining technology. If innovation does come about, it's hard to imagine that it can succeed in that environment. It's too bad because there is an incredible amount of talent hidden back in the lab benches and cubicles. There are some interesting things in the pipeline and maybe some will make it to blockbuster status.