UPDATE: Amgen's Stock Gains Lift Co Value, But Concerns Remain
July 08 2009 - 4:26PM
Dow Jones News
Amgen Inc.'s (AMGN) positive news about the experimental bone
drug denosumab is lifting the long undervalued stock to its highest
level this year, and more gains are possible despite lingering
issues at the biotech company.
Amgen shares rose by as much as $8.72 Wednesday, reflecting the
potential for billions of dollars in additional denosumab sales
based, in part, on the trial data released Tuesday. The data showed
the drug's superiority to a rival in preventing complications
related to the spread of cancer to bones.
Before the denosumab data, Amgen shares had been weighed down by
safety issues related to its anemia drugs; concerns about the
growth trajectory for the arthritis treatment Enbrel, sold with
Wyeth (WYE); and the company's particular exposure to looming
health-care overhaul.
Those issues still remain. However, the positive denosumab data
put the company's future in a brighter light, even if the data may
not lead to denosumab sales for that specific indication for more
than a year.
"This gives you something positive to think about," Robert Baird
& Co. analyst Christopher Raymond said. "This company was
purely a defense story for the past two years."
An Amgen spokeswoman said that the company is pleased with the
results of the study.
Even with its gains - Amgen shares rose 15.1% to $60.10 in
recent trading - the stock trades well below other large biotechs,
at 13.4 times projected 2009 earnings, according to FactSet
Research. By comparison, Genzyme trades at 16.7 times and Celgene's
multiple is 24.7.
"Even at these levels, it is not really expensive," said Les
Funtleyder, an analyst with Miller Tabak.
Amgen shares can rise further as confidence increases in the
company's future earnings growth, analysts said.
Potential denosumab sales may become clearer beginning in
October, with its expected approval from the Food and Drug
Administration. However, that approval is for treating only
osteoporosis and bone loss caused by hormone treatment in patients
with breast or prostate cancer. Sales for those indications are
expected to grow slowly as the drug enters a competitive market
dominated by Big Pharma and generic alternatives.
The larger opportunity is denosumab's use in preventing skeletal
complications in cancer, but approval may not come until late 2010,
or even 2011. Two additional studies in the area will be released
before early 2010.
Raymond doesn't expect cancer doctors to use the drug off-label
if it becomes available in October. Off-label use is common for
drugs that fight cancer, because patients often don't have any
other options.
"I would be surprised if it got off-label use in supportive
care," Raymond said.
Amgen noted that it would never promote any off-label use for
any of its drugs, and highlighted that denosumab isn't yet approved
by regulators.
Amgen's other franchises also face pressure, which is a possible
source of concern when the company reports second-quarter results
later this month.
Sales growth of the anemia drugs, Epogen and Aranesp, began
evaporating in 2007 when studies showed a link to risks of
cardiovascular disease, cancer progression and death. Those drugs
could come under further pressure as Medicare and Medicaid are
expected to eventually reimburse physicians at a flat rate for
dialysis care, rather than pay for individual drug use.
In addition, Amgen could be targeted by government health-care
overhaul, since Medicare pays enormous amounts of money for Epogen,
which had 2008 sales of $2.5 billion.
Biologic drugs like Epogen have no generic competition, but
future legislation may provide such a path. The large government
spending on the anemia treatments may make them an initial target.
Drug makers, including Merck & Co. (MRK), have indicated they
hope to enter the market with copycat versions.
Sanford Bernstein analyst Geoffrey Porges is bullish on
denosumab and Amgen's stock price, but still has concerns about the
company.
"We believe Amgen's core business is largely mature and is
likely to stay relatively flat in the coming years with competitive
challenges looming for Enbrel, Neupogen, Epogen and Aranesp,"
Porges wrote in a note to clients.
-By Thomas Gryta, Dow Jones Newswires; 212-416-2169;
thomas.gryta@dowjones.com