Advertisement
Markets

Amgen: Biotech Value

Shares of this biotechnology giant have suffered -- yet the company's pipeline and growth strategy look as healthy as ever.

Sometimes stocks get sick even when their companies are in good health. Take biotech giant Amgen. Five years ago, its stock traded in the mid $60s; Monday it closed at $68. Over those same five years, Amgen's sales more than tripled, from $4.0 billion to $12.4 billion, and earnings per share nearly tripled, from $1.03 to $2.93 in 2005.

Advertisement - Article continues below

The upshot: Amgen (AMGN) is a growth stock trading at a value price. Analysts, on average, expect earnings of $3.66 per share this year and $4.14 next year. That puts Amgen's price-earnings ratio at 19 based on '06 estimates and at 16 based on '07 forecasts. At the same time, analysts expect earnings growth of 15% annually over the next few years.

Unlike most biotech companies, which drip gobs of red ink, Amgen is immensely profitable. Operating profit margins are about 40% of sales. Key blockbuster products include Aranesp, for anemia associated with kidney failure and chemotherapy; Neulasta, to help the immune system in chemotherapy patients; and Enbrel, for rheumatoid arthritis.

Amgen's pipeline of potential new products is rich, too. The company has several new drugs for cancer, as well as a medication for osteoporosis, in clinical trials. In addition, existing drugs are being tested for new applications. Most notably, Aranesp shows promise in preventing heart failure in patients with diabetes.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

The stock has been beaten down this year in tandem with other biotech stocks. In addition, Amgen and Roche are battling in the courts over whether Roche can introduce a competitor to Aranesp in the U.S. But even giving Roche a 50% chance of winning that litigation, Bank of America analyst David Witzke recommends buying Amgen. "We believe Amgen should be a core holding in biotech and would look to use recent weakness to add to positions." Wachovia Securities analyst George Farmer on Monday upgraded Amgen to a buy, citing potential for its osteoporosis medication to be on the market in 2008 -- a year ahead of Wall Street expectations.

Amgen isn't just inventing new medications. Awash with cash, the company is buying up promising, small biotechs. It acquired Abgenix this year and Tularik last year. It recently set up a corporate venture fund to invest in other biotech firms. Amgen also has the heft to do its own marketing, as well as to market for smaller biotech companies, without having to enlist a big pharmaceutical firm.

Among the pessimists, Merrill Lynch analyst Eric Ende worries that in the short run Amgen could be a "value trap" -- that is a stock that seems cheap, but still falls. Ende is concerned about the Roche litigation and possible competition for other Amgen drugs. Plus, he sees little chance for any of Amgen's new drugs to be on the market until 2007.

Still, with the shares so cheap and the company so powerful, these are risks that may be worth accepting.

--Steven Goldberg

Advertisement
Advertisement

Most Popular

7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020
How a Second Stimulus Check Could Differ from Your First One
Tax Breaks

How a Second Stimulus Check Could Differ from Your First One

The HEROES Act, which was passed by the House in May, would authorize a second round of stimulus checks. While the new payments would be similar to th…
July 22, 2020

Recommended

The Best and Worst Presidents (According to the Stock Market)
Markets

The Best and Worst Presidents (According to the Stock Market)

Mount Rushmore features massive 60-foot-tall busts of celebrated presidents George Washington, Thomas Jefferson, Abraham Lincoln and Theodore Roosevel…
August 4, 2020
Stock Market Winners, Losers and Lessons Learned
investing

Stock Market Winners, Losers and Lessons Learned

Kiplinger.com senior investing editor Kyle Woodley joins our Your Money's Worth podcast to discuss what we can learn about investing from the stock ma…
August 4, 2020
Stock Market Today 7/31/20: Big Tech Roars, Everyone Else Snores
Markets

Stock Market Today 7/31/20: Big Tech Roars, Everyone Else Snores

Blowout earnings from Apple (AAPL), Amazon.com (AMZN) and Facebook (FB) led another charge by the Nasdaq on Friday.
July 31, 2020
Stock Market Today 7/30/20: Stocks Grind Through a Deluge of News
Markets

Stock Market Today 7/30/20: Stocks Grind Through a Deluge of News

The U.S. suffers its worst GDP drop in history, jobless claims rise and a host of other headlines converged to send the market to mixed results Thursd…
July 30, 2020