AMGEN'S UPS & DOWNS; INVESTORS TURN ON LONGTIME PERFORMER.

Byline: Ben Sullivan Daily News Staff Writer

For more than a decade, Amgen Inc. has been a Southern California success story, developing two of the world's best-selling biotechnology drugs and returning to shareholders a staggering 1,750 percent return on investment since 1987.

But the summer of 1997 has been miserable for the Thousand Oaks firm. Amgen announced in August that changes in Medicare reimbursement rules will hurt second-half sales. And last month the company was ordered to pay a business partner $96 million in a licensing dispute over Amgen's popular blood drug Epogen.

The day after that payment was announced, traders sent Amgen shares to a 52-week low of $46.93. Word that the government may cut back further on Epogen reimbursements sent shares to another yearly low of $46.68 on Oct. 3.

No one questions the cutting-edge science that Amgen's 5,000-plus employees produce and market. And analysts say the company is poised to flourish some time after the turn of the century.

But with sales of its two mainstay products flattening and no blockbuster drugs in the pipeline for near-term release, the company faces a tough challenge convincing investors it is worth their money here and now. Indeed, last week's launch of a new drug to treat hepatitis C gave Amgen just a $1.75-a-share boost, a fraction of its one-day loss of $7 after the initial Medicare changes were announced.

``This is the most uncertainty they've ever seen. And the market does not like uncertainty,'' said Barbara Hoffman, an analyst at Vector Securities International. ``I personally think there's a lot of very promising things in their pipeline . . . (but) if there's something great (coming out) in the year 2000, people will (only) look at them at the end of 1999.''

Since it was founded in 1980, Amgen's fortunes have been tied to the success of two bioengineered drugs, Epogen and Neupogen, which stimulate red and white blood cell growth, respectively. Last year, the drugs generated more than $2 billion in sales.

At the time of their launches - Epogen in 1989 and Neupogen in 1991 - the drugs were unrivaled in their capabilities. They remain the treatment of choice for a host of conditions, and Amgen is seeking FDA approval for several new uses. But changes in the way the government pays for drugs have hit the products, especially Epogen, hard.

One of Epogen's main uses is to treat anemia in patients with kidney disease. As part of widespread cost-cutting measures, the federal Health Care Financing Administration recently raised the threshold at which it will begin reimbursing for Epogen's use. And it is considering a 10 percent cut in how much it pays for the Epogen it does authorize, from $10 per 1,000 units of the drug to $9.

As a result, projected earnings from the drug are off at a time when Neupogen is itself experiencing significantly slowed growth.

Responding to the weak projections, several analysts have downgraded Amgen shares in recent weeks and say they want to see improved earnings - or their strong likelihood - before recommending the stock again. To most, that means the launching of a successful new drug.

No one feels the pressure more than Douglas Perry, Amgen's director of marketing for Infergen. Infergen received FDA approval Tuesday to treat hepatitis C and is the first entirely new drug the company has marketed in six years.

Hepatitis C is a cousin to the better-known hepatitis A and B strains and currently infects an estimated 4 million Americans. That means more people have hepatitis C than HIV - the virus that can lead to AIDS - and represents a potentially lucrative market, considering that a year's treatment with existing drugs now runs around $4,500.

But because the virus usually produces no symptoms in a person until several years after they've been exposed, most carriers are unaware they are infected. That means the real market for Infergen is only the roughly 400,000 Americans who know they're infected and may or may not seek treatment. Two existing drugs to treat hepatitis C last year generated just $140 million for the two companies with competing hepatitis C drugs, Schering Plough Corp. and Roche Holding AG.

With limited revenue potential, a successful Infergen launch is more symbolically important than financially crucial. Analysts don't expect Amgen to get rich from Infergen, but they do expect the company to show for the first time that it can successfully enter an established market with entrenched competition. That sort of experience would help down the road when the company launches other, more lucrative products in crowded markets.

``The pressure we have is both external and internal,'' Perry said. ``We have a great opportunity with this product to sort of test our mettle. It's been a while since we've had a new product launch and this is a little bit different type of launch than what we've had in the past.''

Analysts expect Amgen will succeed, if only because success will be measured with a short ruler.

``Expectations for this product are so low that it'd be hard for them to disappoint,'' said David Molowa, an analyst at Bear, Stearns & Co.

But a poor showing could weaken Amgen's standing further.

Perry said Amgen hopes to do far more than simply not disappoint. This March, the company donated $1 million to a medical association to promote hepatitis C testing and awareness, and Perry believes that in the process of marketing Infergen, Amgen can actually grow the market. But even Perry acknowledges Infergen will never be another Epogen.

The company has a handful of other drugs in development, including ones with far more money-making potential than Infergen. Infergen is just the first of five drugs that Amgen Chairman and CEO Gordon Binder says the firm will launch over the next five years. But the most financially promising products are much further away from market.

Stemgen, a drug that stimulates the growth of cells that are the precursor to both white and red blood cells, is in Phase III trials, the last testing phase before FDA consideration. But like Infergen, it is a niche product with $50 million in projected annual sales. A respectable launch sometime next year could reassure analysts of the company's marketing prowess, but like Infergen, it will not make the firm rich.

In January the company said a drug it was developing to treat Lou Gehrig's disease was found to be not effective in a large human clinical trial.

What is needed, analysts say, is a big money-maker, a blockbuster to fill the shoes of Epogen and Neupogen. And if it can't be found in-house, they argue, the company should look to license the rights to such a drug from another firm.

``They certainly have the cash'' to buy such rights, Hoffman said. But finding such a drug and getting to it before other well-heeled pharmaceutical firms is the real challenge.

In September, Amgen signed a massive $465 million licensing and development contract with Maryland-based Guilford Pharmaceuticals Inc., giving Amgen rights to market a number of drugs for degenerative nerve diseases such as Parkinson's, multiple sclerosis and Alzheimer's.

But as with most of its own in-house projects, those compounds are several years away from human clinical studies.

George Morstyn, Amgen's vice president of clinical development and chief medical officer, said the company is constantly on the look-out for products it can get to market fast.

``Obviously when we look, the closer molecules are to the market the better off we are,'' Morstyn said. ``We've got good (in-house) projects for over the next five years, so clearly if we can partner with people that have molecules that are close to approval or approved, that'd be really good.''

Morstyn would not say, however, if any such deals are in the offing.

Perhaps in anticipation of an extended dry spell, Amgen insiders sold about $8 million worth of their shares from mid-June to mid-July (the latest period for which cumulative trades have been recorded) compared to a monthly average of just $3 million, according to The Washington Service, a financial data company. Amgen this year has been among the most heavily traded issues by insiders at big-cap companies.

Amgen officials say investors should not read too much into the insider trades.

``I don't think there's any (inherent) connection'' between the insider sales and the company's prospects, company spokesman David Kaye said. ``They were not acting on insider information, I can assure you of that.''

But barring an unexpected licensing deal, some Wall Street analysts say Amgen shares will likely remain about where they are for the foreseeable future, making the insiders smart to have sold when they did.

``We've been looking for (a major licensing deal) for years,'' Vector Securities' Hoffman said. ``The Street would welcome that sort of thing.

That's what we need.''

But until that happens, she said, ``Near-term share price is going to continue to remain weak.''

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Photo: (Color) George Morstyn

Amgen's vice president of clinical development and chief medical officer

Chart: (Color) No caption (Amgen's chronology)