Analysts Downgrade Amgen Despite Good Results.

Amgen Inc. shares have increased in recent days on a string of positive announcements, including word that a new drug to combat anemia in cancer and kidney patients has passed a key clinical trial.

NESP, one of three new products in the Thousand Oaks biotech firm's pipeline, is expected to eventually boost annual revenues by as much as $1.5 billion.

If that's not enough, the company recently reported a 33 percent increase in third-quarter earnings and announced the discovery of an enzyme that could lead to a cure for Alzheimer's disease.

So if things are going so good, why have some analysts recently downgraded the stock?

The answer lies in that all-important matter of expectations. Chief Executive Gordon Binder expects growth to slow next year as the company ramps up sales and marketing for several new products.

Instead of growing earnings next year by 12 to 14 percent, as Wall Street had anticipated, the company is now expected to grow at a 10 to 12 percent clip next year.

"You've got to ask the question, is this stock going to go much higher (next year)? The answer is probably not," said Tony Butler, an analyst with Lehman Brothers, who recently downgraded his rating from buy to out-perform. "I see it moving laterally."

Dennis Harp, an analyst with Deutsche Bank Alex. Brown, doesn't share Butler's trepidation. Despite Amgen's revised projections, Harp is sticking to his strong buy rating with the expectation that the stock will climb to $110 a share in one year. (The stock closed at $90.5 on Nov. 11.)

"I would say that the prospects in the pipeline look extremely promising," he said. "We estimate the market for NESP alone could be $1.5 billion in its third year."

Amgen reported net income for the third quarter ended Sept. 30 of $300 million (56 cents a diluted share), compared with $221 million (42 cents a diluted share) for the like period a year ago. Revenue was $847.2 million vs. $700.9 million.

Sales of Epogen, which triggers the production of red blood cells and combats anemia in kidney patients, increased 28 percent, to $449 million. Sales of Neupogen, a product that restores depleted white blood cell levels in chemotherapy and AIDS patients, increased 9 percent to $313 million.

But despite a 33 percent increase in overall earnings growth for the quarter, the stock fell from $86 to $75.68 last month after Binder disclosed Oct. 21 that earnings growth would slow in 2000.

Binder said he anticipates operational costs to increase to between $800 and $850 million in 2000, compared with $600 million this year, thus cutting into earnings.

The increased costs are associated with beefing up company sales and marketing operations for the expected launch in 2001 of three new products - NESP, IL-1Ra, a treatment for rheumatoid arthritis, and Abrelix, a treatment for prostate cancer.

Meg Malloy, an analyst with Hambrecht & Quist, said the company likely will concentrate on building up its sales force in Europe in order to market NESP, its next-generation treatment for anemic cancer and kidney patients. Amgen was precluded from selling its first-generation anemia treatment, Epogen, overseas because it had sold the international rights to Johnson & Johnson in 1985, when Amgen was a fledgling company and needed the revenue.

Amgen also was precluded from selling Epogen to cancer patients in the United States, leaving Johnson & Johnson with better than $1 billion in sales of the product in the U.S. and abroad.

But NESP is structurally distinct enough from Epogen that Amgen is free to market the product both in this country and overseas as a treatment for kidney patients and cancer patients.

Next month, Amgen will ask an arbitration panel in Chicago to terminate the licensing agreement with the larger drug maker by alleging Johnson & Johnson breached the agreement by using the drug to treat kidney patients - cutting into Amgen's turf.

Excitement over NESP might explain why the stock shot up several dollars after results of the phase-three clinical trials were announced on Nov. 7.

The results, presented at the annual meeting of the American Society of Nephrology, show that NESP stimulated the production of red blood cells. But instead of having to take the drug one to three times a week, as is now the case with Epogen, patients require NESP only once every two weeks.

Butler said Amgen is a stock to watch but not necessarily one to buy in the short term.

A company called Transkaryotic Therapies Inc. in Cambridge, Mass., is in human tests with a drug called GA-EPO that would directly compete with Epogen. Amgen sued the company, alleging patent violations, but it's unclear how the case will be resolved. It's expected to go to trial next year.