Concern over Amgen's ability to match growth slows shares.

It would seem that Amgen Inc. could do no wrong.

The Thousand Oaks-based biotech company has seen its earnings and stock price grow by more than half as it has shepherded a cabinet-full of second-generation drugs, as well as its newly acquired blockbuster.

Aranesp, a longer lasting form of Epogen, its franchise anemia drug, and Neulasta, a new version of its infection-fighter Neupogen, have recorded strong sales and are projected to do well for several years to come. Meanwhile, Enbrel, a rheumatoid arthritis drug it acquired with its $16 billion purchase of Immunex Corp. in 2001, is also taking off, as Amgen has eliminated production constraints that slowed it down.

But while remaining a Wall Street favorite, there is a growing chorus of naysayers, reflected in three recent stock downgrades and a share price that has slipped since summer.

What's the gripe? Basically, what's Amgen going to do for an encore once its current growth spurt plays out?

"It's sort of what will you do for me lately in 2005 or 2006," said Jim Reddoch, a Friedman Billings Ramsey analyst who still rates the stock a buy. "Genentech seems to have a clear route to 20 percent growth in two or three years, but (there's a sense) from the pipeline that this is not an obvious thing Amgen can pull off."

Growth driven

During a third-quarter conference call in which Amgen reported a 63 percent rise in net income (adjusted for a big write off related to the Immunex acquisition), Chief Executive Kevin Sharer discussed how the company would drive future growth.

Aranesp, administered less frequently than Epogen, the drug of choice for fighting anemia among dialysis patients, is increasing market share among kidney disease patients not yet on dialysis. It's also gaining traction for fighting anemia among cancer patients receiving chemotherapy.

Sales of Neulasta, a longer acting version of Neupogen, is also expected to do well; recent data shows cancer patients do better with more intensive chemotherapy treatments.

Then there's Enbrel, which has seen its worldwide sales rise to $342 million in the third quarter alone. The company has been seeking approvals to expand its use for other forms of arthritis, and it's expected to be approved for treating the skin condition psoriasis.

Sharer said the company has a strong product pipeline, with 40 new drugs in development. That includes a few that could soon receive government approval, such as Cinacalcet, which would treat the overproduction of parathyroid hormone, a common condition of kidney disease patients.

Still, three analysts have downgraded the stock this month, even though Amgen shares have already dropped to just over $60 from a 52-week high of $72 in July.

Craig West, an analyst with A.G. Edwards, said the company's problem is rooted in its size. With revenues expected to top $8 billion this year, Amgen would need nearly all its 40 drugs now in development to pan out for a 20 percent annual growth rate in the latter half of the decade, a rate investors have come to expect.

But only a fraction of the drugs in development make it to the shelf: "There is sort of a size hurdle for them that is very difficult to get over," West said.

Then there is the issue of competition, such as a drug in development from F. Hoffman-La Roche Ltd. called CERA that is seen as a competitor to Aranesp. Early data suggests it lasts even longer than Aranesp, but Amgen officials said during the conference call that they believe the drug infringes on its U.S. patents and promise a legal fight.

On top of that, there is the question of whether government efforts to reduce health care costs by cutting back on reimbursements for expensive pharmaceuticals could hurt Amgen more than its competitors.

For now, skeptics remain in the minority, with 24 out of 32 analysts covering the company rating the stock a buy, and the remaining eight rating it a hold.

Reddoch said he believes long-term trends still favor pharmaceuticals, which even if they cost $20,000 a year or more are still cheaper than hospital stays. He also said that Amgen, despite any competition, is clearly in a growth mode for at least three more years.

"It's too early for people to handicap the growth rate of the company beyond that point," said Reddoch, who has an $84 12-month price target on the stock.