MERGER MAY BOOST AMGEN'S PROSPECTS; RIVALS' DEAL MAKES COMPANY TOP TARGET.

Byline: Ben Sullivan Daily News Staff Writer

The news that drug makers American Home Products Corp. and Monsanto Co. will merge in a $34.4 billion stock swap revived speculation Monday over the future of biotechnology powerhouse Amgen Inc.

Under terms of the deal announced early Monday, American Home will exchange 1.15 shares for each Monsanto share, based on Monsanto's closing price Friday of $55.56 a share.

American Home makes products such as Advil painkiller and Chap Stick lip balm. Monsanto makes products ranging from the artificial sweetener Nutrasweet to Roundup herbicide, and is active in agricultural biotechnology.

Management of the two midsize companies determined they could no longer face bigger rivals alone. If shareholders and regulators approve the merger, it would create a $96 billion life sciences company with $3 billion in expected annual profits. The new entity, still to be named, will be 65 percent owned by American Home shareholders.

The stock swap provides American Home with a strong partner following a difficult year. In September, the company withdrew two obesity drugs after it was found they could cause heart bleeding. And earlier this year, merger talks with British drug maker SmithKline Beecham PLC collapsed.

For Monsanto, the merger has allowed the company to choose its business partner rather than have an acquisition thrust upon it. A mid-May report in Business Week's ``Inside Wall Street'' column said Monsanto, along with Amgen, was a leading candidate for a takeover by chemicals giant DuPont.

Indeed, DuPont has made clear it plans to be a major player in the biotechnology arena, with Chief Executive Officer Charles Holliday Jr. saying he expects drugs and biotechnology to account for one-third of the company's sales within five years, compared to 18 percent today. The company recently agreed to pay more than $2 billion for a 50 percent stake Merck & Co. holds in a biotech joint venture the two companies formed in 1991.

With Monsanto now effectively off the market, Amgen is one of the few remaining firms that immediately could thrust DuPont to the front of the biotech industry.

What would make a DuPont bid plausible, said Genesis Merchant Group Securities analyst Robert LeBoyer, is that Amgen's research and development infrastructure is unmatched in the industry. The company spent $152.5 million on R&D in the first three months of this year, and it has 12 potential medicines in various stages of development for diseases ranging from obesity to cancer.

In addition, Amgen is experiencing slowed growth in sales of its two standard-bearer drugs and has no blockbuster products near completion to make up the difference. The projected earnings growth shortfall could make institutional investors particularly receptive to a takeover offer, especially one as generous as the $25 billion - or $95 a share - DuPont was rumored to be considering for Amgen.

Prudential Securities analyst Caroline Copithorne said there is far more logic in a DuPont purchase of Amgen than similarly rumored deals in the past featuring pharmaceutical companies such as Johnson & Johnson and Eli Lilly.

With virtually no commercial biotech drug presence currently, she said, DuPont would benefit from getting Amgen's research brains and marketing brawn. Existing drug companies like Eli Lilly already have their own sales forces and would therefore be paying at least in part for redundant personnel, Copithorne said.

But both Copithorne and LeBoyer said a DuPont bid for Amgen remains a long shot. ``For one, I don't think Amgen is looking to be acquired,'' LeBoyer said. And while DuPont wants to grow its biosciences presence, it is still digesting the Merck purchase, Copithorne said. Taking on Amgen any time soon would strain the company's management.

``I'm just not sure that's the route DuPont would want to take,'' she said.