Stock buyback, patent victory give bounce to Amgen shares.

JUST a year ago, Amgen Inc, took a beating from analysts and the media. Not only did the Thousand Oaks-based biotech giant have a weak drug pipeline, but the government's attempt to reign in skyrocketing health care costs, specifically for cancer drugs, was expected to take a big bite out of the company's drug reimbursements.

After a stock run-up in July 2003 to $70 a share, investors lost confidence. Shares pulled back to $53 in June 2004, a 32 percent decline. Like most drug makers, Amgen continued to feel the pain from Medicare reforms, patent expirations and government investigations into the industry.

But a spate of good news in the past few months has restored investor confidence.

Last week, Amgen won approval from the Food and Drug Administration for the brand name drug Kepivance, which treats severe mouth sores in certain cancer patients undergoing chemotherapy. It is the first drug approved for what is known as oral mucositis and has the potential for treating a larger group of cancer patients in the future.

Mark Karvosky, a senior research analyst at Piper Jaffray Cos., upgraded Amgen to "outperform" with a price target of $69 on the news, even though Kepivance is likely to produce just $22 million in sales in 2005.

Earlier this month, Amgen announced that its white-blood cell booster Neulasta reduced certain infection rates in breast cancer patients on chemotherapy. And its osteoporosis drug AMG-162 performed well in Phase II tests against Merck's Fosamax for increasing bone mineral density in the lumbar spine.

"The drugs in the pipeline do have the potential of peaking into the billion-dollar range and if you add them all up, it could give the company a few more years of 20 percent growth," said Hamed Khorsand, president of BWS Financial in Granada Hills, who has a "buy" rating and $70 target on Amgen. "The reason people were downplaying it last year is they didn't see anything really exciting or of blockbuster potential," he said. "We're very positive on the stock."

The changer at Amgen first surfaced in October, when the company posted strong third-quarter earnings, with higher revenue and profit guidance. Its stock bumped up against a critical barrier of $60, but investors took another look when Amgen's board approved a $5 billion stock buyback program--a classic corporate maneuver to increase a stock price.

Challenging J&J

Amgen's market prowess was evident last week in competitor Johnson & Johnson's $23.9 billion agreement to purchase Guidant Corp. J&J's top-selling anemia drugs Procrit and Eprex continue to lose ground to Amgen's next-generation anemia treatment Aranesp, a longer-lasting form of its franchise anemia drug Epogen.

Amgen won a court ruling in October when competitors Transkaryotic Therapies Inc. and Aventis Pharmaceuticals were found to have infringed on four patent claims for Epogen.

Aranesp and Epogen accounted for the biggest chunk of Amgen's third-quarter sales, combining for $1.3 billion out of $2.7 billion in total sales. Moreover, global sales of Aranesp, which treats kidney disease patients and cancer patients with anemia, jumped 39 percent in the third-quarter despite constraints from discounting in the U.S. In addition, sales of Amgen's rheumatoid arthritis drug Enbrel jumped 45 percent in the third quarter.

Excluding charges, Amgen reported a 21 percent jump in net income of $839 million for the period ended Sept. 30, compared with $713.6 million for the like period a year earlier. The results exceeded the mean estimate of Wall Street analysts by 2 cents per share, but the company also took a $554 million write-off related to its acquisition of Tularik Inc. Sales rose 23 percent in the period.

A key factor for Amgen's growth is the efficacy of new drugs as their predecessors mature and approach patent expiration. Aranesp and Neulasta combined accounted for 42 percent of total sales in the first nine months of 2004.

YEAR (Dec. 31)                 2003      2002

Revenue (billions)            $8.36     $5.52
Total Expenses (billions)      5.26      6.31
Operating Income (billions)    3.01    (0.78)
Net Income (billions)          2.26    (1.39)
Earnings Per Share            $1.69   ($1.21)

SUMMARY

Business: Biotech pharmaceutical company
Headquarters: Thousand Oaks
CEO: Kevin W. Sharer
Market Cap: $80.7 billion
Dividend Yield: None
Total Liabilities: $7 billion
P/E Ratio: 37.8
Long-Term Debt: $200 million

Staff reporter Kate Berry can be reached at [phone], ext. 228, or al [e-mail].