AMGN shares have been weak lately. FilthyRich group has initiated the stock at $61.79 on 6/28/05 along with CELG and PDLI. Although it is up by roughly 11% in a year and a half time frame, the shares continue to under-perform its peers. My original investment thesis and the related articles are:
http://www.investorhives.com/msgd.php?msg_...
http://www.investorhives.com/msgd.php?msg_...
http://www.investorhives.com/msgd.php?msg_...
The stock seemed to trend higher over last two months and was at one point was poised to break above $80 level where the technical resistance may have occurred. But now it is once again trading below $70. At this level, I believe that the stock is a great buy (my target is $100). It is trading with such a low valuation that it is simply a shame to see the stock trading at this level. In my opinion, AMGN will make roughly $4.5 to 4.6 in 07 and probably over $5 in 08. As we enter 07, you are looking at this premiere biotech companies trading with PE of 15 based on 07 and PE of 13 based on 08 estimate. In 07, the stock would be trading with PE of bank stock and I believe this type of valuation will not last and the stock should be trading much higher from the current level. Momentum investors continue to ignore improving pipeline in the oncology area and the current diverse pipeline that is already generating multi-billion dollar revenue. Instead, it is keying on two major uncertainties that is all related to AMGN's EPO line of drug. First one (I already went over this in the previous article) is related to the Roche's competitive drug CERA entry into the US market. AMGN has sued Roche for patent infringement and AMGN has a good chance to prevail the lawsuit due to extensive patent portfolio in the EPO market. We will hear about the Judge's decision soon in the early next year.
Second uncertainty that is currently depressing the stock price is US Congress hearing on the EPO reimbursement policy. The Congress is conducting a hearing to review the medical reimbursement policy for EPO products and possibly look into way of offering bundled pricing system to lower EPO usage. This is a way of reducing the medical cost and as Democrats took over the Congress and they have affordable medical cost as one of their top initiatives, many investors are afraid that these efforts may lead to lower bottom-line performance for EPO line of products for AMGN. The hearing will take place tomorrow and I believe no near term action will take place on this front: even if there will be some kind of policy change, it is likely to take years to implement. Furthermore, CMS is very much likely to defend its position with current reimbursement policy and there could be no change what-so-ever to the existing policy.
In my opinion, the stock fell in anticipation of the bad news and the drop has fairly reflected the possible negative scenario. Consequently, the risk to award ratio looks good for the stock and current price looks really attractive for the long term oriented investors. Also from the trading point of view, I think AMGN shares now offer good entry point with a short to intermediate term outlook. As such, I recommend you step up and buy AMGN shares.
Now, I would like to preview what AMGN has in store at ASH. Although investors may continue to pay attention to what AMGN competitors are offering at ASH, I believe that most of these concerns are now reflected in the share price and AMGN shares may have bottomed. Following comes from Lehman report published on Nov 29th on 2006 preview of ASH meeting. Tomorrow I will go over GENZ and will also comment on PDLI in the near future.
Amgen's ASH will be quiet, in our opinion, with more focus likely on competitors, EPO being a perennial, Amgen has no denosumab data but we highlight Novartis's competitor, Aclasta (zoledronic acid) which will be featured in a number of posters including data on ONJ and how a new schedule can reduce its incidence.
AMG 531, Thrombocytopenia
Amgen will present 48 week data, on Monday at 1:45 PM, for 531 in ITP, there is also a poster evaluating platelet activation in healthy volunteers; platelet activation has been suggested as a potential safety issue with 531. Amgen has completed two phase 3 studies of 531 in ITP and we expect top line data shortly followed by a BLA in early 2007.
AMG-523, B-Cell Disease
Amgen presents data for its lymphostat/atacicept competitor. A poster on Monday includes clinical implications in the title and we have long thought that Amgen needs to differentiate 523 from the pack; we expect a phase 2 go/no go decision shortly.
AMG-386, Anti-angiogenesis
Amgen has no data for 386, its antibody targeting ang2/tie-2 interaction but we note two posters discussing the role of this pro angiogenic axis in AML (Sunday) and CLL (Monday) and could support a decision by Amgen to explore a role for 386 in hematology; to date there has been a dearth of data for anti-angiogenic agents in hematology, we note a couple of PTK787 posters at ASH; however, our European colleagues expect 787 to be discontinued by Novartis.
Erythropoietin Competitors
A poster describing CERA consumption could provide additional insights into its biology; we have long believed that CERA's perversion of the natural EPO-receptor recycling following ligand binding could raise some questions regarding safety. Other EPO competitors include Neose who will present data from a phase 1 study in healthy volunteers in a Saturday poster.
Thrombocytopenia Competition
Following presentation of impressive data for eltrombopag in hepatitis-associated thrombocytopenia at AASLD, GSK will present ITP data orally (Monday 1:30 PM). We expect strong data from this randomized double-blind trial and while Amgen will likely get to market first with 531, eltrombopag's oral formulation will likely be favored by patients especially for chronic use; although this is where long-term safety which is as yet largely unknown is critical. Newcomer AKaRx will present data from another small molecule oral thrombopoietin agonist, AKR-501, which is currently in phase 1 testing in healthy volunteers (Monday 2:00 PM). We also note that Genzyme will present phase 1 data for the anti-CD16/CD3, GMA-161 in ITP, in a Saturday poster; GMA-161 was developed by Macrogenix.
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