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Thursday, September 28, 2006

Can Amgen Leave The Dog House? (DNA)(AMGN)

Share of Amgen, the huge biotech firm, have been off lately. Way off.

The stock traded near $85 last November, but dropped to $66 in mid-August. The shares now fetch about $72. Rival Genentech's performance has been better for the entire 52 weeks.

But, Amgen may start to move back up again. The company's new colon cancer drug, Vectibix, has been approved by the FDA. Jefferies & Company says the drug could eventually drive revenue of $2 billion a year, if it is approved for treating other cancers. But, the firm retains it rating of "hold" on the stock. Friedman Billings still has the company rated "underperform".

The rating are odd because Amgen has a lot going on including trial of a drug to treat conditions that are side-effects of bone lose. The major knock against the company would appear to be competition that is probably coming from generic biologic drugs that could hurt Amgen's sales.

The company still has the look of a winner. Revenue rose from $8.8 billion in 2004 to $12.4 billion in 2005. Operating income was up from $3.3 billion to $4.8 billion year-over-year. Revenue growth has averaged about 14% year-over-year the last four quarters.

Compared to competitor Genentech, Amgen would appear to be undervalued. Genentech's market cap is about $88 billion, over 11 times sales. Amgen's market cap is $84 billion, only 6.4 times sales. Should the spread be that great? Probably not.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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