M&A Bonanza For Drug & Biotech in 2011 (MRK, PFE, ALXN, DNDN, HGSI, CEPH, UTHR, CADX, AMAG, SNY, GENZ, AMGN, BEC, TEVA, SGMO, LLY, ALTH, CBST, VVUS, AUXL, VRTX)

January 29, 2011 · Filed Under Acquisitions, Anemia, Cancer, Cardiac, dendreon, Diabetes, Heart, Infections, M&A, obesity, R&D, Rumor · Comment 

The game of predicting mergers and acquisitions in the biotech and in pharma sectors is not a new one.  The talk heats up, then it dies down.  A deal comes, followed by another deal, and the activity goes quiet.  This next week is likely to have at least more chatter in the biohealth sector for possible mergers and acquisitions after Barron’s gave a cover story called “The New Doctor in the House: Consolidation.”

Barron’s noted that “as big drug firms buy up smaller, specialty outfits and their most innovative products, better pipelines and sales-force efficiency will boost profits.”  Here is the thing to consider: Barron’s did not really offer anything new or ground-breaking this weekend.  It will have rekindled some hope that M&A is coming in the space.  At issue: pipeline fatigue.  A note we’d throw in as well, dead-dead stocks.  We are going to at least address some of the Barron’s roster, but we want to show you many others which are just as or even more likely acquisition targets.  Some of ours have even been in-play before.

Barron’s threw in Merck & Co. (NYSE: MRK) and Pfizer, Inc. (NYSE: PFE) as the largest of the Big Pharma players and it threw out biohealth names with stock-market values below $10 billion:

  • Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) with a $7.5 billion value after a hueg run-up;
  • Dendreon Corporation (NASDAQ: DNDN) for Provenge for prostate cancer (and future cancers) with a $5 billion market value today;
  • Human Genome Sciences, Inc. (NASDAQ: HGSI) for its Benlysta in patients with severe active lupus nephritis and CNS lupus and a $4.5 billion market cap;
  • Cephalon, Inc. (NASDAQ: CEPH) is one we have rarely looked as since things quieted down there;
  • United Therapeutics Corporation (NASDAQ: UTHR) for its treat pulmonary arterial hypertension and an almost-$4 billion value;
  • Cadence Pharmaceuticals Inc. (NASDAQ: CADX) was noted for its pain medication without the addiction aspects of morphine and its value is only $369 million;
  • AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG) was called a value stock despite its recent weak sales and despite its cash burn with a $368 million market cap.

Much of the biotech M&A game hinges on Sanofi-Aventis (NYSE: SNY) in its chase to acquire Genzyme Corporation (NASDAQ: GENZ).  The latest talk is that a work-out could come to $80 all-in if certain milestones were achieved but the deal is still south of there officially.  As noted above, we have our own opinions on which biotech companies and drug companies could find their way into the hands of a larger acquirer.

Amgen Inc. (NASDAQ: AMGN) is likely to continue being an acquirer.  The company recently announced a deal worth potentially $1 billion to acquire privately-held BioVex.  Last year the company said it was aggressively looking for new targets and its $52 billion market cap is the largest of all the independent biotechs in America. The company has more tricks up its sleeve.

Beckman Coulter Inc. (NYSE: BEC) went into play in early December with private equity firms being the likely acquirers of the portfolio of biomedical testing equipment and supplies.  We argued at the time of the premium that it seemed shares fully reflected that value, and shares are actually lower now.

And don’t forget Sangamo Biosciences Inc. (NASDAQ: SGMO), where shares rallied in November on rumors of a potential bid interest from Eli Lilly & Co. (NYSE: LLY).  It had good news on ZFP Therapeutic program to develop SB-509, a zinc finger protein transcriptional activator (ZFP-TF) of the vascular endothelial growth factor (VEGF)-A gene as a treatment for ALS and the news flow has continued to propel shares higher.  It went above $4.50 on the rumors but now shares trade at $7.39.  The market cap is still low here at $334 million.

Allos Therapeutics, Inc. (NASDAQ: ALTH) has been another name floated out there for M&A possibilities, but things are looking less and less bright for the company.  Shares hit a 52-week low just on Friday.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) has not really gone anywhere as it is deemed a mature company, but it is one we thought for sure that would find its way into being part of a larger company.  Its Cubicin is on the market and it fights severe hospital-induced infections and the market cap is $1.3 billion here.

VIVUS Inc. (NASDAQ: VVUS) remains a wild card due to the FDA.  Diet and weight-loss pills have not been given any real love by the FDA.  The exception here is that Qnexa does have serious benefits.  There are side effects, particularly in cases of pregnancy.  We would ask this though: How many pregnant and soon-to-be-pregnant women really diet?  Most doctors don’t even want pregnant women taking supplements, let alone drugs.  IF the FDA approves Qnexa, that $680 million market cap may be worth far more.

Teva Pharmaceutical Industries Limited (NASDAQ: TEVA)… We have also noted Teva’s mega-cap ambitions, and making more acquisitions would generally get there.

Last year, Morningstar put out a list of three favorites that it sees as acquisition targets in the biohealth space: Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX).  FULL ARTICLE

This should at least give you a better and more concise list of possible deals and deal-makers for 2011.  Just remember this, regardless of what Barron’s or other media outlets try to tell you: not all biotechs have to be acquired, not at all.

JON C. OGG

Post-QE2 Economy Skipping Biotech (BBH, XBI, CELG, GILD, AMGN, BIIB, ALXN, MNKD, HGSI, VVUS, DNDN)

November 6, 2010 · Filed Under analyst calls, Anemia, Cancer, dendreon, fda, Financial, Lupus, M&A, multiple sclerosis, obesity · Comment 

Things have changed in the last week.  The mid-term elections took away the majority of the House of Representatives, and the Senate now no longer has the super-majority which could get laws passed no matter what they included.  Now it seems that the tax cuts may be extended for another year or maybe two years, which could imply a permanent change ahead if the 2010 election trends remain close to the same in 2012.  Quantitative easing from the FOMC is meant to drive investors into riskier assets and create a higher pricing environment to avoid deflationary pressure.  Generally speaking, those riskier assets are commodities, and broader stocks tied to industrial, exports, financials, and more.  But what about biotech and emerging pharma?  So far, QE2, tax extension, and the reversal of ‘the new normal’ has not highlighted biotech in the slightest.

Biotech HOLDRs (NYSE: BBH) and SPDR S&P Biotech (NYSE: XBI) are classic examples of underperforming ETFs in the last week as you can see in the chart below.  The Biotech HOLDRs actually fell during the rest of the market gains, while the SPDR S&P Biotech ETF significantly underperformed the PowerShares QQQ (NASDAQ: QQQQ).

A research call this last Thursday came from Goldman Sachs and it was cautious in Celgene Corporation (NASDAQ: CELG) and Gilead Sciences Inc. (NASDAQ: GILD); and the call was very cautious in Amgen Inc. (NASDAQ: AMGN) and Biogen Idec Inc. (NASDAQ: BIIB).  Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN) was the one that Goldman Sachs liked, and despite its large gains so far in 2010 the stock performed well after rising from about $68 early Tuesday to  close the week out at $72.72.

MannKind Corp. (NASDAQ: MNKD) is one of those companies that will have nearly zero impact from Quantitative Easing nor from who is in control of the House, Senate, or White House.  Alfred Mann’s inhalable insulin candidate took a hit because of fraud allegations from a terminated employee who brought up study misconduct concerns. Shares went from $6.20 on Thursday early morning to close the week out at $5.54 for roughly a 10% drop.  The 52-week range is $4.76 to $11.12, and the general theme is that AFREZZA is farther and farther away from approval.

Human Genome Sciences Inc. (NASDAQ: HGSI) has lost some of its high-flyer status compared to 2009 and early 2010, and this week brought about a negative cloud on teh company even though the company itself was not at fault.  The SEC charged a French research doctor with insider trading that allowed a hedge fund to dump 6 million shares after a tip that the drug Albuferon for Hepatitis C had negative test results.  The problem is that the incident goes back to 2007.  Human Genome shares were nearly at $27.00 at the start of the week and they closed at $25.31 versus a 52-week range of $20.56 to $34.49.

VIVUS Inc. (NASDAQ: VVUS) was started as Buy at Roth Capital this last week with a $12 price target, yet it did not hold much of the large gains from the week before.  VIVUS shares rose a week earlier from $6.13 ti $7.75 after the FDA denied its Qnexa weight loss drug but after most issues seemed to be within working conditions without the need for a new round of drug trials.  Shares did not close on the lows Friday, but the loss was close to 10% at $7.12 on the week.  If this is approved, we have seen some research that indicates many patients will probably pay out of pocket on their own for this if insurance reimbursement rates do not cover it.

Dendreon Corporation (NASDAQ: DNDN) was another dud this week.  The company’s loss was more than $79 million due to ongoing product expansion and promotion costs for PROVENGE.  The drug is selling less than expected so far.  The company sold $20.2 million and sales grew each month, but analysts were looking for nearly $24 million in sales.  Dendreon gave sales projections of $46 to $47 million in 2010 revenue.  It said it expects $350 to $400 million in revenue in 2011, but 2011 is expected to be very back-end loaded as capacity comes on line.  That implies that any delay will push revenues further and further out, perhaps as more prostate cancer competition can come on the market.  Analyst expectations were more like $62.6 million in 2010 and over $400 million in 2011.  Shares peaked at $39.00 during the week but closed down at $35.07; its 52-week range is $25.05 to $57.67.

Most investors consider biotech and emerging pharma to be risk-based assets.  These are a different sort of risk.  Some of the pressure from Washington D.C. may abate, but Republicans have vowed to address some of the cost side of the equation when it comes to healthcare.  If Washington can figure a way for hospitals to not charge $25 for administering an aspirin tablet or an ibuprofen pill, it seems logical that $20,000 to $90,000 treatment regimens could remain under scrutiny.

So far, biotech and emerging pharma is being discounted entirely despite the winds of change feeling a tad less abrasive.

JON C. OGG

Standout Options Trading in Amgen (AMGN, TEVA)

October 1, 2010 · Filed Under Anemia, Cancer, fda, Financial, Options · Comment 

Amgen Inc. (NASDAQ: AMGN) has seen some unusual options trading and it appears to be based around some upcoming FDA events and on its trends.

Joe Kunkle  of OptionsHawk.com noted, “The January $52.50/$47.50 ratio put spread for 3,500X7,000 at $0.95 was an opening trade on September 30 after checking the open interest, and a bearish one with shares at $55.20.  Shares of the Biotech giant trade 10.22X earnings, 3.5X sales, and 9.2X cash flow, but have generally underperformed despite the valuation, and have now rallied more than 8% off lows to resistance at $56.50, already rolling over below the 200 day EMA.”

We recently noted how the upcoming reviews could offer Amgen a “Genetech-like Drug Arsenal” if the approvals were met and if the tests go positive.

Kunkle also noted, “As the third attempt at a breakout of the triangle has failed the chances for shares to return to the lower support around $51 are high, and potentially break lower, with this trade looking for a move to $47.50.  Earnings are scheduled for October 29th.  Stifel started shares a Buy with a $68 target on September 9.  Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is seeking a generic version of Amgen’s Neupogen, a $225M revenue drug, but that has been delayed by the FDA.  On October 18th the Cardiovascular and Renal Drugs Advisory Committe will meet to discuss risks and benefits of erythopoeisis-stimulating agents, which could scrutinize Amgen’s Aranesp.  Positive news came recently for Amgen, with early studies showing it’s osteoporosis drug may be useful in blocking breast tumors.  Amgen also recently recalled certain lots of Epogen, for the treatment of anemia in HIV therapy, a major revenue maker with $2.6B in sales in 2009.  The biggest upcoming catalyst is November 18th, when the FDA will weight Prolia for bone complications in cancer patients, previously approved for osteoporosis, but Amgen is seeking further approvals for various cancers.”

OptionsHawk concluded, “As you can see there are a lot of potential hurdles ahead for Amgen, and option traders are positioning for shares to head lower.”

Does Amgen Have a Genentech-Like Cancer Arsenal? (AMGN, MRK, RHBY, DNDN)

September 29, 2010 · Filed Under Anemia, Cancer, dendreon, fda, osteoporosis, R&D, vaccine · Comment 

Amgen Inc. (NASDAQ: AMGN) may have a recent trading history of being dead money.  There is at least a small chance that this could finally change through time.  If the implications end up coming to fruition, Amgen could be sitting on perhaps what could be the next Avastin-like franchise.

Two recent pre-clinical mice studies show that the osteoporosis drug Prolia from Amgen may actually treat breast cancer in a manner that is separate from its bone-related function.  While you will hear “may” and “could” a lot, this is something to watch for Amgen due to a long-standing range bound stock price.

Bisphosphonates as a class, from Merck & Co. (NYSE: MRK) with Fosamax and even from Roche Holding AG (RHHBY) with Boniva, could reduce the risk of breast cancer.

Prolia was approved in June as an osteoporosis treatment and it is expected to add to the growth of the biotech giant.  Amgen is seeking to expand its approval for the bones of cancer patients. Additional data is not expected until late in 2010.  Prolia is already approved to treat osteoporosis, but Amgen also has filed for FDA approval to help bone complications in cancer patients at much higher doses.

One study published by the journal Nature showed that RANK Ligand and its receptor seemingly play a key role in hormone-induced breast cancer and the study shows an indication so far that it decreased and delayed breast cancer onset.

Another Nature article may be a bit more pointed or less independent due to ties with Amgen.  That article follows the same lines and implies that the blocking RANK Ligand lowers or weakens breast tumor development.

The implication today is that the studies suggest that Prolia could actually help to delay or prevent cancer rather than just treating bone-related issues that come up in cancer treatment.

Whether Prolia is a Holy Grail treatment is not going to be known in the immediate future.  Maybe years.  Amgen is in a long-term clinical study aimed at testing Prolia’s efficacy in early stage breast cancer that has a higher risk of recurrence and the study will measure if Prolia extends the time period that women live before breast cancer returns and before it ultimately spreads into bones.

Why do we call this an Avastin-like ‘potential’ franchise?  Amgen is still studying whether or not the drug helps to prevent advanced prostate cancer (in men, obviously) from metastasizing and entering the bone structure.  That data is also due in the fourth quarter per our expectations.  Treating cancers in men and women can often be very different because of hormonal differences.  If Prolia is a success in one cancer, the theory would be that it has other cancer treatments in hiding.

Again, all of these points are highly dependent upon success from the start, and human data often is grossly different than in mice, monkeys, and in static environments.

Dendreon Corporation (NASDAQ: DNDN) and others have signaled multiple cancer treatments from the same process. Dendreon noted that other cancer cell antigens play a role in immune reactions that may help the body’s resistance against cancer and noted that CA9 is present on approximately 75% of cervical and colon cancers and 95% of renal cancers.  It also noted that the carcinoembryonic antigen is present on 70% of lung cancers, virtually all cases of colon cancer and about 65% of breast cancers. Does that mean a treatment for one is a treatment for another?  No, but it keeps the door open to endless treatment avenues.  Oncolgists have always said that each person’s cancer treatment will vary drastically from another’s.

IF… THEN… Amgen finds itself in a giant “IF THEN” scenario.  The good news is that these revenues are not apparently factored in for finite revenues in the years beyond 2011.  New potential uses can bring great expansion in revenues.  It has happened with Avastin, and ultimately Genentech was acquired.

Amgen may be too large to ever be acquired because its market cap is roughly $52.5 billion.  At $54.75, its 52-week trading range is $50.26 to $61.85.  Amgen peaked around $80 in 2005 to 2006 and the trading band since early 2007 has for all practical  purposes been $50 to $60 for most of the time.  There is also a value component here despite its market cap.   Thomson Reuters has estimates of $5.11 EPS and $15.02 billion in revenues for 2010 and $5.38 EPS and $15.43 billion in revenues for 2011.

How many biotech stocks trade at 10 to 11 times earnings?  Not many.  That is why we have called Amgen the biotech that trades like a stodgy Big Pharma company rather than a growth biotech stock.

Visit NATURE article #1
Visit NATURE article #2

JON C.  OGG

Amgen is Acquiring… But Who? (AMGN)

June 18, 2010 · Filed Under Anemia, M&A, osteoporosis · 1 Comment 

Amgen Inc. (NASDAQ: AMGN) is on the acquisition path.  Yesterday at a Goldman Sachs conference, CEO Kevin Sharer said that Amgen is aggressively looking for acquisition targets on an international diversification basis.  These acquisitions are not meant to be game changers and will not be any mega-deal as Sharer said that he won’t be betting the company’s future on any single deal.

The company was also noted as seeking to invest its growing offshore cash position on an intelligent basis and not in any companies that needed to be fixed or turned around with current problems.

As far as too much diversification, that might not be expected either.  Sharer shared that the clinical diagnostics acquisition belief does not really fit with the core operations of the company because it was noted that very few drugs have been directly linked to biomarkers that accurately patient suitability for drug responses.

At face value, Sharer also said that Amgen has a robust mid-stage drug pipeline.  As far as the woes of anemia drugs, Sharer of when or at what level the anemia drug sales of Aranesp and Epogen would come due to Medicare reimbursement changes, pricing pressures, and ultimately the patent expirations. It was just this week that new news came out that Medicare is revisiting anemia drug coverage, and throughout the election and start of the new administration President Obama had noted “generic biologicals” which target this anemia market.

An acquisition could of course be in teh cards here in the U.S. if the drugs have a large international presence and/or a large international opportunity.  The difference is that it seems that Amgen may be looking for new growth opportunities in new markets or in related markets rather than just more of the same.

The United Kingdom’s healthcare cost-effectiveness monitor has also just now recommended that Amgen’s newly-launched drug called Prolia for treating osteoporosis in post-menopausal women who are at increased risk for bone fractures.

We have been waiting for Amgen to make a diversification away into new or tangent markets.  Amgen is likely going to be acquiring.  The question is WHO? Or whom?  Stay tuned.

JON C. OGG

Things Looking Up At Amgen (AMGN)

June 4, 2010 · Filed Under analyst calls, Anemia, fda, Financial, osteoporosis · Comment 

Things are finally looking up for Amgen Inc. (NASDAQ: AMGN).  The stock has been a victim of stagnation and mediocrity for an extended period of time.  Today came a ratings agency almost-grade from Moody’s.  Earlier this week, we featured over at 24/7 Wall St. the return of three big biotech turnarounds.  That focused on Amgen, as well as on Biogen Idec and Genzyme.

Moody’s Investors Service has now raised its outlook on Amgen to positive, which is a bias-upgrade more than an actual upgrade.  The catalyst was the unexpected early FDA approval of Prolia this week. Moody’s believes that this approval will significantly improve the company’s longer term growth prospects and also believes that this catalyst now creates “an upward rating pressure” for the company.

As Amgen has been plagued by safety and reimbursement issues, as well as political risks of the politicos trying to get more generic biologic equivalents, the FDA action this week may limit some of its exposure to healthcare reform and other political risks.

On the financial side, Moody’s also noted that Amgen has a favorable operating performance and a strong base of free cash flows mixed in with its growing cash position.

The current rating from Moody’s is an “A3″ rating, which is four noteches above junk status.

The stock has been dead money for the last year and actually far longer.  Today’s 1% drop to $55.00 needs to be kept in relation to the notion that this was just at $50.76 on Tuesday before this FDA approval was known.

Amgen is one we believe will be the first of the major biotechs to offer up a dividend to shareholders.

JON C. OGG

Amgen and the War on Bone Tumors (AMGN)

May 14, 2010 · Filed Under Anemia, Cancer, fda · 2 Comments 

Amgen Inc. (NASDAQ: AMGN) has submitted a BLA, a Biologics License Application, to the U.S. FDA for denosumab.  The BLA submission summarizes trial data as a “clinical experience from nearly 6,900 patients across 18 clinical studies” including approximately 5,700 patients with advanced cancer in the three, pivotal, Phase 3, head-to-head trials versus Zometa® (zoledronic acid).

Denosumab is a subcutaneous RANK Ligand inhibitor and the aim here is to slow or stop he spread of tumors into the skeleton.   Bone metastasesis a serious concern for many patients with advanced cancer.

If cancer reaches into the bone structure, the growing cancer cells weaken and destroy the bone around the tumor.  After that occurs, patients can end up with easy fractures, spinal cord compression, and/or the need to receive radiation or surgery to bone.

The RANK/RANKL pathway is believed to play a central role in cancer-induced bone destruction, regardless of cancer type. Denosumab is the first therapy to target this important pathway.

Amgen said that it intends to submit marketing applications in the European Union, Switzerland, Canada and Australia, and also in Japan, all in a short period of time, with its licensing partner, Daiichi-Sankyo, under a collaboration and license agreement for the development and commercialization of denosumab in Japan.

This BLA represents the second marketing application for denosumab that has been submitted to FDA; denosumab is currently being reviewed under the trade name Prolia™ for conditions related to bone loss. For that application, the FDA has set a corresponding Prescription Drug User Fee Act (PDUFA) action date of July 25, 2010.

Roger M. Perlmutter, M.D., Ph.D., EVP ofR&D said, “We believe that denosumab will offer substantial benefit to cancer patients suffering from bony metastases.  Denosumab, administered monthly as a 120 mg dose subcutaneously, demonstrated consistently similar or greater efficacy in clinical trials when compared to zolendronic acid, offering the potential to improve on the current standard of care. One potential advantage of denosumab is that dose adjustments resulting from declining renal function are not necessary.”

Amgen shares closed down 2.25% at $54.63 (unofficial closing bell price) on only about 4.8 million shares.

JON C. OGG

Dividends Coming In Biotech & Pharma? (WCRX, AMGN, MRK, PFE, PPH, BBH)

February 11, 2010 · Filed Under Anemia, Financial, General, M&A, merck · 1 Comment 

Many investors have been focusing on the number of dividend raises we have so far seen since the end of December.  It is the perfect vote of confidence issued by a company, much more so than a share buyback plan.  The dividend means “we will be able to this rate over and over” for investors.  There have been very few big moves in the BioHealth arena.  We have two very interesting dividend candidates.  Amgen Inc. (NASDAQ: AMGN) as the world’s largest independent biotech stock, and Warner Chilcott plc (NASDAQ: WCRX) as perhaps the newest and best up and comer in the pharmaceuticals sector.

Neither pay a dividend.  Not yet.  It would seem that the most likely candidate of the two would be Warner Chilcott because companies like Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) do pay dividends with roughly a 4% yield.  Amgen is opting for share buybacks right now and its peers are not known for being thge greatest of the world’s dividend candidates.  We wanted to take a look at each in a deep review of the basics that allow for dividends.

There is a precedent here.  The two key ETF products we have used to follow the sector are in the HOLDRs family, which are the oldest of the drug and biotech ETF products.  And they are liquid, mostly and usually.  The Pharmaceutical HOLDRs (NYSE: PPM) pays dividends, but these are irregular and are dependent upon which shares are making quarterly distributions through each quarter.  Then there is the Biotech HOLDRs (NYSE: BBH), which are currently less liquid than what we have seen in the past.  Dividends are more sporadic here, but they are present.

WARNER CHILCOTT

Warner Chilcott plc (NASDAQ: WCRX) seems to quietly and rapidly emerging as one of the greatest drug companies on the scene in years.  Many pharma and biohealth investors still do not even really know the company.  If all goes well and according to plan, the company may be one of the best value stocks out there in the land of pharma and biotech.  The company pays no dividend, but after we get a couple of more quarterly adjusted balance sheets and earnings reports behind us it seems as though the company will want to join Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) with a dividend to help further get on the map.

The stock has done very well since it completed the acquisition of the global branded pharmaceutical business from The Procter & Gamble Company (NYSE: PG) on October 30, 2009.  Its most recent guidance is as follows for 2010: Adjusted total revenue for 2010 after the impact of its distribution agreement with LEO Pharma A/S in range of $2.9 to $2.95 billion; Adjusted gross margin of 88% to 89%; Total SG&A expenses in the range of $1.2 to $1.25 billion; total R&D in the range of $180 to $200 million; net income of $190 to $215 million; adjusted cash net income in the range of $842 to $867 million; and using 255 million ordinary shares adjusted cash net income per share of $3.30 to $3.40 per share for the full year 2010.

We would think it is safe to assume that the company wants to get a couple more quarters to pass before a dividend is launched, but barring any other mergers we would expect the company to get on the map with a dividend.  With shares close to $25.00, a 4% yield would be about $1.00 per year of that $3.30 to $3.40 per share in 2010 earnings. Thomson Reuters has estimates of $3.37 EPS and that would give a forward P/E ratio expected of less than 8-times earnings.  An estimated guess is that the dividend will start at about $0.60 to $0.75 per year, for now.

AMGEN INC.

Amgen Inc. (NASDAQ: AMGN) is the world’s biggest independent biotech by market cap.  Yet the stock has been stodgy enough and its anemia franchise has been under fire enough that Amgen almost feels like a good old-fashioned Big Pharma stock now.  It seems like an unlikely dividend stock on the surface and not just because it wants to be thought of as a biotech that does not pay dividends.  So far, the company has chosen to conduct share buybacks to deploy cash and it is not in a hurry to begin paying a dividend.

In the investor Q&A of its investor relations site, the phase is there: “Amgen does not pay a dividend on stock, and does not foresee doing so in the immediate future.” There is an issue though and that is that the expected earnings growth leaves more and more room for Amgen to begin rewarding its shareholders.  It recently announced a $5 billion share buyback, on top of the $1.2 billion remaining at the time still authorized for buybacks.  But share buybacks were the shareholder-friendly actions of 2007 to 2009.  In the new normal, the dividend may matter more to holders who want to get money back from companies.  Amgen trades at a mere 11-times 2010 estimates from Thomson Reuters.

We do not want to say that Amgen has been dead money for five years, but it has been very quiet money.  For more than 3 years the stock has had a hard time staying above $60 for very long.  And for some time we have noted that Amgen is effectively valued more like a Big Pharma stock than a biotech stock.  With $5 billion in cash flow and with a mountain of cash, it can afford a dividend on top of its debt and on top of its buyback plans.  Both Merck & Co (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) yield close to 4%, and Amgen could easily afford to pay close to 2% or $1.00 per share for its initial dividend rate.

There are two issues which would keep Amgen from paying a dividend for years.  The first is a big acquisition, but the company likely knows that this would likely take its stock lower as we have seen in most buyer situations.  Amgen could also embark on a huge debt pay-off in the future.  That is also shareholder friendly.  But initiating a dividend, and a noticeable one, might be the best effort the company could make.

JON C. OGG
FEBRUARY 11, 2010

AMAG Fights Back (AMAG)

February 5, 2010 · Filed Under Anemia, Financial · Comment 

AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG) has had a very tough week, whether it was a market with a bad trading tape or not.  The stock’s weakness was after an analyst from a relatively unknown firm called Summer Street downgraded the stock to Neutral from Buy over concerns that Feraheme patients are being hospitalized with severe allergic reaction events.  Shares were above $45.00 on Wednesday, yet the stock went as low as $35 today before word that a rebuttal was coming.  Then after the close, the company is out defending itself showing that the risks here are very low and may not be any different than previously thought.

After the close of trading today, the maker of treatments for anemia and imaging agents provided a safety update on Feraheme®.  The company noted, “Since the commercial launch of Feraheme in July 2009, serious adverse events have been reported at a rate consistent with that contained in the U.S. package insert. Of the estimated 35,000 patient exposures to date, 40 serious adverse events have been reported, an approximate rate of 0.1 percent. No mortality signal has been observed. A single reported death occurred in a patient two days post-Feraheme treatment, which the Company does not believe was the result of Feraheme.”

Shares closed down 0.9% at $37.77 today, and shares are now up 5% at $39.75 in the after-hours trading session.  Including the after-hours trading this one has traded 4.6 million shares today versus an average volume of 630,000 shares.

The drop today was not with as much volume as the stock traded over 8.5 million shares on Thursday.  The 52-week range is $22.20 to $58.23 and the market cap here is $647 million as of the closing price.

JON C. OGG

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