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Is Amgen On Sale or For Sale?

While no one was looking shares of Amgen , the world's biggest biotech company (by sales, not market cap--Genentech is #1 there) have fallen from nearly $76 on January 22nd to the low-60s. What happened? In a nutshell, the company has been buffeted by safety, reimbursement and competitive concerns about its biggest drug franchise known as the acronym EPO. Aranesp and Epogen for the anemia side-effects of kidney dialysis and cancer chemotherapy are multi-billion dollar sellers accounting for nearly half of Amgen's revenue and Credit Suisse analyst Michael Aberman estimates they could make up more than half of the company's bottom line.

There are issues about hemoglobin levels in the kidney patients and recent reports indicate the potential for a higher risk of death among cancer patients. Last week the FDA scheduled an Advisory Committee meeting in May to address it. Amgen says patient safety is its top priority and that the risk/benefit profile of the drugs which have been used on millions of patients is well-established. Nonetheless, the stock has plummeted.

And today, Deutsche Bank analyst Jenn Chao says enough is enough. In the title of a research note to clients and on a subsequent conference call she said, "Stop the 'Chicken Little': Recent Amgen Sell-Off Unwarranted". Deutsche Bank owns at least one percent of AMGN shares and makes a market in the stock. On the call Chao said, "We think it's time to potentially consider (buying) Amgen (stock) at these levels. The pendulum has swung too far to the left. At 12-times 2008 earnings it makes sense to start considering the stock." But she's also the first biotech analyst that I know of to say the shares may have also fallen to the point where they could have become cheap enough for a cash-rich big pharma to buy them up. On the call Chao said, "Amgen starts to look sweeter...and increasingly more savory in the eyes of big pharma. With an Amgen acquisition you're gonna be growing two or three times better and buying into biotech innovation."

Interestingly, Barbara Ryan, Chao's Deutsche Bank colleague who covers big pharma, threw out Amgen late last year in an interview I did with her as a possible target for a company like Pfizer. Leaders of the world's biggest drug company have repeatedly said they're looking at deals of all sizes and that they're interested in becoming a bigger player in biotech. But this would be a HUGE deal. On the call Chao said, "Fair valuation for Amgen on a takeout deserves a 30% to 40% premium off of $90 a share."

Questions? Comments? Pharma@cnbc.com

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