Pharmas Market with Mike Huckman

Amgen May Downsize, Analyst Upgrade

After falling to a new low on Friday, Bernstein Biotech Analyst, Geoffrey Porges, is upgrading shares of Amgen from Market Perform to Outperform. Investors are bidding up the beaten down stock in midday trading. Bernstein makes a market in the stock.

In his research note to clients, Porges says he thinks Amgen could announce cost cuts before the September 11th FDA Advisory Committee meeting on the safety of its anemia drug for kidney dialysis patients. The analyst recently told me in an interview that he did not believe a restructuring ahead of the potential launch of a possible blockbuster osteoporosis drug didn't make much sense for Amgen.

But Porges says the sales and marketing cuts will be "modest" and that most of the reductions will occur in research and development. He thinks the biotech giant could save $250 million to $1 billion between now and 2010, which could help AMGN, deliver earnings per share growth of 10%-12% each year from 2008 to 2011. But it's a lukewarm, primarily valuation-driven upgrade.

Porges writes, "...we do not view the company's fundamentals as particularly attractive at this stage, and would recommend investors look to profit from whatever upside emerges as the company takes steps to maintain and improve their profitability." Nonetheless, he's raising his price target from $65 to $69.

Miller Tabak Healthcare Analyst, Les Funtleyder, who told clients awhile ago that AMGN needed to do a restructuring, is telling them in a new research note this morning that the company should also put more of its cash to work. "Post any restructuring, Amgen needs to bolster its pipeline; while it has done some acquisitions recently, we believe more aggressive action is needed either in Phase 2 (mid-stage development) or products that are already on the market." MT also makes a market in Amgen.

In its 10-Q, which you can read at, Amgen says it has "commenced a global review of the Company's business plans to identify opportunities to improve our cost structure... we will refocus spending on critical R & D and operational priorities and seek greater efficiencies in how we conduct our business...." As I pointed out in my previous post, the Los Angeles Times last week reported that it has three unnamed sources saying a 15% expense reduction is in the offing. Wall Street -- at least today -- seems to believe it.

Questions?  Comments?