Amgen: Is There A Takeout Scenario?


On a day when the markets are selling off, shares of the world's biggest biotech company--by sales--are holding their own. There are a few things that could be buoying Amgen's stock. The company won a huge patent battle yesterday, it reports earnings after the closing bell today and an analyst has upgraded the stock to "Outperform".

The favorable jury verdict means Roche likely won't be able to launch a competitor to Amgen's anemia franchise. Credit Suisse analyst Dr. Michael Aberman, in a research note to clients, thinks that could add $180 million to Amgen's anemia drug sales next year and nearly half-a-billion dollars to 2011 revenue.

On the bottom line, he forecasts that could translate into another 10 to 20 cents in earnings per share. Credit Suisse has done and wants to do more investment banking for AMGN and makes a market in the stock.

But the Amgen anemia franchise isn't out of the woods yet. Investors will get another look at the damage to sales from the safety debate and restricted Medicare and insurance reimbursement when the company releases its earnings later today.

In addition to raising his rating, Dr. Aberman is also bumping up his AMGN price target 10 bucks from $55 to $65. Besides the patent victory he believes late-stage data due out next year on the company's twice-a-year osteoporosis drug could drive the shares higher. Dr. Aberman has $1.1 billion in sales coming in from that drug in 2011.

But he also thinks there's potential upside in a takeout scenario. Dr. Aberman writes, "…we think it is worth noting that it is hard not to compare the current valuation of Amgen to Biogen, a mid-cap biotech company that has surged on acquisition speculation. Some of the same large-cap pharmaceutical companies reportedly interested in Biogen could purchase Amgen's larger and arguably more stable cash flow…at a much lower relative valuation. We believe some of the large-cap pharmaceutical companies that have been speculated to be interested in Biogen should take a look at Amgen prior to making a decision on Biogen. While only a subset of the companies could do an acquisition as big as Amgen, we believe the value on a P/E (price to earnings) basis, a multiple of sales, as well as a multiple of cash flow is more attractive. Further, the magnitude of the cash flows could serve to fill significant gaps from patent (expirations) while also adding $15 billion in 'biologics' sales."

Amgen's market value is nearly three times Biogen Idec's worth--$63 billion vs. $22 billion. But wouldn't that be something if a couple of big pharmas took out a couple of the world's biggest biotech companies around the same time? The investment banks have to be licking their chops.

Questions? Comments?