By Debbie Strickland

With decelerating sales growth of approved products and a pipeline weighted toward early-stage research, Amgen Inc. is falling out of favor with some analysts.

For the year, Amgen is projecting a single-digit sales growth rate and is projecting earnings per share to grow at a low double-digit rate, exclusive of a $96 million payment to erythropoietin (Epogen) development partner Ortho Pharmaceutical Corp., of Raritan, N.J.

Amgen's third-quarter report, which revealed sales gains of 4 percent and a plan to invest up to $1 billion in the company's stock, sparked analyst concerns about prospects for top-line growth. Despite those worries, Amgen's stock (NASDAQ:AMGN) gained $2.063 Thursday to close at $48.

"While they beat the consensus number, I am concerned over the long term that top-line growth is slowing, while expenses are increasing to push the pipeline forward," said analyst Mary Ann Gray, of SBC Warburg Dillon Read, in New York. "That could have a negative impact in the near term."

Amgen's third-quarter earnings fell 53 percent to $83.8 million, a difference of $95.7 million from the $179.5 million reported in the same quarter a year ago. The company attributed the downslide to the $96 million payment to Ortho, ordered by an arbitrator in September. (See BioWorld Today, Sept. 16, 1997, p. 1.)

Ortho is a subsidiary of Johnson & Johnson, of New Brunswick, N.J.

Despite the Ortho payment, for the first nine months of 1997, net income slid just 7 percent to $465 million, from $502 million for the comparable period last year.

Third-quarter revenues at the Thousand Oaks, Calif., company rose 6 percent to $598 million, up from $567 million in the third quarter of 1996. Year-to-date revenues are up 9 percent to $1.8 billion, from $1.6 billion in 1996.

Sales of the company's two products marketed in the quarter — Neupogen, which helps replenish white blood cells depleted by cancer chemotherapy, and Epogen, a red blood cell booster used to treat anemia — rose 4 percent each during the quarter. Neupogen sales hit $268 million, and sales of Epogen came in at $285 million.

Medicare Policy Could Cut Epogen Sales

Epogen, the company said, may take a hit if Medicare officials act on a recommendation to cut reimbursements by 10 percent for the drug, marketed by Amgen for dialysis patients.

New reimbursement standards from Medicare — which foots almost all the annual Epogen bill — have already resulted in lower dosages of the drug, said Barbara Hoffman, an analyst with Vector Securities International Inc., in Deerfield, Ill. Consequently, growth is expected to slow to about 7 percent a year — equivalent to the rate of growth of the dialysis population.

"We continue to try to grow both franchises," said David Kaye, associate director of corporate communications, referring to Neupogen and Epogen. The company is seeking expanded indications for Neupogen in AIDS and acute myeloid leukemia and is expecting approval on at least one of those by the end of the year.

As its first two products mature, Amgen is making the "transition from a two-product company to a multiproduct company," said Gordon Binder, chairman and CEO, in a prepared statement.

In October, Amgen introduced its first new product in six years, Infergen (interferon alfacon-1) for chronic hepatitis C infection, and the company in April submitted a biological licensing application to the FDA for Stemgen, a stem cell factor for use in helping cancer patients tolerate higher doses of chemotherapy.

However, the analysts expect both Infergen and Stemgen to be smaller products than Epogen and Neupogen and unlikely to affect substantially the bottom line.

At the earlier end of the pipeline are experimental drugs for obesity and diabetes, amyotrophic lateral sclerosis, cancer and neurodegenerative disorders.

Plan Calls For Five Drugs In Five Years

The company has launched two Phase II trials of leptin, one in obesity and one in diabetes, and a Phase III trial of a platelet growth factor to support cancer patients receiving bone marrow transplants.

"We're happy with our pipeline," said Kaye. The company is seeking to launch five drugs in five years.

Bringing new products to the market "doesn't happen overnight," he said. "It takes a lot of prospecting time and R&D. Our goal is to strike a balance between delivering returns in the short term and providing for the future of the company."

So far this year, Amgen has reinvested 28 percent of revenues in research and development — a higher percentage than any other pharmaceutical company, said Hoffman.

In the third quarter alone, the company spent $172.6 million on research and development, up 32 percent from the third quarter of 1996. For the year to date, such spending is up 21 percent, to $465.7 million.

These investments could eventually pay off, but, as Hoffman noted, "in the investment world three years are infinity." Amgen is not giving investors a reason to buy shares in 1997 — if the products in development progress well, investors can hop aboard later and reap the benefits, she said.

Added Gray, "Their appetite for R&D dollars is no longer being matched by top-line product sales growth."

The company ended the quarter with $1.1 billion in cash, easing the repurchase of up to $1 billion of its own stock by the end of 1998. Amgen has "substantially completed" this year's repurchase of $450 million of its shares.

The company is buying the stock to maximize shareholder value.

"The timing is such that it makes a lot of sense," said Kaye. "Interest rates are low and the stock price is low."

Analysts have expressed disappointment that the company has not used some of its cash to acquire late-stage products, but Kaye said the right opportunity has yet to present itself. *

No Comments