A Big Boost for Amgen

An FDA vote against dosing limits for Epogen lifts "a major cloud of uncertainty" over the stock, according to one Wall Street pro

Amgen (AMGN) found relief on word that the Food and Drug Administration voted against setting dosing limits on the company's blockbuster anemia drug Epogen for kidney disease patients. Shares of Amgen rose 4.7% to $56.46 on heavy trading volume on the Nasdaq on Sept. 12.

On Sept. 11, the FDA panel voted 14-5 against a proposed reduction in the target of hemoglobin levels used to set doses of the drugs for kidney disease patients. According to the Wall Street Journal, several committee members said they supported small trims or adjustments in the target that might effectively reduce the recommended dosage by a small amount. Other FDA members backed a range, supported by Amgen, which would leave the doses generally unchanged, the paper reported.

The new decision by the FDA affects the anemia drugs Epogen and Aranesp made by Amgen and Procrit made by Johnson & Johnson (JNJ) -- which are also known as EPO, or erythropoiesis-stimulating agents. Anemia is a deficiency of red-blood cells caused by kidney disease or a side effect of cancer chemotherapy, among other things.

Sales of the three anemia drugs have stalled since getting a "black box" label warning in March highlighting cardiovascular and other risks when the drugs were taken at higher-than-recommended doses, reports the Wall Street Journal. Dosing is linked to hemoglobin levels, and the new label warned that hemoglobin levels should not go above 12 grams per deciliter of blood.

Then in May, Medicare said it would stop reimbursing chemotherapy patients (BusinessWeek, 5/15/07) for certain uses of the company's Aranesp drug.

The Sept. 11 vote from the FDA was welcome news for Amgen. "In our opinion, a major cloud of uncertainty was lifted yesterday with the FDA’s largely benign advisory committee proceedings," wrote UBS analyst Maged Shenouda in a note. The analyst upgraded Amgen shares to neutral from sell on the news, and hiked the price target to $61 from $50.

Shenouda noted that the FDA panel voted in favor of maintaining the dosing guidelines as they stand, with an implied hemoglobin target of 10-12 g/dL. "Now with a better gauge of EPO [erythropoiesis] franchise downside, we believe Amgen’s shares could very well be poised for an upward run," the analyst said.

Standard & Poor's equity analyst Steven Silver kept a buy opinion on Amgen, which generated sales of $2.6 billion for Epogen alone last year. "We view recent regulatory events favorably and, despite expected near-term share volatility, we ultimately see more modest negative revenue impact from final FDA and Medicare policies later in '07," he wrote in a note on Sept. 12.

Silver raised his earnings per share estimates for Amgen. He also bumped up his price target by $3 to $64, amounting to 15 times his new 2008 EPS estimate of $4.29 -- "slightly expanding our multiple on our view of reduced risk," he said. (S&P, like BusinessWeek, is owned by McGraw-Hill (MHP).)

Indeed, some pros are seeing value (BusinessWeek, 6/4/07) in Amgen shares after tumbling from a high of $76 in January.

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