SSB: AMGN: Positive 12-Month Data for AMG 162 in
Osteoporosis at ACR
September 15, 2004
BUY (1)
Medium Risk (M)
Mkt Cap: $76,624 mil.
SUMMARY
* The abstracts for the annual American College of Rheumatology (ACR) meeting, schedule for Oct. 16-21 have become publicly available.
* Detailed 12-month data will be presented from a Phase II study of AMG 162, a fully human monoclonal antibody that binds to RANK ligand, in osteoporosis. Data in the abstract indicates that AMG 162 achieves better improvements in bone mineral density measurements (implying the ability to reduce the risk of fractures) with a less frequent dosing regimen and an improved safety profile as compared to Merck's Fosamax.
* We believe visibility regarding Amgen's pipeline will increase over the next 6-12 months with such products as AMG 162, which is in two pivotal Phase III studies. We believe AMG 162 represents a potential billion dollar product.
* We reiterate Amgen as our top pick in biotech as the stock remains one of the most attractive large-cap growth stories in health care, in our opinion.
FUNDAMENTALS
P/E (12/04E) 24.1x
P/E (12/05E) 20.6x
TEV/EBITDA (12/04E) NA
TEV/EBITDA (12/05E) NA
Book Value/Share (12/04E) NA
Price/Book Value NA
Revenue (12/04E) $10,353.1 mil.
Proj. Long-Term EPS Growth 25%
ROE (12/04E) NA
Long-Term Debt to Capital(a) NA
AMGN is in the S&P 500(R) Index.
(a) Data as of most recent quarter
SHARE DATA . RECOMMENDATION
Price (9/15/04) $58.15
Rating (Cur/Prev) 1M/1M
52-Week Range $70.00-$52.82
Target Price (Cur/Prev) $90.00/$90.00
Shares Outstanding(a) 1,317.7 mil.
Expected Share Price Return 54.8%
Div(E) (Cur/Prev) $0.00/$0.00
Expected Dividend Yield 0.0%
Expected Total Return 54.8%
OPINION
The abstracts for the annual American College of Rheumatology (ACR) meeting
scheduled for October 16-21 in San Antonio, Texas, have become publicly
available. Positive 12-month data from a Phase II study of AMG 162 in
osteoporosis will be presented confirming the promising profile of this
compound as highlighted by Amgen in its analyst meeting last March. These data
indicate that AMG 162 appears to be as effective if not better than Merck's
Fosamax but with a highly convenient dosing regimen of an every 6-month
injection and an improved safety profile. Merck's Fosamax posted approximately
$2.7 billion in worldwide sales in 2003. In our opinion, AMG 162 represents a
potential billion-dollar market opportunity given the sizable patient
population. The company has already initiated two pivotal Phase III studies in
postmenopausal osteoporosis and treatment-induced bone loss. We expect certain
of these Phase II data will also be presented at the upcoming American Society
of Bone and Mineral Research (ASBMR) meeting (October 1-5) in Seattle,
Washington. Amgen has scheduled an analyst meeting on Sunday evening, October
3rd, at the ASBMR meeting.
Study Design: Based on the published ACR abstract, 411 postmenopausal women
with osteoporosis were enrolled in the Phase II randomized, double-blind study
for AMG 162. Patients were enrolled in 9 treatment groups consisting of 8
groups receiving different doses of AMG 162 as a subcutaneous injection (6 mg,
14 mg, or 30 mg every 3 months or 14 mg, 60 mg, 100 mg or 210 mg every 6
months) or placebo and one group who received 70 mg oral Fosamax (alendronate)
once weekly. Efficacy endpoints included bone turnover markers (CTx and NTx)
and bone mineral density (BMD) measurements by dual energy x-ray
absorptiometry. Efficacy and safety measurements were followed through 12
months. There were approximately 40 to 53 patients enrolled in each treatment
group. Baseline characteristics included a mean age of 63 years old and lumbar
spine T-score of --2.2 indicative of patients with low bone mass (osteopenia)
or osteoporosis.
Study Results: Data published in the abstract indicate that AMG 162
demonstrated a rapid and sustained antiresorptive response. Decreases in CTx
(and confirmed in urinary NTx measurement) as a marker of bone turnover were
statistically significantly greater than Fosamax (p = 0.0001) through month 2
and in the three highest dose groups for AMG 162 through month 4. Dose-
dependent increases in BMD ranged from 4%-7% in the lumbar spine for all the
AMG 162-treated groups as compared to only 5% in the Fosamax group at 12 months
and 2%-4% in total hip in all the AMG 162-treated groups as compared to only 2%
in the Fosamax group at 12 months. These increases were noted as early as one
month after dosing with AMG 162. Increases in BMD measurements suggest the
potential for reduced risk of fractures. Fracture prevention is the primary
goal in the treatment of patients with osteoporosis. In addition, AMG 162
appeared to have an improved safety profile compared to Fosamax. Dyspepsia or
indigestion was the most common adverse event and occurred most frequently in
the Fosamax group (20%) compared to patients in the placebo (4%) or AMG 162
group (5%). One patient treated with 14 mg of AMG 162 had a transient and
asymptomatic decrease in serum calcium. In addition, transient non-
neutralizing antibodies to AMG 162 were detected at month 1 in one subject.
Background. AMG 162 is a fully human monoclonal antibody that binds to the
RANK (Receptor Activator of NF kappa B) Ligand, which is a novel target for
osteoporosis, rheumatoid arthritis, treatment-induced bone loss and bone
metastases. By binding to RANKL, AMG 162 inhibits osteoclastic bone
resorption. Amgen in-licensed this compound from Abgenix. In August, Amgen
announced it had enrolled the first patient into two pivotal Phase III studies
of AMG 162 in postmenopausal osteoporosis and treatment-induced bone loss. At
the company's March 2004 R&D meeting, Amgen released initial interim results
from the Phase II trial in post-menopausal women comparing different dose
levels of the antibody given as a single subcutaneous injection to Merck's drug
Fosamax as well as to a placebo control. Six-month data presented showed that
the drug appeared to be as effective as Merck's Fosamax but with a highly
convenient dosing regimen of an every 6-month injection. Efficacy was assessed
at examining levels of urinary NTx, a marker for bone turnover, as well as with
more clinical endpoint of increases in bone mineral density (BDM) at the lumbar
spine as well as total hip. Specifically, a 5% increase in BMD from baseline
was noted at the six-month time point with the highest dose tested, which was
similar to the response noted with Fosamax in this study.
Market Opportunity. The osteoporosis market is sizable representing
approximately 10 million patients in the U.S. alone. AMG 162 is also in a
Phase III study for treatment-induced bone loss (TIBL), which includes bone
loss associated with the use of glucocorticoids, immunosuppressives and hormone
ablative therapies. According to Amgen, the prevalence of TIBL in the U.S. is
estimated to be around 290,000, however only a small fraction of these patients
receive treatment. AMG 162 is also being study in cancer patients with bone
metastases. There are about 350,000 U.S. patients diagnosed with bone
metastasis each year. We believe AMG 162 could represent a billion dollar
market opportunity with a potential market launch in 2008.
INVESTMENT THESIS
We rate the shares of Amgen (AMGN) Buy / Medium Risk (1M) with a target price
of $90 per share. In our opinion, Amgen's fundamentals have never been
stronger. The company currently has two blockbuster products on the market,
Epogen for anemia (stimulates red blood cells) in kidney dialysis patients and
Neupogen to treat neutropenia (stimulates white blood cells) as an adjunct for
chemotherapy and other indications. These products have enabled the company to
become the largest independent biotechnology company. With the addition of
Aranesp, Neulasta and Enbrel, we believe the company has entered a new growth
phase and possesses one of the best product portfolios in the biotechnology
sector. Each of these products potentially represents a multi-billion dollar
market opportunity. We believe the company will continue to experience an
acceleration in revenue and earnings growth with the ongoing market launch of
Aranesp in the oncology and renal settings, potential upside with Neulasta in
oncology, and the ongoing re-launch of Enbrel for rheumatoid arthritis with
expansion opportunities in psoriatic arthritis, psoriasis, ankylosing
spondylitis and other indications.
VALUATION
With the potential for robust product sales and earnings, we believe Amgen
should trade at least on par to our coverage universe of large-cap biotech
companies. Our target price of $90 per share is based on applying an
approximate PEG ratio of 1.5x, which is generally in line with the group
average (approximately 1.4-1.5x, by our analysis) for our coverage universe of
large-cap biotech companies to our 2005 EPS estimate of $2.82 (previously
$2.81). We estimate that this is equivalent to a P/E multiple in the low 30s,
generally in line with the group average of the low-30s. AMGN is also
currently trading towards the low end of its historical trading P/E range of
19.2-67.7x (over the past 5 years). We believe the stock should trade at least
at the mid-point of this historical range.
We have also applied a second valuation approach utilizing an analysis of
residual earnings. In other words, the value of the equity is assessed by
adding the present value of the residual earnings plus the book value of the
company. Residual earnings is defined as the earnings stream remaining after
accounting for the required return on investment, and is determined by
subtracting the multiple of the required return on investment times the book
value from projected earnings per year.
Using this analysis for Amgen, we calculated a book value per share of $15.85
and assumed a time horizon of three years. Our estimate for the discount rate
is 9.0%, which assumes a beta of 1.00 for AMGN, a market risk premium of 5.0%
and a risk free rate of 4.0%. In addition, we assumed a constant growth rate
of 7.5% for the biotech industry. Using this approach, we arrive at a target
price of approximately $90 per share.
RISKS
We rate Amgen Medium Risk due to the moderate predictability of the company's
financial results, strong cash flow, low debt-to-earnings ratio (16%), and
moderate stock price volatility compared to other large-cap biotechnology
companies. Key risks we see to Amgen achieving our valuation target include
the following: any delay in clinical development or regulatory approval of
developing products could have a material impact on the company's earnings.
From time to time, the Centers for Medicare/Medicaid Services (CMS) proposes
the limitation of reimbursement for drugs, such as Epogen, Aranesp, Neupogen
and Neulasta, and other products which could limit the pricing and use of these
drugs. Additionally, if sales for key products such as Aranesp, Neulasta,
Epogen, Neupogen or Enbrel fail to grow, shares would likely be impacted.
Manufacturing constraints on Enbrel would also likely have a negative impact on
Amgen. Furthermore, any adverse court rulings on its patent litigation with
Aventis/Transkaryotic Therapies could have a negative impact on the stock.
I, Elise Wang, hereby certify that all of the views expressed in thi... |
