Amgen's Soaring, but Will Gravity Kick In?

Shares of Amgen (Nasdaq: AMGN  ) recently hit 52-week highs. The stock has shot up 56% in the past year. Will the joyride for investors continue? Let's take a look.

How it got there
Amgen's success stems from a handful of blockbuster products. Neulasta and Neupogen help fight infection in patients undergoing chemotherapy. Enbrel is used in the treatment of several types of arthritis. The company's other two key products are anemia drugs Arenesp and Epogen.

Although these principle drugs account for much of Amgen's revenue, its second tier of drugs -- including Sensipar, Nplate and Vectibix -- have come on strong lately also. These other drugs experienced sales growth of 58% in the first half of 2012. 

The company has made several smart acquisitions through the years that contributed to its winning ways. These efforts continued in 2012. Amgen bought Micromet, which primarily develops cancer drugs, in March. It acquired Mustafa Nevzat Pharmaceuticals in June. The Turkish company supplies pharmaceuticals and injectable medicines.The following month, Amgen bought privately held biotech KAI Pharmaceuticals.

Amgen's success has also come partially because of its strategic partnerships. One example from 2012 is its collaboration with AstraZeneca (NYSE: AZN  ) . The two companies are working together to develop and commercialize several inflammation drugs.

How it stacks up
Amgen competes against several strong companies with its products. Let's look at how it has fared in terms of total return performance over the last five years against three of these rivals.

AMGN Total Return Price Chart

AMGN Total Return Price data by YCharts.

Amgen and Abbott Labs (NYSE: ABT  ) are neck-and-neck in total return over the five-year period, although Amgen leads its rival. Merck (NYSE: MRK  ) comes in at a distant third place. 

Affymax (Nasdaq: AFFY  ) , whose relatively new drug Omontys challenges Epogen, trails the pack. However, Affymax has surged in 2012 with shares increasing more than 300%.

Let's see how the companies stack up on a few other key metrics.

Company

Price/Sales

Price/Book

Forward P/E

Dividend Yield

Amgen

4.21

3.60

12.76

1.6%

Abbott Labs

2.65

4.27

12.58

3.1%

Affymax

11.94

11.77

NM

N/A

Merck

3.02

2.65

12.78

3.5%

Sources: Motley Fool CAPS, Yahoo! Finance.

Abbott comes out on top in two of the valuation measurements, with Merck looking most attractive in price-to-book ratio and dividend yield. Affymax's valuation is significantly higher, reflecting the stock's major momentum from the past year.

Amgen does not lead in any of the metrics. The stock does appear to be valued relatively inexpensively, though. Its forward P/E ranks close the low end of the company's five-year range.

What's next
Amgen has good news and bad news that could impact its stock performance down the road.

First, the good news. The phase 2 clinical trial of the company's cholesterol drug AMG 145 went well. Amgen will now move into a phase 3 study of the drug in 2013. Continued positives from AMG 145 could enable the company to enter into a new and potentially lucrative market.

Now for the bad news. In August, the company halted phase 3 tests for its pancreatic cancer drug because of dismal clinical results. Also, a phase 3 study for use of Sensipar in treating patients with secondary hyperparathyroidism and chronic kidney disease found no statistically significant improvement.

Then there is the worst news of all. Amgen loses patent protection for several of its cash-cow drugs in the next few years. The company's patents for Neupogen expire in 2013. Neulasta goes off-patent in 2015. Two Epogen patents expire in 2013, with a final patent expiring in 2015.

On balance, the bad news appears to outweigh the good for Amgen at this point. Gravity could ultimately take its toll on this high-flying stock. My view is that Amgen certainly is worthy of consideration by investors, but there are better biotech alternatives.

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Fool contributor Keith Speights has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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