Leading biotech drugmakers Amgen (NASDAQ:AMGN) and Genentech (NYSE:DNA) settled their patent dispute today, much to the relief of investors. Genentech sued in 1996 asserting that Amgen's processes for making blockbuster Neupogen and Neulasta infringed Genentech patents.

The parties didn't disclose the payment, but I figure it to be somewhere between $64 million and $102 million. Here's why: Amgen said it will record a charge in Q3 and expects it to be less than $0.05 a share. With 1.28 billion basic shares outstanding, that implies a charge -- and a check -- for $64 million, or less than 1% of Amgen's trailing 12-month sales. A mosquito bite.

Meanwhile, Genentech reports it will record a $0.20 increase in EPS for 2003. Using the company's 513 million basic shares, that suggests about $102 million, or over 3% of $3.1 billion in sales for the last four quarters. Nice.

For good reason, Amgen and Genentech are the most respected in the biotechnology world. With a little luck in patent disputes and settlements with giant Johnson & Johnson (NYSE:JNJ), Amgen changed the world with its red- and white-blood-cell-boosting drugs. At least for now, the 2002 purchase of Immunex and lead drug Enbrel appears to have been a terrific business decision.

Genentech has an astonishing capital-allocation knack for partnering with other biotech drugmakers for drugs that secure FDA approval at much higher than the 10%-20% success rate of drugs that enter human trials.

Both stocks have been driven to the biosphere on increased sales from new products and the prospects for upcoming drugs. Perhaps the future will justify today's enterprise-value-to-free-cash-flow multiples: 80 for Genentech; the low 40s for Amgen. But at today's prices, neither stock offers investors a margin of safety.

Shares of each company were off slightly in morning trading.

Do you think either of these companies is a good investment today? With what time frame? Express yourself on our Genentech, Amgen and Biotechnology discussion boards!

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