Monday, March 05, 2007

Calls of Note Part 3

Two defensive notes out on Amgen (NASDAQ:AMGN).

- JP Morgan says that With AMGN shares now trading at 12.5X 08 consensus (vs Big Pharma at 15), they'd argue the selloff from anemia-related headlines is overdone. They find AMGN's risk/reward highly attractive ahead of the ODAC panel and CERA PDUFA, both in May. They are comfortable with the risk of trial 145 (Aranesp in small cell lung cancer or SCLC) as, like many recent negative anemia trials, target Hb levels are outside of commercial clinical practice.

The 145 study guides Hb levels to 13-14g/dl, higher than 97% of commercial oncology patients on Aranesp. Hence, even if Aranesp demonstrates harm in Trial 145, its relevance to contemporary practice is questionable, in firm's view. With 80% power to detect a 42% survival difference between the study cohorts, a smaller difference (e.g., 10%) is unlikely to reach statistical significance. So the most likely scenario, in their view is that Aranesp shows no difference (i.e. benefit or harm) between treatment arms.

Firm believes that a negative trial 145 is manageable for Aranesp where worst-case scenario, 10% of CIA sales may be at risk (~$285M). When also factoring in a potential hit to Aranesp in AoC, they estimate a total EPS impact of $0.13 or 3% of our 2008 ests of $4.83. Reiterates Overweight.

- Deutsche Bank thinks that Amgen's recent severe decline from $75.85 (1/22/07) to $61.75 (3/2/07) per share or $16B or 23% is unwarranted, and more than reflects impact from negative events sidelining investors. On valuation, AMGN shares are trading at 12x their 08 EPS est of $5.31 or 43% discount to its comp grp avg of 21x, making AMGN an increasingly attractive investment opportunity.

Sum of the parts analysis shows -ve events more than fully reflected in valuation. Firm set forth an abbreviated sum of the parts framework for forecasting financial impact from anticipated new KDOQI guidelines impact, and negative dialysis, pre-dialysis, AOC data and upcoming studies (including the 145 lung cancer CIA trial results in May). Net/net, firm est the sum impact to be $125M/$0.11 in 07, $265M/$0.23 in 08, and $283M/$0.20 in 09.

Notablecalls: The defenses keep coming, but this time Deutsche got to a new level - they are holding a conference call with investors to discuss the issues. Might want to grab a few commons ahead of the call at 10AM EST today. Tight leash though as the defenses have failed to work so far. Would love to see it gap down first along with the general market.

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