Inside a room the size of a small wine cellar, there's a constant, eerie squeaking noise as bottles filled with a cherry-red liquid are mechanically rotated on racks in 98.6-degree temperature. Erythropoietin (EPO) is incubating.
It's not easy to get in that room at the Amgen complex in Thousand Oaks. Workers must use special magnetic key cards to enter the building, and double doors keep outside air from seeping in.
This is very valuable stuff. EPO figures to be Amgen's first biotechnology drug, and in its dried state, analysts say, EPO will be worth about $100 million a pound.
So far, in clinical human tests, EPO has won eye-popping reviews, including one published in the New England Journal of Medicine. EPO seems to alleviate chronic anemia in patients with severe kidney disease, who cannot produce enough red blood cells on their own. They need frequent blood transfusions, which carry the risk, however small, of hepatitis or AIDS. Kidney patients given EPO transfusions three times a week after dialysis didn't need blood transfusions, and patients recovered much of their old energy.
If all goes well, Amgen will get Food and Drug Administration approval for EPO by 1989.
Playing Detective
Amgen's scientists played detective to find the molecule containing EPO, then broke apart the DNA blueprint, spliced together genes and cloned the hormone, which occurs naturally in the body and helps produce red blood cells.
"We're in true designer genes," said Philip Whitcome, Amgen's director of strategic planning.
The nation's 80,000 kidney dialysis patients could be treated with injections of EPO in a liquid form several times a week. To treat them all would only take a pound or two of EPO in its dried form, and could be worth $130 million a year in sales. EPO also looks as though it might help chemotherapy and rheumatoid-arthritis patients who suffer from anemia, plus other uses, worth another $300 million a year.
EPO also looks like a wonder drug to the stock market. Amgen's stock, which closed Monday at $37.625, up from $12.50 last year, sports a stratospheric price-earnings ratio of 400. The average S&P 500 stock has a p/e of 15.
In effect, what the stock market has done is priced Amgen in anticipation of the $50 million that analysts expect the company to earn five years from now.
'A Little Scary'
"It's a little scary. People don't want to miss the boat, and they bet their chips a lot earlier today," said George B. Rathmann, 59, a big, bearded man who is Amgen's chairman and chief executive.
Can Amgen ever justify its dizzying stock price with real profits? The answer, increasingly, looks like yes.
"I really do not see any major dangers now," said Jim McCamant, editor of Medical Technology Stock Letter. "EPO is the kind of dream product every biotechnology firm dreams they have. EPO will pay the bills and certainly allow Amgen to grow and develop other drugs," said James Fenno, a former vice president of Amgen and now an executive with a Santa Monica biotech firm, Ingene.
In the drug business, it only takes one hit to become a star. SmithKline Beckman was an also-ran firm until it discovered Tagamet, an ulcer drug that produces $1 billion a year in sales. On a smaller scale, EPO might be Amgen's Tagamet.
Amgen investors are obviously gambling that years from now they will look sage, much as were those early investors in Polaroid in the 1950s, Teledyne in the '60s, and Wal-Mart in the '70s.
"People are buying into the glamour of biotechnology. They like to go to cocktail parties and say they own stock in biotech. Twenty years ago it was electronics companies," Fenno said.
Volatile Stock
Amgen's stock price is both swollen and volatile, which makes it a prime target for short-selling. Last month, for instance, Amgen was set to sell another 2 million shares of stock. But in the two days before the offering came out, many investors took short positions on Amgen--that is, they borrowed Amgen stock, then sold it with a commitment to replace the stock in the near future. They were gambling the price of the stock would go down enough so they could replace it at a lower price and thus turn a profit.
It worked. The short-sellers beat down Amgen's stock price from $38 to $34. Amgen went ahead with the offering anyway because major institutional investors had been waiting to get their hands on the stock, but the short-sellers picked $8 million out of Amgen's pockets.
Still, Amgen's current market capitalization--the total value of all its stock--places it third among all biotech firms, behind Genentech and Cetus.
More astonishing is that Amgen's $624-million market capitalization now ranks it about 750th among all U.S. firms, ahead of many better-known companies in traditional businesses including Glendale Federal Savings & Loan, Nike and Mack Trucks. They have plenty of assets, but Amgen has a hot idea.
