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Promising Drug Enhances Tiny Amgen's Reputation

May 12, 1987|BARRY STAVRO | Times Staff Writer

Inside a room the size of a small wine cellar in Thousand Oaks, 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. 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 in January. 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 carries 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.

Amgen hopes to get Food and Drug Administration approval for EPO by 1989.

The Thousand Oaks-based company'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.

EPO also looks like a wonder drug to the stock market. Amgen's stock, which closed in over-the-counter trading Monday at $37.625, compared to $12.50 last year, sells for a spectacular 400 times its earnings per share. The average stock on the Standard & Poor's 500 list sells for 15 times its earnings per share.

In effect, the stock market seems to be pricing the stock in anticipation of the $50 million in annual profits that analysts expect the company to earn five years from now.

"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.

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, many investors took short positions in 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 up $8 million in easy profits.

Amgen's current market capitalization--the total value of all its stock--places it third among all biotech firms, behind Genentech and Cetus. More surprising is that the current $624-million market value of all Amgen shares now ranks about 750th among all U.S. firms, ahead of many bigger or better-known companies, including Glendale Federal Savings, Nike and Mack Trucks.

Nevertheless, Amgen remains a pipsqueak. For its fiscal year ended March 31, it is expected to report a profit of about $1 million on $30 million in sales, but those numbers don't mean very much. Only about $1 million of its revenue came from actual sales of products to research labs and universities. The rest are cash advances by Amgen's research partners, plus interest.

The pressure to produce big is nothing new to Rathmann, a former vice president of research and development for Abbott Laboratories in Chicago. In 1981, when the company was no bigger than an idea, he persuaded venture capitalists to invest $19 million in Amgen. They told him they expected to multiply their investment by 10 times within seven years.

"And suddenly, (even though) you're still an embryo, you must become a Fortune 500 company. Instead of dreaming about how big and exciting it might be, it is absolute that we must do that or we are a failure," Rathmann said. (One analgesic for Rathmann's headaches is that his 3% of Amgen's stock is now worth about $20 million.)

But Rathmann believes that the company can hit the $50-million profit plateau within five years, mainly because of EPO.

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