Amgen Adds Fuel to Biotech’s Revival

Biotechnology, the frontier investors all but forgot in recent years, is once again a hot topic on Wall Street.

On Wednesday, industry giant Amgen caused a nationwide sensation with news that its experimental anti-obesity hormone produced dramatic weight loss in mice.

Amgen stock soared $4.375 on Wednesday and added $2.375 on Thursday to close at a record $86.625 in frenzied trading. Not surprisingly, shares of many lesser-known biotech companies also surged as investors refocused on the cutting-edge research ongoing in the field.

But while Thousand Oaks-based Amgen has grabbed headlines in a way that only the industry leader could, the action in its stock this week is merely adding to an already stunning rebound in biotech issues this year.

Powered by a string of encouraging clinical test results for some potential blockbuster drugs, many biotech shares have zoomed after three years of sharp decline or, at best, stagnancy.

Shares of Cephalon, for example, have rocketed from $5.75 to $20.875 this year on high hopes for its drug Myotrophin, a proposed treatment for the neurodegenerative disorder commonly known as Lou Gehrig’s disease.

Another big winner has been Somatogen, whose proposed blood substitute--now in second-phase clinical trials--”could be a multibillion-dollar product worldwide,” says Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley.

Somatogen shares, $6.375 earlier this year, closed at $16 on Thursday and recently hit $17.25.

Overall, biotech shares have rallied enough to boost the Fidelity Select Biotech mutual fund, a good proxy for the industry, by 21.6% since Jan. 1. In contrast, the fund plummeted 18.2% in 1994, eked out a 0.7% gain in ’93 and lost 10.3% in ’92.

Investors with long memories will recall that biotech was the first big stock mania of the 1990s. Between 1988 and 1992, Wall Street bid biotech shares to stratospheric levels on wild optimism about the industry’s potential to develop new drugs to treat or cure age-old diseases.

That optimism was fed in large part by the success of Amgen, the industry’s first billion-dollar company and to date its most profitable by far. Amgen’s genetically engineered drugs Epogen and Neupogen, used to treat anemia and immune system weakness, respectively, produced a $98-million profit for the firm in ‘91, fueling a tidal wave of interest in other up-and-coming biotech firms.

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But by 1992, the sobering realization set in that Amgen’s success would not be easily repeated within the biotech field. Tim Wilson, analyst at Hambrecht & Quist, recalls that “biotech was viewed as this wonderful new science that would reduce the risk of drug development.” As the early ‘90s wore on, however, “a lot of clinical trials of new drugs blew up,” he says. “Investors went from anticipating a 1-in-3 success rate in clinical trials to 1-in-10.”

With most biotech firms still development-stage companies in 1992--meaning they were spending gobs of cash and running deep in the red--the stocks soon crashed as expectations dwindled. Many lost 50% or more of their value. Even Amgen, profitable as it was, saw its shares slump from $78.25 in 1992 to as little as $31 by late 1993.

But while most biotech stocks suffered through dismal years between 1992 and 1994, the industry’s research continued apace, funded by the capital raised in the stock frenzy of the early ‘90s and by increasing partnerships between biotech firms and the world’s major drug companies.

What is happening now, analysts say, is that more of that research is finally beginning to look as if it will pay off in the form of high-demand drugs.

Encouraging announcements from Cephalon, Somatogen, Amgen and other firms are giving Wall Street good reason to pay attention to the industry again, says Evan Sturza of Sturza’s Institutional Research in New York. “Investors are realizing that it’s not just failure after failure with these companies,” he says.

Even so, in one important way not much has changed for biotech: Unlike Amgen, most of the industry’s 200-plus public companies still aren’t profitable and won’t be for years, if ever. Buying the stocks, therefore, still mostly amounts to raw speculation, not investment.

For small investors, that means the smartest way to buy a stake in the business is through mutual funds that target biotech and other health care stocks, unless you have the wherewithal to build a diversified portfolio yourself.

For those who can speculate, analysts such as Sturza argue that in many cases, Wall Street is still undervaluing companies that could have blockbuster drugs on deck. His favorites include Columbia Labs, which has developed a drug to offset the cervical cancer risk associated with estrogen treatment, and ImmuLogic Pharmaceutical, now in second-phase trials with a vaccine for people who are allergic to cats.

What about Amgen? The firm estimates that its anti-fat drug, if successful, is five years away from federal approval. In the meantime, rising Neupogen and Epogen sales should help the company earn about $3.88 a share this year in total, up from $3.12 in ‘94, according to analysts’ consensus estimates. At a stock price of $86.625, that means the shares’ price-to-earnings ratio is 22.

Some investors may consider that expensive, but Sturza still views Amgen as perhaps the one biotech stock “you buy and hold forever,” based on its record and a promising pipeline of new drugs. And if Amgen’s stock continues to rise near-term, its bellwether status may mean a fresh surge is in store for biotech shares across the board.

* VOLUNTEERS GALORE

Consumers offer themselves for anti-obesity trials. A3

Boom to Bust to Boom

After rocketing between 1988 and 1992, shares of Thousand Oaks-based biotech giant Amgen Inc. tumbled in 1993 as investors’ expectations waned for the biotech field in general. But the stock has soared in recent days on encouraging news about the firm’s anti-obesity hormone. Amgen share price, high each quarter on Nasdaq and latest:

Thursday’s close: $86.625

Source: TradeLine

Researched by JENNIFER OLDHAM / Los Angeles Times

A Biotech Roster

Here is a sampling of biotech companies and how their stocks have fared this year. Also shown is the record high price of each stock, which in many cases occurred in the early ‘90s.

Record 1995 Thurs. Stock high low-high close Agouron Pharm $30.25 $10.88-$30.25 $29.75 Amylin Pharm 24.50 3.50-9.00 7.31 BioChem Pharm 29.88 12.25-25.38 24.25 Biogen 55.75 32.00-47.75 46.63 Cephalon 21.25 5.75-21.75 20.88 Chiron 86.88 47.75-80.50 75.56 Columbia Labs 19.63 4.00-9.13 8.69 Genentech 65.25 44.50-52.00 47.25 Genzyme 66.50 27.25-49.25 48.25 Gilead Sciences 22.25 9.25-21.25 18.75 ImmuLogic Pharm 25.00 6.25-9.25 9.22 Immunex 68.00 9.75-18.50 13.75 Ligand Pharm NA 5.50-9.25 9.25 Regeneron Pharm NA 3.13-12.25 11.88 Somatogen 50.50 6.38-17.25 16.00 Sugen NA 4.63-11.77 10.63 Vical NA 6.50-11.63 11.13

All stocks trade on Nasdaq except Columbia (Amex) and Genentech (NYSE).

NA: not available

Source: Value Line; Standard & Poor’s Corp.