Bone Drug Boosts Amgen Growth Prospects

Amgen (AMGN) wants back into the biotech growth club, and with its experimental bone drug denosumab, the biotech company may have finally found its golden ticket.

Late Friday, Amgen announced that denosumab reduced the risk of spine and hip fractures compared to placebo in a large phase III study of postmenopausal women with osteoporosis.

The success of the denosumab study is welcome news for Amgen after 18 months of woes tied to falling sales of its anemia drugs. Denosumab has the potential to generate several billion dollars in sales for Amgen, which is desperate for a new blockbuster drug to jack up top- and bottom-line growth.

News of the positive denosumab study, released after the market close Friday, sent Amgen shares up 15% to more than $61 in after-hours trading.

Amgen is the largest biotech company in the world measured by total revenue, but the stock spent most of the past year and half in Wall Street's doghouse because of shrinking revenue and earnings. Investors demand growth -- and lots of it -- from profitable biotech firms in order to justify premium valuation multiples.

Yet Amgen is expected to post a 2% decline in both earnings and revenue this year, with single-digit growth forecast for 2009. Accordingly, Amgen's stock price slid from $70 in at the start of 2007 (when troubles with the anemia drug franchise began to emerge) to a low of around $40 earlier this year. At the same time, the company's price-to-earnings multiple shrank from the mid-teens to below 10.