Immunex Doesn't Deserve to Get Slammed

It's time for investors to let Immunex(IMNX Quote) out of the biotech penalty box.

Shares of the Seattle-based biotech firm have been dogged since March on the very real fears that Immunex has a serious inventory problem. In short, the company wasn't able to manufacture enough of its top-selling rheumatoid arthritis drug, Enbrel, to meet patients' demands for it.

This Enbrel shortfall pinched sales and, coupled with some setbacks in Immunex's drug pipeline, dropped Immunex's shares from about $32 a share in early March to just less than $11 a share by the end of the month. The stock has started to recover only in the five months since, and now trades at about $18 a share.

But Immunex has solved its Enbrel problem, announcing last week that several agreements reached with manufacturing partners will boost Enbrel supplies. To prove its point, the company stepped up with a bullish 2002 sales forecast for the drug of between $900 million and $1.3 billion, well above Wall Street expectations of between $800 million and $850 million.

The new Enbrel forecast is even more reassuring because it largely excludes manufacturing capacity from a new company-owned plant under construction in Rhode Island. The plant should open for business next year, and Immunex already has announced plans to expand the facility.

And what will Immunex do with all this new Enbrel? The company will sell the drug to rheumatoid arthritis sufferers who've been, so far, relegated to a waiting list. And Immunex will expand the drug's use. New data recently released by the company suggest that Enbrel will be effective in treating psoriatic arthritis and psoriasis. Immunex could start serving these new markets as early as 2002, potentially doubling the drug's sales.

If this isn't enough to get your attention, just take a step back and consider that Immunex is a real biotech company. We're talking real products and -- drumroll, please -- real profits. This is not a company that tries to seduce investors with blue-sky scientific hype and promises of considerable red ink for years to come.

Immunex won approval for Enbrel just two years ago and since has grown the drug's annual sales to about $750 million. The company is expected to earn 29 cents a share this year and 30 cents a share next year, and that's still factoring in an Enbrel supply shortfall.

Immunex trades at about 58 times 2002 earnings, which may seem expensive but is actually well within the biotech-sector ballpark, which traditionally trades at a higher multiple. And when you consider that the company is forecast to grow 40% during the next five years, its price-to-earnings-to-growth (PEG) ratio of 1.4 for 2002 is downright cheap. Most of the big-cap biotech firms sport PEG values of about 2.4, based on 2002 earnings. In fact, Immunex's 1.4 PEG ratio is the same as the average for the plodding pharmaceutical sector.

Is the Immunex story without warts? Of course not. The company still has to prove that it can put up strong Enbrel sales numbers, and it must get its new manufacturing plant past Food and Drug Administration inspectors. The company's drug pipeline, while interesting, is a bit young, with new drugs still many years away from possible approval.

But Immunex has cash -- $1.7 billion at the end of the second quarter -- which gives the company the juice it needs to license or acquire later-stage experimental drugs. That, combined with the sorting out of its Enbrel problems, should make Immunex a winning play.