Amgen Sell Call Makes Sense

How about a 10-11 multiple? That makes Amgen a $42-$46 stock.

That's where Lazard Capital Markets analyst Joel Sendek thinks Amgen should trade. He has a sell rating on the stock and a $46 price target. [Lazard doesn't have a banking relationship with Amgen.] Sendek's sell stands out because you don't often see a sell rating on a big cap biotech stock. Hold is a very popular rating for Amgen these days, which seems to be taking the easy way out.

Sendek's bearish thesis seems spot on to me. He has been talking to commercial (private) payors about reimbursement for Epogen and Aranesp. They tell him that they're considering policies that will further restrict the use of both drugs, certainly in cancer patients and potentially in kidney disease patients as well.

Medicare has already made it clear that it's not about to revise its new, stingy guidelines for the use of anemia drugs in cancer patients. On last night's conference call, Amgen suggested that private payors might have little choice but to follow the public sector.

If that occurs, Sendek says Amgen's anemia drug franchise will wither away slowly. There won't be a dramatic drop off, just a steady bleed over the next quarters and years that won't let anyone call a bottom.

"It's usually better for companies when they take severe pain in a single quarter, then reset and start growing again," says Sendek. "But with Amgen, I think there will be a long drag down in the company's most important franchise, which is the worst-case scenario."