Biotech Mailbag: NeurogesX Patchy at Best

I'm keeping an open mind, so I'll make a note to check back on Delcath in six months or so.

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Moving to a big-cap stock, J.R.A asks, "Isn't Amgen(AMGN Quote) attractive at these levels and would you consider adding this to your model portfolio or any portfolio at this price level? They seem to have one of the strongest pipelines and their CEO even called it a blockbuster pipeline."

Yes. I'm probably more amenable to Amgen in the high $40s to low $50s, but the stock has a few good things going for it: 1) the big commercial potential for denosumab, the company's long-acting osteoporosis drug; 2) phase III clinical data coming soon for denosumab in various oncology indications; and 3) the company's low price-to-earnings (P/E) multiple, currently around 11 to 12 times expected 2009 earnings, which is a discount to the big-cap biotech group.

On the negative side of the Amgen ledger, I'd worry about how a prolonged recession coupled with a health care reform agenda that values generics over brand-name drugs might crimp the commercial launch of denosumab to treat osteoporosis. Will consumers cutting back on discretionary spending shell out a premium for d-mab when lower-priced generics are available?

Amgen hasn't yet seen the stabilization of its core anemia drug franchise, and there's still room for declining sales there. And perhaps more than any other big-cap biotech firm, Amgen is vulnerable to biogeneric competition if -- but more likely when -- these lower-cost "biotech" drugs become available here.

I'd concede that investors are more likely to look on the bright side when it comes to Amgen and brush aside the worries until they really matter -- whenever that is.

I've thought about adding Amgen to the Biotech Select model portfolio, and I may still do so, but I haven't yet mainly because I have three big-cap biotechs in there already -- Genentech(DNA Quote), Gilead Sciences(GILD Quote) and Celgene(CELG Quote). Amgen's low P/E and the d-mab data in cancer coming soon are tempting reasons for a swap, I will admit.