Immunex ( IMNX) is hoping to make a big splash in New Orleans starting Friday, as dermatologists gather for the annual meeting of the American Academy of Dermatology in the first major medical conference of the year.

The Seattle-based biotech firm will be talking up its blockbuster anti-inflammatory drug, Enbrel, as a potentially new treatment for psoriasis, a painful skin disorder. Enbrel is already the dominant drug in the multibillion-dollar market for rheumatoid arthritis, so expansion into psoriasis -- another billion dollar-plus market -- will bolster further Enbrel's growth.

And of course, what's good for Immunex is good for Amgen ( AMGN), as the companies are in the midst of a $16 billion merger . Amgen's own plate is chock full of tasty morsels for investors these days (more on these later) but the success of the merger depends heavily on Amgen being able to chow down on heaping portions of Enbrel-derived cash over the next several years.


Merger Aversion
Amgen's stock has drifted south since announcing the merger

'Socko' Results

In August, Immunex offered a sneak peek at the Enbrel psoriasis data to be presented in New Orleans. Dr. Alice Gottlieb, a noted dermatologist from the Robert Wood Johnson Medical School in New Jersey, will be making a full Enbrel presentation at the conference, but in her words, the drug's results are "socko."

You won't find the definition of "socko" in a medical dictionary, but in this case it means that 30% of the 112 psoriasis patients taking Enbrel for 12 weeks saw their symptoms reduced by at least 75% -- the gold standard in psoriasis treatment.

And as patients took Enbrel longer, more of them improved. After six months of treatment, about half the patients saw symptoms reduced by 75%.

These results are on par with or better than results from two other promising, but still unapproved, psoriasis drugs -- Genentech's ( DNA) Xanelim and Amevive from Biogen ( BGEN).

The Enbrel data are from midstage testing, so Immunex doesn't expect to get Food and Drug Administration approval for Enbrel on psoriasis until 2004. Amevive, by comparison, could gain FDA approval in the second half of this year.

But Enbrel has some built-in advantages. The drug is already on the market, so dermatologists could start using it off-label (for illnesses for which it hasn't received final FDA approval) in their psoriasis patients. In fact, many dermatologists, including Gottlieb, already are using Enbrel to treat patients suffering from psoriatic arthritis, a related disease for which Enbrel received FDA approval last month.

Also, dermatologists could favor Enbrel over other, new psoriasis drugs because of its solid and lengthy safety record in more than 100,000 rheumatoid arthritis patients.

Targeting Sales

To justify its pricey acquisition of Immunex, Amgen executives have said Enbrel sales will help accelerate growth of the company's overall product sales into the low-30% range over the next five years, with earnings-per-share growth reaching the mid-20% range.

To reach these targets, Amgen and Immunex executives are forecasting Enbrel sales to reach $3 billion by 2005, which includes some off-label sales of the drug in the psoriasis market in 2003. Enbrel sales totaled $762 million last year, despite well-publicized supply constraints. Enbrel sales are expected to top $1 billion this year.

UBS Warburg biotech analyst Geoffrey Harris says Amgen stands a good shot of meeting its aggressive Enbrel sales targets. After conducting a survey of 150 U.S. rheumatologists about Enbrel, and factoring in additional research, Harris believes peak annual Enbrel sales should reach $2.7 billion.

"These results suggest that the assumptions used by Amgen management in making the Immunex acquisition are reasonably valid," Harris writes in his Feb. 7 research report. Harris rates Amgen a strong buy and his firm doesn't have a banking relationship with the company.

A Happy Marriage

But there are other reasons for investors to like Amgen these days, independent of its impending marriage to Immunex.

On Feb. 1, the company received earlier-than-expected FDA approval for Neulasta, an improved version of its existing blockbuster, Neupogen. Then, days later, the U.S. Pharmacopeia, an independent source of drug information, recommended the use of Amgen's drug Aranesp to fight anemia associated with chemotherapy and chronic renal failure. That move is expected to accelerate the drug's sales, especially off-label sales in cancer patients.

As a result of the Immunex merger, Amgen takes over an existing partnership with Abgenix ( ABGX) to develop ABX-EGF, a cancer-fighting drug similar to ImClone Systems' ( IMCL) Erbitux. With Erbitux's approval process delayed, drugs such as ABX-EGF stand a greater chance of stealing away lucrative market share, if approved.

And lingering under the surface is an ongoing arbitration case between Amgen and Johnson & Johnson ( JNJ) over the blockbuster anemia drug epoeitin alpha, sold by Amgen as Epogen and by J&J as Procrit. The arbitration hearing restarts in March with a decision expected by year's end. J&J already has admitted wrongdoing, so the only real question is how big a prize Amgen gets.

Amgen stock, off 12% since the Immunex deal was rumored in mid-December, is still not cheap, but it's not expensive either. At its Wednesday closing price of $58.95 per share, Amgen is trading at 34 times estimated 2003 earnings of $1.71 per share.

Factor in a 23% long-term growth rate and Amgen sports a price-to-earnings-to-growth ratio of 1.4. That's below the historic 2.0 PEG for the biotech sector and equal to, or below, comparable numbers for other large-cap biotechs such as Genentech, Chiron ( CHIR) and Biogen.

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