Amgen Goes to Turkey, Loses Biotech Cred

BOSTON ( TheStreet) -- Amgen ( AMGN) is saying "elveda" to the biotech sector.

That's Turkish for "goodbye." With the $700 million purchase of Turkey's Mustafa Nevzat Pharmaceuticals, a maker of generic drugs, Amgen's claim as "the world's largest biotech company" no longer holds much meaning.

Amgen has graduated to become a "pharmaceutical company" joining the ranks of Merck ( MRK), Bristol-Myers Squibb ( BMY) and Pfizer ( PFE).

"When you buy a generics company, it's not a biotech," says J.P. Morgan biotech analyst Geoff Meacham. "You have then shifted the focus from innovative products for specialty markets to marketing breadth for a wider audience i.e. a pharma."

But Meacham will continue to cover Amgen, illustrating the increasingly fuzzy divide between what investors consider pharmaceuticals and biotech. The differences between the two camps today have become more a matter of semantics than science.

Traditionally, a biotech company was one that genetically altered living organisms -- animal cells mostly -- to produce biological, or protein-based, injectable drugs. Pharmaceutical companies, on the other hand, used chemical processes -- akin to a well-defined chemical recipe -- to produce drugs, often in pill form.

Rules are always made to be broken, even in biotech. Gilead Sciences ( GILD) doesn't use a biologic process to manufacture its HIV drugs, but investors consider the company to be a biotech bellwether, along with Biogen Idec ( BIIB) and Celgene ( CELG) (whose leading cancer drug Revlimid is also a pill.)

The death of George Rathmann, Amgen's first CEO, is a reminder that the company's DNA is grounded in biotech. Amgen developed two of the most successful biologic drugs in history -- the anemia drug Epogen and Neupogen, which treats chemotherapy side effects.

Yet Amgen is also a victim of its success. With annual revenues of $15.5 billion last year, meaningful top-line growth has become harder to achieve. Amgen continues to grow earnings year over year but needs the assistance of cost cuts and financial engineering to do so. Last year, Amgen became the first "biotech" firm to pay shareholders a dividend. Drug patent cliffs and the subsequent loss of revenue, once a worry only of pharmaceutical companies, is now also an issue Amgen is confronting.

Amgen shares today trade just 8% over where they traded five years ago.

"I don't really see a difference between pharma and biotech once revenue exceeds around $10 billion, says ISI Group biotech AND pharmaceutical analyst Mark Schoenebaum. "Pharma is pharma because of size, not anything else really. The bigger they are, the more pharma-like they are, so Amgen is still at the low end but trying to get bigger."

Bruce Booth, a partner at the venture capital firm Atlas Ventures, which provides early financing to young biotech firmS, agrees that size matters.

"Amgen hasn't been a biotech to me in over a decade. It's all about the size and the crushing inefficiency of scale in research and development."

If biotech firms are producing pharmaceuticals and vice versa, then perhaps the differences lie in attitude and expectations for growth and innovation. Apple ( AAPL) and Dell ( DELL) are both technology hardware firms, but only one has become the must-own stock for growth-hungry investors. (I'll assume you know which one.)

Amgen can buy a Turkish generic drug company to expand into new emerging markets but that's not as "biotechy" as developing a new blockbuster therapy for hepatitis, cancer or heart disease.

Like pornography, investors know biotech when they see it. These days, Amgen is fully clothed.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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