ANALYSIS-Amgen valuation tempts, but uncertainties mount

LOS ANGELES (Reuters) - Shares of Amgen Inc (AMGN.O) trade at a price-to-earnings ratio well below those of other major biotechnology companies, but uncertainty about its top-selling drugs is keeping many investors on the sidelines.

The safety of anemia drugs, including Amgen's Epogen and Aranesp, has been under siege since the emergence of data more than a year ago showing that the drugs raised the risk of death for some cancer patients.

"It is, on the face of things, a very attractive valuation ... but that assumes that we've reached stabilization" with the anemia drugs, said Christopher Raymond, an analyst at Robert W. Baird.

The world's largest biotech company also faces competitive threats to its Enbrel drug for inflammatory conditions.

Amgen shares have lost about half their value since late 2005. This year, shares of the Thousand Oaks, California-based company are off about 9 percent, underperforming a 5 percent decline for the American Stock Exchange Biotechnology index .BTK.

Amgen's stock trades at around a lowly 10 times estimated 2008 earnings. Rival Genentech Inc DNA.N trades at more than 21 times earnings, Gilead Sciences Inc (GILD.O) has a price-to-earnings ratio of more than 26, while Biogen Idec (BIIB.O) trades at more than 19 times.

INSURERS CUT REIMBURSEMENT

Amgen's fourth-quarter 2007 sales of Aranesp fell 25 percent year-over-year to $827 million and analysts are estimating that first-quarter sales, which will be reported on Thursday, also fell about 25 percent as Medicare reimbursement restrictions kicked in.

Epogen and Aranesp are erythropoiesis-stimulating agents (ESAs) that are genetically engineered forms of a protein that boosts production of red blood cells. They are used to treat anemia in patients with kidney disease and in cancer patients undergoing chemotherapy.

Since mid-2007, the U.S. health insurance program for the elderly and disabled has not covered anti-anemia drugs for certain patients and will only pay for the drugs when a cancer patient's hemoglobin level falls below 10 grams per deciliter of blood.

Last month an advisory panel to the U.S. Food and Drug Administration recommended that the anemia drugs not be given to cancer patients undergoing treatment that could cure their disease, or to patients with advanced breast cancer or head and neck cancer.

"It looks like we still don't have all the issues out yet ... This will haunt them for a long time," said Fariba Ghodsian, fund manager at Dafna Capital Management.

Raymond said he found in a recent survey of oncologists that 70 percent of physicians are still targeting hemoglobin levels higher than 10 grams per deciliter.

As private insurance companies move to match Medicare's reimbursement policy, Amgen's Aranesp sales will likely erode further, he said.

The chief medical officer at WellPoint Inc (WLP.N) told Reuters this week that the biggest U.S. health plan will likely follow the lead of regulators in restricting use of the anemia drugs.

Meanwhile the Amgen anemia franchise continues to face a potential threat from Roche Holding AG (ROG.VX), which recently appealed a preliminary court injunction barring U.S. sales of its anemia drug Mircera.

ENBREL SALES EXPECTED TO DROP

Analysts have also begun to question the staying power of Enbrel, an Amgen blockbuster on the market since 1995 as a treatment for rheumatoid arthritis which has seen most of its recent sales growth in the psoriasis market.

But there are competitors, including Abbott Laboratories Inc's (ABT.N) arthritis drug Humira, which was approved in January as a treatment for psoriasis, a chronic skin disease.

Lazard Capital Markets analyst Joel Sendek said in a research note on Monday that he expects first-quarter Enbrel sales to show a decline due to competition and less sales-force focus following Amgen's restructuring and continued emphasis on ESAs.

He, like many other Wall Street analysts, has a "hold" rating on Amgen, which is expected to report in the second half of this year key data from a pivotal-stage trial of experimental osteoporosis drug denosumab.

"Positive denosumab fracture data in second half 2008 will be critical to avoid another downside move ... Pending further visibility, we remain on the sidelines," Jefferies & Co analyst Adam Walsh said in a research note.

Mid-stage trials have shown that the drug increases bone density in post-menopausal women, but the incidence of serious infections in patients treated with denosumab has been a cautionary flag for some.

"The data so far looks good, but in a competitive environment is it enough to backfill all of what has been lost with the ESA franchise?" Raymond asked.

Amgen has also been talking up the results of early-stage trials for experimental cancer medicines like anti-angiogenesis drug AMG-386, but it will likely be years before concrete data are available.

"The rest of the pipeline is just too early-stage to have a meaningful impact," Ghodsian said.

(Additional reporting by Kim Dixon in Washington, editing by Gerald E. McCormick)