Amgen (NASDAQ:AMGN) has seen a slight recovery of late, mostly on reports that the U.S. Senate is asking Centers for Medicaid and Medicare Services to reconsider the drastically cut reimbursement rates. Shares just last week and the week before were trading just under $50.00, and shares are up almost 4% since last Friday’s close. It remains unclear how or when CMS will respond, but if there is even a decent chance that this gets reconsidered then investors need to go back and review the past drop and recovery of Biogen-Idec (NASDAQ:BIIB).
We have laid out the case this was essentially moving from biotech to Big Pharma in comparison, but with more baggage. The fear from March is still that it can’t get the gorilla off its neck. There is a real shot that this fear may lighten up considerably.
If you compare this to what happened to Biogen-Idec (NASDAQ:BIIB) in early 2005 after it panicked and withdrew Tysabri as an MS treatment, the Amgen death march has been a much longer and slower version. But the "Crash Scenario Analysis" looks like it could end up being a quite similar long and slow recovery. The difference is that once there appeared to be a road to recovery Biogen shares recovered 35% in 5 months. The amount it recovered in total from what it lost was basically half of the losses. After that the biotech shares languished before just recently recovering much of the losses from back then. I was in the camp after the Biogen stock implosion that Tysabri was coming back with quite strong warnings and under somewhat more limited use, and that is what ended up happening. Amgen also has severe label warnings now as well. The Amgen coincidental analogous factors are just too similar ‘in scope and severity’ to ignore.
Amgen over the last two years has seen shares fall from $80.00 down to under $50.00, although the real scenario comparison should only equate to a $74.00-ish price down to recent levels. Amgen has recently announced layoffs, essentially put its entire pipeline and partner programs up for review to see where it can focus. In short, costs are being slashed and you cannot rely upon forward numbers a year or more out. There is still a wild-card in the lawsuit with Roche that could easily throw a wrench in this machine. The company should still consider a truly transformational merger (more so than the Ilypsa purchase) so it is not reliant so much on anemia related treatments and so that its patents and reimbursements are not at risk regardless of what Congress does after next year.
There are a few IF’s here:
- IF the Senate is real about going soft on the reimbursement criticism;
- IF the reimbursement rates are not going to be cut as much;
- IF biotech in general won’t be given the political hatchet ‘as bad as fears’ indicate.
Those are the IF’s. You know forward guidance and earnings estimates have to be considered irrelevant already. But this is looking like it may be the case. Even on the IF’s alone this stock should be headed higher. It will have a long long ways to go before you see those old highs again. But based on how Biogen acted, Amgen could its shares rise between now and the end of March 2008 to as high as an estimated range of $61.50 to $65.00 if the trajectory and momentum heads back in it in the same manner. This would not occur overnight and it will take a while for all these "IF’s" to pan out into a winner.
These are of course "IF, THEN…." scenarios and nothing else. But it is amazing how over and over history has a way of repeating itself.
Jon C. Ogg
September 6, 2007
Jon Ogg can be reached at firstname.lastname@example.org; he produces the 24/7 Wall St. SPECIAL SITUATION INVESTING NEWSLETTER and he does not own securities in the companies he covers.