Dueling Fools
I Am What I Amgen
The Bear Rebuttal
By
"Biotech! 'Nuf said," Paul begins, and later adds, "To end I have one word -- Biotech!" For readers who may feel disoriented by Paul's exclamation point-laden analysis, a quick reminder: You haven't mistakenly wandered over to the Yahoo! message boards. (Yikes!) But Paul accurately, if perhaps unintentionally, underlines the problem here: The market has tossed an exclamation point on top of the price of every biotech stock, including Amgen's. Excuse me -- including Amgen's!
Let's dissect this enthusiasm, because it seems to run rampant in the sector periodically (though never for too long) and is back today with a vengeance. My fellow Fool states: "Biotechnology is approaching its renaissance. Much of what we've seen thus far out of Amgen and its peers is only the tip of the proverbial iceberg." True, what we've seen out of biotechnology so far is just the tip of the iceberg. A lot of people may be scared of the part of the biotech iceberg that's hidden beneath the waves (e.g., cloning), but I'm not here to debate those issues. I think what we're all going to gain from biotechnology over the course of our lives is barely comprehensible, and almost exclusively to the positive.
But to say that biotech is approaching a renaissance seems to imply that we're about to emerge out of the biotech Dark Ages. Not so. Biotech has been around for quite a while and has been doing wonders throughout the last two decades, but the pace of change is always going to be more glacial than the wild-eyed prophets predict. Despite what you might conclude by looking at the year-to-date price charts of any company in the sector, biotech as an industry isn't on the cusp of some sudden dramatic expansion of its potential. Rather, it's a slowly expanding industry that has to be slow moving because of the extraordinary complexity of what is involved and the very real dangers involved in going too fast.
Paul states that Amgen has four new cash cows in the pipeline that should be "mooing" within the next couple of quarters. In my research, however, I could find no consensus about blockbuster potential for any of these drugs, except perhaps for NESP, which I think is still a year or two away from making it to the market. That isn't to say that Amgen won't ultimately hit on a couple of drugs that produce some nice numbers for the company. Remember, though, that the patents for Epogen and Neupogen are running out within the next seven years. "Seven years," I can hear some readers saying, "The market never looks ahead seven years. That's an eternity." If you really think that, then you shouldn't be taking chances with this sector, because seven years is about half the time it takes a drug to reach the market. The successful drugs, that is.
Amgen is a fine company -- I won't debate that. The company doesn't need me or Paul to sing its praises for readers to understand the quality here. But when everybody is singing the same song (I guess "Biotech! 'Nuf Said!" is the anthem's title), then it's time to turn the volume down and wait out a couple of choruses before buying.
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