Amgen’s (AMGN) price has declined sharply over concern the company’s Erthropoiftin price. The FDA, prior to its May 10^th review, has issued its strictest warning on the entire drug class immediately.  Probably ARANESP and EPOGEN sales will grow more slowly caused by pending changes in Medicare/Medicaid reimbursement.

Let’s look at historical EPS and analyst’s estimates for the future.

Year                 EPS                 % Change from Prior Year
1997                0.68
   98                 0.81                             19.1
   99                 0.99                             22.2
2000                1.06                               7.1
    01                1.18                             11.3
    02                1.30                             10.1
    03                1.68                             29.2
    04                2.23                             32.7
    05                3.03                             35.9
    06                3.90                             28.7
    07                4.33 Est.                      11.0
    08                4.78 Est.                      10.4

In view of the near-term decline in the rate of growth I have reduced my estimate of the future high P/E ratio to 20.0 from 29.4 and the future low P/E ratio to 15.0 from 21.0. 

Since the price has dropped below my previous estimate of 56.2 I have reduced my estimated future low to 52.6 based on my estimate of the future low P/E ratio and EPS for the last fiscal year. The current price is 56.1.  The estimated future total return is 20.3%. Estimated EPS for the 12 months ending April 2008 are $4.48.  That makes the future P/E ratio 125 and a RV of 52.8.  I own Amgen and also my investment club owns Amgen.  I plan to hold Amgen as the foremost biological pharmaceutical success in the world.

Today's WSJ article casts a further shadow on AMGN over patient safety concerns with itsw 2 higest selling products, Epogen & Aranesp.  Since these account for >50% of company sales, we can expect further pressure on pre-tax profit margins, exacerbating the already disturbing trend shown in my SSG analysis.  I have reduced my EPS growth forecast to 14% and my estimated high P/E to 16.5; but wonder whether even that's too rosy, given the current situation.  My SSG now still forecasts a BUY with U/D of 6.2, but my forecast total return now shows 14.3% and P.A.R. at 12.2%.  What am I missing?