There are two relatively heated debates that bear directly on Amgen (Nasdaq:AMGN) and its stock. First, is Amgen still really a biotech, or is it really more of a Big Pharma company? Second, is there a biotech/pharma bubble (and if so, how will valuations fare post-popping)? Investors' perspectives on these two issues likely have a lot to do with whether they see value in these shares, for while Amgen is certainly a well-run company looking to become an increasingly balanced advanced drug developer, the valuation is somewhat demanding unless the pipeline really delivers.

First Quarter Results Highlight Some Of The Issues
Investors weren't thrilled with the results that Amgen delivered for the first quarter – arguably a check in the column arguing against Amgen still really being treated as a biotech. Revenue was up 5%, but still about 3% shy of the average estimate. While Enbrel continues to grow at a double-digit rate (up 11%) and new products like Prolia and Xgeva are coming along, legacy products like Aranesp, Epogen, and Neupogen continue to fade.

Amgen also came up a little short with margins. While the gross margin improved more than half a point, operating income fell 2% as reported and missed the average sell-side guess by more than 5%. The timing of R&D spending can certainly make quarter-to-quarter tracking a little volatile, but it's worth noting that Amgen's margins are quite solid compared to large pharma companies like Pfizer (NYSE:PFE) and even Novo Nordisk (NYSE:NVO).

SEE: Analyzing Operating Margins

Will The Pipeline Come To The Rescue?
Amgen has Phase 3 data on eight programs due to come out over the next three years, which should give investors ample opportunity to trade the stock and recalibrate their long-term expectations. In the near term, data on AMG386 (ovarian cancer), AMG145 (cholesterol), and T-Vec (melanoma) should give more clarity on these programs.

Amgen certainly has multiple valuable shots on goal. The PCSK9 inhibitor AMG145 has shown substantial cholesterol-lowering power relative to statins (like Pfizer's Lipitor), and analysts widely expect this to be a blockbuster category. But a lot of details are left to be resolved. How will Amgen's drug stack head-to-head against Sanofi's (NYSE:SNY) PCSK9 drug, and/or Merck's (NYSE:MRK), and just how many drug companies will ultimately have drugs in this class on the market? Along those lines, what will pricing look like? With high cholesterol being a common ailment, will payers push back hard on pricing if the data doesn't blow away that of now-generic statin drugs?

The same could be true for Amgen's oncology pipeline. Although I think T-Vec's market potential could be limited by its method of deliver, it could still be a multi-hundred million dollar drug, if not a billion-dollar drug. With Amgen's oncology pipeline, though, the question comes down again to competitive efficacy and cost/benefit – oncology drugs are seeing more and more scrutiny in cost/benefit terms, and Amgen's clinical data is going to have to be compelling for these drugs to really make a big revenue contribution.

SEE: The Industry Handbook: Biotechnology

Biosimilars Still A Big Unknown, For Good And Bad
One of the questions worth asking about Amgen is the extent to which biosimilar competition will materialize, and what sort of price points. The Street expects biosimilar competition for Neupogen/Neulasta to come in the next year from Teva (NYSE:TEVA) and Hospira (NYSE:HSP), but we still have to see how the FDA handles these applications and how the companies price the products. While biologics are quite lucrative to companies that make them, it's expensive to get into the game. Consequently, I'm not entirely sure how long it will take for Amgen to see serious revenue erosion, and this could offer some upside.

It's also not just biosimilar competition that could impact Amgen. With FDA approval in hand, I would expect Pfizer to get more active with marketing its oral drug Xeljanz, and though much of the talk on this drug has focused on its impact to Abbott's (NYSE:ABT) Humira, Enbrel won't be immune.

Amgen isn't taking this lying down, though. Amgen is getting into the biosimilar game too, looking to start a pivotal trial of a Herceptin clone this quarter. The company also stands to benefit from the market withdrawal of Affymax's (Nasdaq:AFFY) Omontys.

The Bottom Line
Relative to other giant biotechs/new Big Pharma like Biogen Idec (Nasdaq:BIIB), Celgene (Nasdaq:CELG), and Gilead (Nasdaq:GILD), it seems like there's considerably more fretting about Amgen's future. What's more, Amgen lacks the “big deal” to get excited about (Biogen has its new MS drug, Celgene has its oncology pipeline, and Gilead has Hep C), and this seems to show in the stock price performance – Amgen's 40%-plus appreciation is hardly bad, but it's well behind Biogen, Celgene, and Gilead.

SEE: Investing In The Biotech Sector

I'm also concerned that the biotech/pharma run is getting a little long in the tooth. This marks the third year that these stocks have led the market. Even granting that biotech saw some horrible years of underperformance prior to the run, it's hard to see a sector lead for so long without valuations getting too hot.

If you believe that Amgen's pipeline will basically just replace the drugs that will go off-patent over the next three years, it's hard to argue for a fair value much above $90. If you believe that the pipeline will deliver, though, and that Amgen can continue to grow its free cash flow (FCF) at a mid-single digit rate, these shares could still make sense upwards towards $120.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.