Biotech giant Amgen (Nasdaq:AMGN) may not be considered a pharmaceutical company yet, but the market is certainly treating it like one. Whether you consider the P/E ratio, the price-book, price-cash flow, or EV/EBITDA ratios, Amgen trades more or less in line with the likes of Pfizer (NYSE:PFE), Lilly (NYSE:LLY) and GlaxoSmithKline (NYSE:GSK) than Celgene (Nasdaq:CELG) or Genzyme (Nasdaq:GENZ).

This would be all well and good if Amgen was just another typical big-cap pharmaceutical company. Though Amgen does have some issues in common, I think the differences are more significant than the similarities. Most significantly, it looks as though the market is assuming that Amgen is going to grow at a pace similar to most of these large companies (which is to say, "not much"), and this is where the stock could ultimately outperform.

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Delving Deep Into Oncology...
Amgen has made a big bet on oncology as part of its future growth strategy. Given the dynamics of the oncology drug market, where reimbursement is strong and clinical protocols tend to be quite clear, this certainly makes sense. Amgen has seven oncology compounds in Phase 2 studies and two in Phase 3, and most of these drugs are being tested for multiple cancer types. This gives the company numerous shots on goal, and the company has already seen promising data in drugs aimed at colorectal, ovarian, breast, and lung cancer.

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... But Not Putting All Its Eggs tn That Basket
Outside of cancer, Amgen has a similarly broad portfolio. The company is testing follow-on indications for approved drugs like Aranesp, as well as new compounds for conditions like heart failure, osteoporosis and inflammatory diseases including asthma. Not all of these drugs will succeed, of course, but just a couple of successful launches should be sufficient to maintain growth.

Apart from the pipeline, Amgen also has new drugs that have not even hit their stride yet. In addition to its five billion-dollar drugs (Epogen, Aranesp, Neupogen, Neulasta and Enbrel), recent drugs Prolia, Vectibix and Senspipar could all achieve blockbuster status in their own right.

On the Prowl?
Amgen has been a relatively active acquirer over the years, adding companies like Abgenix, Immunex, and Tularik to the fold. I would see no reason for that change. Partnering with a smaller company, or buying it outright, can be a more cost-effective way of supporting the drug pipeline and Amgen does not lack for assets to put on the table in a negotiating session.


Some of the Familiar Troubles
I do not mean to give the impression that Amgen is a free ride for investors. Like other pharmaceutical companies, Amgen does have some patent concerns, as Novartis (NYSE:NVS) has moved forward with generic versions of Epogen and Neupogen in Europe. In addition, patents for Aranesp and Neulasta begin to expire in 2014.

Moreover, Amgen is just as susceptible to clinical disappointment as any bio-pharmaceutical company. Prospective drugs for kidney disease, asthma and arthritis all failed in recent memory, and many investors remember the hype and fizzle that went with potential obesity blockbuster leptin.

On Balance, a Risk Worth Taking
Although I think the pharmaceutical and large-cap biotech sectors are generally undervalued anyway, I think Amgen stands out in particular. Obviously this thesis is based on the assumption that Amgen sees success in its oncology portfolio and continues to successfully shepherd drugs through development, approval and commercial launch. Should the company continue to see success in the clinic, the excellent efficiency and cash flow leverage of the enterprise should allow shareholders to see strong profit growth in the future. This current period certainly marks a lull in the company's growth, but I think Amgen has a great deal more growth potential than the market currently seems willing to acknowledge. (To learn more, see Using DCF In Biotech Valuation.)

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