For investors seeking to participate in the increasingly growing but complex world of biotechs, Amgen (AMGN) is the stock to buy for the coming year -- and for the long haul.

A pivotal event -- change in the company's leadership -- should entice investors to pick up shares now. The changes, which will occur by mid-2012, include chief executive Kevin Sharer's retirement on May 23. He will be succeeded by chief operating officer Robert Bradway. And the head of research and development , Roger Perlmutter, will retire on Feb. 12, to be replaced by chief medical officer Sean Harper.

The big shakeup isn’t a surprise to Wall Street, but it’s definitely a most welcome move. That’s because no matter how successfully the company has arduously navigated the intricate pathways of the complicated industry all these years to become one of the world’s largest biotech companies, Amgen has needed new leadership, according to analysts who know the enterprise well. Stiff competition in the drug industry and the constant need for new and better products have necessitated the changes at the top to secure fresh energy for new visionary leadership. Amgen is one of the handful of biotechs posting profits.

"We view the changes positively as we see Amgen as being in need of new leadership after several years of moderating results from legacy drugs, and earnings increasingly being supported by share buybacks," says Steven Silver, a drug analyst at Standard & Poor's. The changes didn't come as a surprise, because of the long tenure at Amgen of both Bradway and Harper, he adds. Bradway was added to the board earlier in 2011, which signaled his potential as the successor to Sharer.

The changes should in all likelihood renew attention to Amgen’s long-term drug pipeline and its cheap valuation even as the leadership changes have driven its stock higher. It has jumped just a whisker below its 52-week high of $63.85 a share, closing at $63.69 on Dec. 23, up from $58 on Dec. 16, when the changes were announced. But some analysts have a 12-month price target ranging from $69 to $79.

Amgen’s core product lineup can be described as mature products, but they include the world’s five best-selling biotech drugs, including Epogen, a genetically engineered hormone that stimulates the production of red blood cells in bone marrow, which generated total sales of $2.5 billion in 2010, and Neupogen, which stimulates production of white blood cells in cancer patients to prevent bacterial infection. Neupogen, along with another Amgen drug, Neulasta, also a white blood cell stimulant, produced sales of $4.84 billion last year.

The huge cash flow being generated by Amgen’s legacy drugs are sufficient to support dividends and share repurchases, says S&P analyst Silver, as well as the funding of R&D investments and acquisitions, such as the purchase in early 2011 of cancer vaccine maker BioVex. He adds that his buy recommendation on Amgen reflects his view that the recent rollout of Prolia, a drug for post-menopausal osteoporosis, and Xgeva, a treatment for skeletal-related issues in solid tumor cancer patients, will greatly enhance the stock’s value.

Prolia has other applications as well. In Europe, the drug was approved last year for the treatment of prostate cancer patients with bone loss due to hormone ablation. The company has applied with the FDA to approve the same use in the U.S. According to Silver, the FDA is expected to act on the application sometime in April 2012.

Amgen’s pipeline of new drug candidates is promising: Its AMG 386 for ovarian cancer and AMG 479 for pancreatic cancer are both in phase 3 clinical studies, as well as Oncovex, a drug for the treatment of melanoma and head-and-neck cancer. Amgen continues to collaborate or partner with big pharmaceutical companies to expand its reach. In December 2011, it signed a global agreement with Watson Pharmaceutical to develop and market oncology antibody drugs.         

Michael J. Yee, analyst at RBC Capital Markets, concedes that Wall Street has low expectations from Amgen’s stock, but he says the bull case is that it "remains reasonably cheap," in part because the company is likely to forecast earnings for 2012 that are higher than consensus estimates. He also expects it to increase its dividend payments and continue share buybacks that he expects will amount to some $1 billion worth of stock in 2012. Amgen currently pays a dividend yield of 1.9%.

Rating the stock as outperform, he has a 12-month price target of $72 a share. Yee figures Amgen will earn $5.29 a share on revenues of $15.4 billion in 2011, and $5.94 in 2012 on sales of $15.9 billion. For 2013, Yee expects earnings of $6.40 a share on revenues of $16.4 billion.

True, Amgen isn’t among the top choices on Wall Street’s list of favored drug stocks, but that’s precisely one of the major reasons why the rewards will be much higher for this under-appreciated stock.


Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money's Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.