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Stock Analyst Update

Immunex Is No Bargain

Enbrel sales growth is solid, but the stock is still too expensive.

What Happened?
Immunex (IMNX) reported third-quarter earnings of $0.06 per share Wednesday afternoon, in line with analysts' estimates. Sales of its blockbuster rheumatoid arthritis drug, Enbrel, were $172.1 million. That's a 69% increase from the year before, but slightly under many analysts' forecasts of approximately $175 million.

What It Means for Investors
While we think Immunex has a strong product in Enbrel, we also believe that much of the optimism about the drug is already priced into the stock. At 162 times its 2000 estimated earnings according to Zacks, Immunex is one of the priciest of the big biotech picks.

Moreover, given that the vast majority of Immunex's revenue growth will be driven by Enbrel in the near future, the stock is susceptible to major downturns at any sign of trouble with the drug. During Wednesday afternoon's conference call, management indicated that current capacity would allow the company to produce $750-$850 million worth of Enbrel next year. Given the drug's dramatic sales growth, it's conceivable that demand could outstrip supply. Although management offered repeated assurances that it was doing everything possible to avoid a supply crunch, this is one example of how closely Immunex's fortunes are tied to a single product. Given the current valuation, we think investors would do well to hold off on the stock for now.