Amgen, Inc. (AMGN), Affymax, Inc. (AFFY): The Danger of the One-Hit Wonder

Of course, Amgen, Inc. (NASDAQ:AMGN) hasn’t been immune to challenges in the kidney disease area, as the federal government has curbed reimbursement levels for the company’s Aranesp and Epogen drugs. While the drugs are safe, the FDA expressed concern about potential cardiovascular problems in certain segments of the patient population, which led to its adverse policy actions. Fortunately, Amgen has strong operating cash flow from its diversified mix of products and a good pipeline to pursue future growth opportunities.

The Canadian rollup

In a few short years, Valeant has gone from a no-name drug company with an expiring lead product to a major pharmaceutical player with operations around the globe. The company has grown very quickly through the acquisition channel, including purchases of Biovail in 2010 and Medicis Pharmaceuticals in 2012. Despite its frenetic dealmaking activity, Valeant has not strayed far from its focus, which is on the specialty areas of dermatology and neurology.

In FY2012, Valeant produced solid financial results, with increases in revenues and adjusted operating income of 44.0% and 37.7%, respectively, compared to the prior year. The company sales growth similarly benefited from a strong pricing environment, as well as the positive effects of its various acquisitions. In addition, Valeant improved its geographic diversification in 2012, as it expanded its presence in emerging markets, including Malaysia, the Philippines, and Singapore.

Since inception, Valeant has successfully employed its strategy of purchasing drug pipelines, rather than investing heavily in its own research and development activities. While sales of Biovail’s depression drug Wellbutrin are declining due to the loss of patent protection, Valeant’s acquisition included drugs under development that are adding to their core franchise. Looking ahead, the company is well positioned to deliver future growth with its diversified mix of branded and over-the-counter products.

The bottom line

One-hit wonders rarely pan out, as investors in Affymax, Inc. (NASDAQ:AFFY) are finding out the hard way. Investors need to stick with the diversified players, capable of riding out the occasional product hiccup. Amgen, Inc. (NASDAQ:AMGN) and Valeant have delivered over the past five years and are positioned for future success.

The article The Danger of the One-Hit Wonder originally appeared on Fool.com and is written by Robert Hanley.

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