Amgen fails again.

The comapny's PREPARE trial failed to show any positive response in breast cancer patients treated with chemotherapy and its drug Aranesp before surgery.

Why am I not surprised? The only thing this dog has been successful at doing is giving investors fleas.

Amgen is the biotech everyone asks me about at conferences and in e-mails. I dislike the company, would sell it and see the stock going to $40 in the coming months. Why?

• It has a terrible pipeline and older drugs that are under pressure.

• This pipeline is a direct result of, arguably, the world's worst R&D program - Despite 6,000 researchers and a $3 billion-plus research-and-development budget, the last time it introduced a drug that became a blockbuster, the Berlin Wall was still standing.

• Their anemia drugs are under severe pressure from several wings of the government and payers. Medicare is restricting payments; the FDA has issued guidelines to reduce use and dosing of patients; the company has spent millions on lobbying -- not a good sign for a supposed technology powerhouse. I see a big slowdown in revenue and a fall of as much as 25% of profits due these problems.

• Symptomatic of the company's weakness and future failures was Friday's announcement - conveniently made after the market close - that its drug Aranesp failed to perform in trials for treating breast cancer patients. The drug was used as part of a pre-operative regimen of chemotherapy.

I normally don't spend a lot of time discussing the truly lousy companies -- although I do run a shorting service, ChangeWave Shorts, but Amgen is one of the godfathers of biotech, widely held and with near-mythical support form individual and institutional investors.

Right now, the stock is a "value trap."

Many uninformed or optimistic investors, individuals and professionals look at the fall in the stock price, and past revenue and earnings growth, and assume the company will find a way to reclaim all of these.

It will not.

AMGN has a weak pipeline, its core anemia drugs (60% of revenue) will see slowing revenue growth or even sales declines in the coming quarters, the company has already used financial tools such as layoff announcements and stock buybacks to prop up the stock price, and there is little left in its quiver. The only thing left is more disappointing earnings and a falling stock price. Stay away.

Up to now, I've told anyone who would listen that they should avoid orphan drug companies, and stick with big disease and big opportunities. But a recent event is changing my mind.

In August, a perennial money loser, Questcor (QSC), announced a change in the pricing of therapeutic gel Acthar. Acthar is approved to reduce muscle spasms from multiple sclerosis, but is mostly used off-label to successfully treat infants who suffer or die from convulsions. The change was radical and led to a 13-fold increase in sales.

As a result, in roughly five weeks this money loser generated revenues and profits in Q3 that were off the charts -- $14.8 million in sales and about $8.8 million in profit.

QSC's forecast was a bit convoluted as 30% of prescriptions are from Medicaid and the price seems to stay low for these patients, but when I run the numbers I see $60 million in profits for the coming 12 months, giving it a forward P/E of seven.

I am still very uncertain how the market is going to value the company -- although I need to disclose that I do own shares in this. Is the company going to pursue a business model like orphan-drug-megastar Genzyme, with a P/E north of 100? Or pay shareholders back with large dividends? Or what?

Technically, Acthar doesn't even have orphan drug status -- the company is aplying for that toi the FDA. But the company is right that insurance companies and other payers won't let babies die and demand for Acthar hasn't fallen in the face of the price incerase.

I don't think the company knows what business model it will ultimately pursue, but Questcor has begun to hit the investment conference trail so we may learn more in the coming months.

My natural bias is still against orphan drug outfits, but I've recommend, just a couple, in my newsletter, ChangeWave Biotech Investor -- although this puppy has yet to make the list. You just may want to keep an eye on it.

Folks, this is right out of a made for TV movie, maybe. Maybe not.

Vaxgen is one of those money sucking, never producing nothin' biotechs that have broken more individual investors hearts and ticked off more institutional investors than most. It became famous, then infamous, as part of the bio-defense mini-bubble with potential vaccines for anthrax and smallpox. The key word here is potential. They never materialized.

It is something of a wreck right now except for one thing - it has north of $80 million in cash, a market cap of $18 million and convertible debt (if I got it right) of $30 million, giving the company a negative enterprise value of $32 million. The cash burn is supposedly down to $4-$4.5 million a quarter so the company has too many years of cash on hand.

Why is it so cheap?

Because it plans to buy/merge with Raven biotechnologies, a privately held outfit doing work in monoclonal antibodies that has a deal with Wyeth. It does not appear to be a great deal, I could be wrong, but Wyeth has not hyped it and has little to say about it - and, well, who needs another monoclonal antibody company, anyway? The shareholders have yet to vote approval. And this is where it gets interesting.

If I were a shareholder, I would vote no and return the dough to investors via a dividend or liquidation of the company. You think, maybe, some others have the same idea? The largest investor (15% +) I could find (using Yahoo data that is a few weeks old - remember this is a pink sheet company and may have unregistered shares floating around) is Gruber & McBaine, a San Francisco hedge fund.

I spent a tough hour with the Gruber part of this fund a few years ago talking about our ChangeWave Alliance and he is the Webster's definition of, well, politely put, a no-nonsense guy.

Gruber & McBaine has been around a long time and made a lot of money, so it's hard to imagine a savvy investor like Mr. Gruber liking the Raven deal when so much cash might be available. C'mon, another monoclonal antibodies company?

I'm not the only one thinking this way - the stock popped yesterday, up from 42 cents to 55 cents.

Someone out there smells something brewing. If there is a shareholders revolt, the company - based on cash minus debt - is worth somewhere between a buck and a buck and a half per share if someone would force them to disgorge the cash.

The buzz is there -- I even got a call about Vaxgen from a killer of a hedge fund guy who specializes in little biotechs grossly undervalued because of unknown or rapdily changing financial conditions. This one hit his radar recently and it may have hit others.

So, have fun, do your own valuation analysis, don't forget to visualize what happens to VXGN's stock price if the shareholders approve the Raven deal. I am totally agnostic on this, I have no sense of the probability of the deal groing through - and I don't buy, own or recommend this or any other pink sheet stock to anyone. Nada, never.

Not to mention I have done all of two hours homework on this one. But this kind of stuff, once in a while, is a lot more interesting than reading FDA panel minutes, right? Just thought you might find it interesting too.

Earlier this week I wrote Vaxgen (VXGN.PK) was burning $4.5 millon per month -- it is $4.5 million per quarter.

Sorry if there was any confusion.

Reponse to question by Rubenstein about Amgen's Denosumab:

You can see by the market's reaction to the recent trial results what it thinks of this marketplace and the potential for Amgen. This is very different market than cancer -- much tougher to crack, lower-margin drugs and less growth potential. I don't think the results will push the company forward too much.

Denosumab, if approved, will eventually go head-to-head with very-low-cost generic Fosamax, a market leader -- and Fosamax (from Merck) is a pill, while Denosumab requires an injection.

The Amgen drug may only succeed with later-stage patients not responding well to Fosamax or comparable drugs, depending on how it compares in a head-to-head trial that will prdouce data in the first half of 2008.

A lot depends on that trial -- if Amgen's drug does not do demonstrably better in trial, why would a patient or their payer pay for an expensive injectible compared to an oral, low-cost generic?

Bottom line: stay away form Amgen until if hits 40 -- and when it hits 40, continue to stay away until it produces more and better news about its pipeline.

Merck has run up all year -- actually, for more than a year -- in part due to real success and in part due to increased efforts to explain its pipeline of products yet to be approved. The question for investors -- is it real or is it activity to support the price of the stock in the face of the Zocor patent rxpiration and another big one next year. I vote for the latter. Why?

Merck is facing a huge patent expiraiton next year -- Fosamax for bone density in February, less than tow months away --a $3 billion plus drug. Don;t be surprised if the company loses 80% of its market share by yearend, probabyl sooner. That is a lot of easy revenue to replace. And the drugs in the pipeline are not that close to approval. Are they worth investing in?

The first drug is a new and improved anti-cholesterol drug that would be better than generic statins. The problem is this drug is very similar to torcetrapib, a drug Pfizer (PFE) pulled from trials because of very serious side affects.

The second drug is an obesity drug that works the old fashioned way -- it suppresses the appetite and cravings rather than involve itelf with the metablism of hunger and saiety. Simply put, old technology that is very similar to the drug Sanofi-Aventis (SNY) Acomplia that the FDA has put in the deep freeze and will probably, in my opinion, not get to market in the US.

The consensus says the comapny will have flat revenue in 2008 -- yeah, right -- and they will earn $3.40. That they might do with cost cutting. So they are selling at a slight premium to the market -- about 18 times next year's earnings. With zero growth prospects.

One other thing to consider -- there is a reasonable probability price controls of many Merck products come into play in 2009 when the Dems or a weak Republican take the White House -- even some Repubicans back giving Medicare the right to negotiate prices -- so watch out. The run is over.

I am haning up my keyboard for a few days to enjoy the holidays -- you should do the same. Thanks for listening and se you in 2008.

Michael