Starter Studies: Amgen Inc. Colgate-Palmolive Company

Shareowner, Jul/Aug 2004

The Business

Amgen Inc. is the world largest biotechnology company. It uses cellular and molecular biology, and medicinal chemistry, to discover, develop and commercialize proteins, antibodies and small molecules that can extend the reach of traditional medicine.

Principal products include: Epogen (31% of product sales in 2003) is a protein that stimulates red blood cell production and is used to treat anemia associated with chronic renal failure in dialysis patients. Aranesp (20%) is a longer-lasting version of Epogen and is used to treat chemo-therapy-induced anemia as well as kidney failure.

Neupogen (16%) and Neulasta (16%). Both products stimulate the production of neutrophils, a type of white blood cell that decreases the incidence of infection arising from certain types of chemotherapy.

Enbrel (17%) reduces the signs and symptoms of asthma, improves physical function, and inhibits the progression of structural damage in arthritis patients.

Most products are manufactured at company facilities in the U.S. and Puerto Rico.

Future Growth Prospects

The aging population in North America and Europe is expected to drive demand for more drugs to treat diseases. Currently, Amgen has 14 products in later-stage human testing and several more at earlier stages.

In March, Amgen receive FDA approval to begin marketing Sensipar to treat aliments stemming from complications in kidney diseases.

More effective versions and new applications for existing drugs are also expected to drive growth. For example, Aranesp was developed as a longer-lasting version of Amgen's flagship product, Epogen.

Amgen's growth is also driven by acquisitions to strengthen and diversify its product base. For example, in 2002, Amgen acquired the rights to Enbrel as part of its acquisition of Immunex.

The Business

Colgate-Palmolive is a leading international consumer products company with revenues of some $10 billion. Products are sold in over 200 countries and over 75% of sales are outside the U.S. Well-known North American brands include: Colgate, Palmolive, Mennen, Ajax and Science Diet.

Last year, 34% of revenues were generated by products involving oral care like: toothbrushes, toothpaste, tooth whitener, mouth rinses, dental floss, as well as pharmaceutical products for dentists and other oral health professionals.

Personal care products (24% of revenues) include: soaps, shower gels, shampoos, conditioners, deodorants, and men's toiletries.

Household and fabric care products (29%) include dishwashing, cleaning sprays and laundry detergent.

The Hill's Pet Nutrition division (13%) sells nutritional products for dogs and cats in 86 countries and leads the premium pet food segment in North America, Japan and South Africa.

Future Growth Prospects

Improved Product Innovation. Colgate expands its product line primarily by adding new features to existing products (e.g. whitening toothpaste, powered toothbrushes and aromatherapy soaps). More product I innovations are expected to drive future revenue and earnings growth.

Acquisitions. Historically, Colgate has strengthened its Asian and Latin American oral-care businesses through acquisition. Recently, the company acquired GABA Holding, a European oral-care company that brings additional distribution channels and brand awareness, especially to European pharmacies.

Cost-Cutting. During the last decade Colgate has grown its earnings faster than revenues in part by increasing its gross profit margin from 47% to 55%. This greater profitability has been attributed largely to the use of SAP technology for identifying operating inefficiencies.