Amgen's Master Plan To Generate Biosimilar Blockbusters

Mar.15.13 | About: Amgen Inc. (AMGN)

Amgen

On February 8, 2013 Amgen (NASDAQ:AMGN) CEO Robert Bradway, at a meeting in New York, said the company plans to launch six biosimilars beginning in 2017: four cancer drugs and copies to two Enbrel rivals, AbbVie's (NYSE:ABBV) Humira and Johnson & Johnson (NYSE:JNJ) and Merck's (NYSE:MRK) Remicade.

The four cancer drugs are biosimilar versions of Roche's (OTCQX:RHHBY) Avastin, Herceptin and Rituxan, as well as Eli Lilly's (NYSE:LLY) Erbitux.

In other words, Amgen is going after the six largest biologicals in the world market generating about $41 billion in sales, based on the drug's peak years.

The world's largest biotechnology company believes it has a unique opportunity to become a major player in biosimilars because of its deep understanding of the manufacturing process of biologicals.

"Biosimilar medicines are going to be a reality," said Sean Harper, Amgen's research head. "It's actually harder to make a biosimilar copy of something than it is to just do a new drug application. We feel that these medicines are very valuable medicines and in many parts of the world patients have no access to them because they're so expensive." Still, he said, there will only be a few competitors for each drug. " I don't think there are going to be dozens," said Harper. "It will benefit patients and it's something that we can do extremely well."

Biologicals are complex drugs, made in living cells instead of chemical factories, account for roughly one-quarter of the nation's $320 billion in spending on drugs, according to IMS Health. And that percentage is growing. They include some of the world's best-selling drugs, like the rheumatoid arthritis and psoriasis drugs Humira and Enbrel and the cancer treatments Herceptin, Avastin and Rituxan. The drugs now cost patients, and their insurers, tens or even hundreds of thousands of dollars a year.

Partners

Developing biosimilars constitute a part of the collaboration deal between Amgen and Actavis (ACT), formerly Watson Pharma.

A third party, the Dutch company Synthon, has signed a global licensing deal with Amgen and Actavis in 2012 to develop a biosimilar version of Herceptin.

Synthon successfully completed a Phase 1 clinical trial in Europe showing bio-equivalence between its trastuzumab biosimilar and Herceptin. The company is preparing for a Phase 3 trial in Europe.

Amgen and Actavis will finance all future developments worldwide, including Phase 3 trials, as well as manufacturing and marketing. Synthon gets an initial payment and royalties on net sales.

Two fronts

Amgen is clearly working on two fronts.

On one front, Amgen and Genentech are promoting a change in state laws to restrict pharmacists substituting biosimilars for brand name products.

Bills have been introduced in eight states recently and more are coming. The Virginia House of Delegates already passed one such bill by a 91-to-6 vote.

Proponents say such measures are needed to protect patient safety because biosimilars are not identical to the originals. Biologics are much more complex than pills like Lipitor or Prozac.

Opponents to the bills, generic drug companies and insurers characterize the bills as preemptive moves to deter the use of biosimilars, even before any get to the market.

One reason generic pills are so inexpensive is that state laws generally allow pharmacists to substitute a generic for a brand-name drug unless the doctor explicitly asks them not to. That means generic drug manufacturers need not spend money on sales and marketing.

Some of the proposed bills require patient consent for the substitution, for the pharmacist to notify the doctor if a switch is made and for the pharmacist and doctor to maintain records of the switch for years.

The new laws would also require that the FDA determine if a biosimilar is "interchangeable" with the branded product, in other words is it the same, before it is allowed to be substituted. With biologicals that determination is extremely difficult.

A related battle on the federal level is whether biosimilars will have the same generic name as the brand name product. If they did not, pharmacists could not substitute the biosimilar for the original, even if states allowed it.

On the other front, while defending its own branded drugs, Amgen is preparing to launch its own biosimilars. Some analysts are scratching their head, like Credit Suisse and asking: "does Amgen wants to be a game keeper or poacher?"

But it is not that complicated.

Amgen and other biotechs are campaigning state governments to make it harder to substitute a biogeneric for a brand: the harder it is to launch a new biosimilar, the better Amgen will do in both markets.

Failures

There are emerging signs of a shakeout in the biosimilars industry. Several high-profile projects have faltered in recent months.

Merck & Co. dissolved a dedicated biosimilar unit last year and in December retreated from a plan to copy arthritis treatment Enbrel after maker Amgen pulled off a surprise patent extension. Merck then restructured the deal around a marketing pact with Samsung and biotech partner Biogen-Idec (NASDAQ:BIIB).

Last fall, Samsung Electronics Co.'s biosimilar unit suspended trials for a version of the cancer drug Rituxan, and generic-drug maker Teva Pharmaceutical (NASDAQ:TEVA) halted its own Rituxan push.

AbbVie says it will fight to defend all 200 patents it has tied to Humira.

For the time being the pathway for biosimilars is primarily open in Europe, with the U.S. years behind schedule. Also, it appears that only the strong will survive in this business.

Investor summary

Amgen is certainly on the move in all directions.

The company upped its adjusted 2013 earnings forecast to $7.05 - $7.35 per share, from last month's forecast of $6.85 to $7.15. The 2013 revenue forecast remains at $17.8 billion to $18.2 billion.

The late stage pipeline contains some drugs with mass market potential such as AMG 145 for the treatment of hyperlipidemia (a follow up to Lipitor), AMG 785 for postmenopausal osteoporosis patients and AMG 827 for the treatment of psoriasis. Results of the trials are expected in 2014.

Enbrel continues to be the leading choice for new-to-biologic rheumatoid arthritis patients. Prolia and XGEVA combined delivered $1.2 billion in sales in 2012., and they are expected to exceed $3 billion in revenues over time.

Growth-phase products Sensipar (for endocrine disorder), Vectibix (for metastatic colorectal cancer), and Nplate have strong momentum.

The company also plans to expand into emerging markets by reaching $1 billion in sales in 2015 and plans to expand mainly into Japan and China. Currently, the company is looking for a partner in Japan that will provide a stand-alone, fully-scaled subsidiary by 2020. Amgen expects to launch its first products in the Japanese market by 2016.

The company has a multi-pronged strategy for China that includes establishing a research presence and local manufacturing and also expects to launch its first products in the Chinese market by 2015.

The recent Affymax (OTCPK:AFFY) disaster also did not hurt Amgen's business.

All said, Amgen's current management does its very best to compensate for the expected decline of its traditional products and keep its shareholders loyal.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.