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For the past two and a half decades Amgen (AMGN) and Johnson & Johnson (JNJ) had the US Epogen market divided up among themselves: Amgen marketing the recombinant human erythropoietin primarily to dialysis patients and Johnson & Johnson commercializing it in all other indications.

Amgen's products are Epogen and Aranesp and Johnson & Johnson's product is Procrit in the US and Eprex overseas. Numerous competing products exist in Europe including Mircera from Roche, Retacrit by Hospira (HSP), Binocrit from Sandoz and Eporatio from Teva (TEVA), among others.

All currently prescribed anemia drugs are injectables.

Pills

EPO pills are a new technology currently in development. Their mechanism of action is entirely different from the one used by Amgen and Johnson & Johnson products.

The new drugs mimic the body's response to hypoxia, or low oxygen levels, by increasing the natural production of EPO in the kidneys.

Erythropoiesis is the production of red blood cells in the bone marrow, a complicated, multi-faceted process requiring precise coordination to meet the demands of the body for oxygen.

HIF is an important regulatory protein that orchestrates the body's emergency response system to hypoxia. The two elements crucial to proper formation of red blood cells are erythropoietin (EPO) and iron.

HIF promotes EPO secretion from the kidney and other non-renal sources (e.g., liver) and up-regulates the EPO receptor (EPO-R) in the bone marrow.

When activated, HIF coordinates expression of genes that mediate cellular and physiological responses to protect against tissue damage and cell death and to restore oxygen balance.

FibroGen, a San Francisco based privately held company, is engaged in the discovery and development of novel HIF prolyl hydroxylase inhibitors (HIF-PHI).

The new pills stabilize HIF that coordinates all elements of erythropoiesis necessary for proper formation of mature red blood cells filled with iron-rich, oxygen-carrying hemoglobin molecules.

Fibrogen has built a large patent portfolio related to the process.

Upside and downside

There are two potential advantages of the new HIF stabilization therapy. First, these agents are orally active small molecules and thus there is potential for a noninjectable anemia therapy in the future.

Second, these molecules are able to modulate a number of other genes involved in erythropoiesis (for example the erythropoietin receptor, transferrin, transferrin receptor, ferroportin, and divalent metal transporter 1) in addition to the EPO gene. Furthermore, there is evidence that HIF stabilization may downregulate the production of hepcidin which is a small peptide produced largely by the liver, and is the master regulator of iron metabolism.

There are also two potential downsides. In a phase 2 trial of Fibrogen's first agent, FG-2216, a patient developed fatal hepatic necrosis, and this was related temporally to administration of the HIF stabilizer. As a result of this single death, as well as other patients who developed abnormal liver enzyme test results, the FDA suspended the trial. The follow-up improved HIF stabilizer molecule FG-4592 is now in phase 3.

The second potential downside is the upregulation of several hundred other hypoxiasensitive genes, including those involved in glucose regulation, angiogenesis, etc.

One of the most concerning has been the potential ability of these compounds to upregulate VEGF (vascular endothelial growth factor), which may have potential adverse effects on enhancing tumor growth. Thus, the omnipresent nature of this new class of erythropoietic molecules requires careful evaluation.

FibroGen and Astellas

FibroGen and Japanese pharma Astellas are in a partnership to develop a pill for anemia in patients with chronic kidney disease (CKD). The pill, called FG-4592 or ASP1517, is currently in Phase 3 trials.

In Phase 2 the drug has been able to correct and maintain hemoglobin levels in newly treated CKD patients not yet receiving dialysis and in patients with end-stage renal disease receiving dialysis without the supplementation of intravenous iron. No serious side effects experienced so far: no increased risk of cardiovascular events, thrombosis, or increase in blood pressure.

FibroGen's clinical trials involved more than 700 subjects including patients with and without anemia. The trials of FG-2216 and FG-4592 showed clinically significant increases in hemoglobin desired for treating anemia.

Astellas licensed the European and Japanese rights to FG-4592 in 2006 from FibroGen in a deal potentially worth more than $2 billion.

FibroGen retains rights to the drug in the US and for uses other than anemia. Astellas has the rights in Japan, Europe, the Middle East and South Africa. FibroGen and Astellas will share development costs in the U.S. and Europe, and Astellas will make milestone payments to FibroGen. FibroGen has received a $50 million milestone payment from Astellas at the start of the Phase 3 program.

Mike Allen, head of urology and nephrology at Astellas, said the new drug marked a major advance compared to EPO injections, since it did not raise blood pressure, a concern with EPO. And since it can be given orally at home, it should be particularly suitable for kidney patients who are not on hospital dialysis.

Yet any previous results will have to stand up in the Phase 3 trial, which is underway.

Glaxo

GlaxoSmithKline (GSK), the UK pharma giant, is following close behind Astellas and partner, as it is testing a pill for the same indication in Phase 2. The red blood cell-boosting pill, codenamed GSK 1278863, is considered one of most promising candidates in Glaxo's pipeline.

The basic idea comes from the 2001 discovery of prolyl hydroxylase enzymes in the University of Oxford lab of Peter Ratcliffe. Ratcliffe sees a role for them in multiple areas. In addition to treating anemia, they might help with major circulatory problems such as angina or bad circulation in the legs, aid repair to the body after tissue is damaged, and reduce inflammatory problems such as colitis in the gut.

Ratcliffe said: "The potential advantage over EPO is that these drugs are pills and they also do other things that support the action of EPO, including facilitating the absorption of iron. It could be an important new area of medicine, which is exciting to explore."

Akebia

Another private U.S. company, Akebia Therapeutics, also has a similar HIF-prolyl hydroxylase inhibitor in Phase 2 trials.

The company's lead compound, AKB-6548, is a once daily, oral HIF2 stabilizing agent in phase 2 clinical trials for chronic anemia.

Cincinnati, Ohio, based Akebia is backed by a national syndicate of venture capital firms.

The chronic kidney disease market

Chronic kidney disease is a crisis in the US healthcare system. In 2005, CKD accounted for 27% of Medicare expenses.

In the U.S., prevalance of CKD has increased dramatically in the past 20 years, from 10 percent of the U.S. adult population (approximately 20 million adults) per the National Health and Nutrition Evaluation Survey for the years 1988-1994, to 15 percent (or approximately 30 million adults) in the same survey for 2003-2006.

In 2009, total Medicare costs for CKD patients were $34 billion, a major burden on the healthcare system.

Approximately 5.6 million CKD patients are in the later stage of disease (Stages 3b-5) and it is estimated that 1.1 million of these later stage nondialysis patients are anemic with hemoglobin levels below 11 g/dL. Prevalence of anemia increases as CKD progresses. In addition to these 1.1 million nondialysis patients with anemia, nearly all hemodialysis patients (350,000) become anemic due to hemodialysis treatments.

In CKD patients anemia is associated with increased hospitalization rates, increased mortality, and reduced quality of life, but the condition tends to be undertreated due in part to the cost and the complexity of treatment with injectable erythropoiesis-stimulating agents ((ESAs)) and intravenous iron supplements.

Nearly all patients on dialysis have easy access to ESA therapy, but only 2 percent of CKD patients receive treatment with ESAs prior to referral to a nephrologist in the U.S.

Under-treatment of anemia in the primary doctor's office in the US can be attributed in part to reimbursement rules, requiring physicians to buy ESA inventory and bill after procedures. This deters doctors, especially since anemic patients make up a small portion of their total clientele.

It is estimated that from the 1 million late-stage CKD patients with anemia in the US less than 20 percent are treated with ESAs prior to starting on dialysis.

Investor's summary

Procrit/Eprex's worldwide sales were $1.46 billion in 2012, a 9.9 percent increase from 2011.

Sales of Amgen's Epogen and Aranesp have dropped in the past few years over concerns about the side effects and as a result, the global market for EPOs has shrunk from a peak of $12 billion in 2006. In spite of that, Amgen still maintains a multi-billion-dollar business from the drugs. Amgen's Aranesp sales for 2012 were $2.04 billion and Epogen sales were $1.94 billion.

Sales of injectable EPO products are a major source of income for Amgen and a significant one for Johnson & Johnson.

Amgen has become a giant company on the foundation of its lucrative monopoly in injectable EPO products supplied to kidney dialysis patients.

The Epogen businesses of Amgen and J&J are challenged by the new pills only if no serious adverse events accumulate in the trials ongoing - if the drugs are approved by the FDA and if they are successfully launched in the marketplace.

Amgen's business model could be in danger only if it will sit through all this and do nothing, which is highly unlikely. It is fair to assume that once the success of the EPO pills is obvious or even before that, Amgen will find a way to acquire patents to make them itself or buy companies that do that.

The pills are not on the investor's mind for the time being, but things could change fast when it becomes clear to everybody that a major change is possible in the worldwide EPO injectable market which currently brings in about $8 billion a year.

Source: EPO Pills: A Challenge For Amgen And Johnson & Johnson