AMAG Pharmaceuticals' Feraheme: The Next Billion Dollar Drug

On June 30, 2009, the FDA approved Feraheme for the treatment of anemia in chronic kidney disease (CKD), both in pre-dialysis patients and those undergoing dialysis. Feraheme, sold by AMAG Pharmaceuticals (AMAG), received a clean label without any black box warnings. Now that Feraheme has been approved, the key question for investors is what the market opportunity is and how quickly it will be achieved.

Background on Feraheme

Feraheme (generic name: ferumoxytol) was originally developed as an imaging agent. Iron, in order to be safely given, must be in a complex and not as a free metal. The free metal can cause a number of side effects including rash, wheezing, and anaphylaxis. Feraheme has the lowest free iron of any commercially available preparation (Balakrishnan, 2009). It is quite different from any other preparation because it is an iron oxide nanoparticle with a polyglucose sorbitol carboxymethylether coating.

Because of its low levels of free iron, Feraheme can be given much more rapidly than any other iron formulation. 510 mg can be given in a 17 second injection. (A standard dose of 1 gram of iron can thus be given in two office visits of a few minutes each.) In contrast, other iron preparations require 1 gram of iron to be given over 8-10 doses over 15-30 minutes each of injection time.

From an outpatient perspective, Feraheme is far more convenient and cost effective (when considering physician time, nursing time, and patient time) than any other iron preparation.

Competition

There are four other competing irons on the market: Venofer (iron sucrose), Ferrlecit (sodium ferric gluconate), INFeD (low molecular weight iron dextran), and Dexferrum (high molecular weight iron dextran). The dextrans have a statistically significant higher level of adverse events, including fatal anaphylatic reactions, and are used much less often than Venofer or Ferrlecit. According to IMS, 2008 sales were:

• Venofer: $359M
• Ferrlecit: $152M
• Infed: $37M
• Dexferrum: $10M

Before Feraheme's approval, Venofer was the only iron approved for pre-dialysis, one of the reasons for its higher sales.

Impact from bundling

Starting in January 2011, it is likely that the Centers for Medicare and Medicaid Services (CMS) will begin to pay for dialysis patients using a so called "bundling" payment system. In this system, dialysis centers are reimbursed on a per patient basis and are thus have the incentive to keep costs as low as possible. It should be noted that this only affects the dialysis market and not pre-dialysis (which as we will see is larger).

When one factors in nursing and technician time, even in a bundled environment it is likely that Feraheme will be at least cost neutral if not cost beneficial. This is largely because of these ease of administration and the fact that patients can become iron replete much more quickly (in as short as 3 days) with Feraheme than other iron preparations. As discussed above, in the outpatient setting it is unmatched because of dramatic time (and hence cost) savings to physicians, nurses, and patients. (See Leerink-Swann report on AMAG dated June 26, 2009 for more on cost savings.)

Market size estimates

There are two current markets for Feraheme: CKD pre-dialysis patients and CKD dialysis patients. There are three future markets for Feraheme: vascular-enhanced MRI (VE-MRI) imaging, pediatric anemia, and generalized adult iron-deficiency anemia (IDA) from causes like heavy uterine bleeding, cancer, or gastrointestinal bleeding.

The wholesale acquisition costs (WAC) of Feraheme was announced to be $396.78 per vial. (Each vial contains 510 mg of iron.) This is approximately 40% higher than other IV irons. For the purpose of estimating market opportunity, it will be assumed that AMAG will negotiate supplier deals at a discount. To err on the side of being conservative, we will assume that each vial will be sold at $300, which is likely lower than will occur in practice.

The average dialysis CKD patient receives about 2.5 grams of iron each year. There are 354,000 dialysis CKD patients who are currently treated for iron deficiency (USRDS 2007 Annual Data Report). Most of these patients receive Venofer today. Given the cost savings of labor and nursing time, Feraheme should attain 50% market share. This is likely an underestimate, especially because for the next 1.5 years, dialysis clinics that use Feraheme will receive greater reimbursement due to the ASP + 6% structure that CMS currently employs.

Under these assumptions, peak sales in dialysis CKD patients will be:

$300 / vial * (5 vials / patient ) * 354,000 patients / year *

50% penetration = $265.5 million / year

There are approximately 1.6 million pre-dialysis patients who have iron-deficiency anemia. While this is 4.5 fold more patients than dialysis CKD patients, they require less iron than dialysis patients, only about 1-1.5 grams per year (we will conservatively use 1 gram in our estimates). In this market, Feraheme is the clear winner because of the tremendous savings to patients and physicians regarding time and labor costs. From a cost perspective, it has no real competition in this clinical setting besides oral iron, which is less efficacious and more uncomfortable for patients. Hence in this market we will hence assume 70% penetration:

Under these assumptions, peak sales in pre-dialysis CKD patients will be:

$300 / vial * (2 vials / patient ) * 1,600,000 patients / year *

70% penetration = $672M

VE-MRI is an interesting market, but more difficult to estimate. For many years, it has been clear that superparamagnetic iron oxide has been useful as a contrast agent (Kent, 1990). Nearly 30% of the 31 million annual MRI examinations use gadolinium (Colletti, 2008), which imparts the risk of renal toxicity (in particular nephrogenic systemic fibrosis). This has led to the search for other superparamagnetic agents without the toxicities of gadolinium. Iron also is superparamagnetic, and is a natural metal present in the body. However giving iron as a bolus has traditionally been restricted because of high levels of free iron, which can have a number of side effects such as rash, wheezing, and anaphylaxis. Feraheme elegantly solves these issues. Yet few details have been provided around Feraheme dosing in their clinical trial development plan. Given the present uncertainties regarding market size and dosing, no contributions of VE-MRI to peak sales will be factored.

Similar to the adult market, the current pediatric market is dominated by CKD patients. Pediatric patients are usually not treated with sufficient iron (Horl, 2007). Pediatric renal transplant patients are also commonly iron deficient (Kausman, 2004). Venofer and Ferrlecit are standard of care in pediatric patients today (Horl, 2007). It is unclear to what extent AMAG plans to develop this market, so for the purposes of estimating market size, it will be assumed to be negligible.

AMAG is in discussion with the FDA about running a phase 3 trial for generalized adult iron-deficiency anemia. This would include cancer patients, gastrointestinal bleeding patients, and women with abnormal uterine bleeding. These are much larger markets, totalling at least 4 million people in the United States. Due to administration advantages and cost savings, Feraheme is again the clear winner. It will be assumed that 20% market penetration will be achieved here, the main competitor being oral iron. (Neither Venofer or Ferrlecit are competitive due to administration inconvenience.) Assuming smaller needs of 1 gram of iron per year, similar to pre-dialysis patients, this yields:

$300 / vial * (2 vials / patient ) * 4,000,000 patients / year * 20% penetration = $480M

Because 20% is likely a low penetration estimate, this could obviously be dramatically higher.

Putting this together we have:

$265.5M + $672M + $480M = $1.4 billion

Factoring in Japan, Europe, India, China, and Latin America, a rough rule of thumb for estimating market size is that the the non-US markets in total are about the size of the US market. It will be assumed that AMAG will partner Feraheme in these markets, and receive 25% royalties.

Royalties then represent another 25% * $1.4 billion = $350M.

All told, using conservative assumptions throughout, peak sales should be:

$1.4 billion + $350M = $1.75 billion.

Time to adoption

Given the ASP + 6% reimbursement system, it is likely that many dialysis chains will adopt Feraheme for strong financial reasons within the next 3-6 months. Pre-dialysis adoption should occur even faster due to the lack of requisite contract agreements. Regarding generalized IDA, trial design discussions are underway with the FDA. It is likely that phase III trial would begin in early 2010, with submission by late 2010 and approval in 2011. Given time for sales and marketing efforts to reach their intended audience, peak sales could occur as early as 4-5 years from the present, or 2013-2014.

One element that should accelerate adoption is the renown of the AMAG management team. Their CEO Brian Perreira is a world leading nephrologist and former president of the National Kidney Foundation. Louis Brenner, Senior Vice President at AMAG, is a nephrologist and former business development head of Genzyme's renal division. Robert Brenner, another nephrologist, spent nine years at Amgen (AMGN), arguably the leading renal disease company in the world.

Impact from generics?

Watson recently announced that it may develop a generic version of Ferrlecit. Most analysts are skeptical if this will occur given the high trial costs (AMAG performed four phase III trials of Feraheme) and already low sales of Ferrlecit. Even if Watson did pursue this route, it would not be of relevance until 2011, and probably never gain relevance for the largest markets of pre-dialysis CKD and generalized IDA. Ironically, Watson had filed a Citizen's petition trying to block the entrance of generic competitors into the market. It will be of interest to watch how it now shifts its position for presumably financial reasons.

Conclusions

For patient investors, AMAG (market cap $775M as of close of market July 30, 2009) represents one of the best risk/reward profiles in the biotechnology space given the $1-2B market for Feraheme, an already approved drug.

Disclosure: The author's firm is long AMAG.

Comments

[User 465720:]

A quick comment on your analysis of the dialysis population. You cite staff time and visits as a driver for cost savings and, therefore, for uptake. But, a typical dialysis patient spends hours, three times per week at a dialysis center, where there should be pleanty of staff to administer the lower-cost options. So, I am not sure that rationale holds up.

Aug 03 08:12 PM