This is a rather simple insight I will be exposing in this article, so it should be short. Today, one of the great movers in the stock market is Rockwell Medical (NASDAQ:RMTI), up a full 37% as I write this (and that's on top of a significant rally yesterday as well). The reason for this move is the result of yet another trial on a product candidate that RMTI is fielding. The product candidate is SFP, an iron supplement that's delivered through the normal hemodialysis process.
What SFP does, is regulate the levels of iron in the blood, and its main benefit comes from a decreased need for EPO (Erythropoietin). With SFP it thus becomes possible to maintain target hemoglobin levels using smaller quantities of EPO. Both dialysis centers and payers (Medicaid, insurers) certainly will be happy to have a cheap product achieving that objective, since EPO is so expensive.
So who loses? That's the insight. There is a loser. The loser is the supplier of EPO. There is one company that's almost synonymous with EPO, and that's Amgen (NASDAQ:AMGN). In truth, though, Amgen is no longer as reliant on EPO as it once was. But still, checking its latest 10-Q we learn that 22.3% of its revenues come from EPO (Aranesp, Epogen). While not as relevant as it once was, it's still nearly 1/4th of Amgen's revenue base.
In short, the success of SFP could easily be Amgen's problem. And that's the insight. Amgen will be seeing headwinds from SFP in its Aranesp business (perhaps not so much on Epogen because it's losing patent protection now, so it is going to be pressured anyway). And to make matters worse, though in unrelated fashion, Amgen's largest product - Neupogen - also loses patent protection by the end of 2013.
The success of Rockwell Medical's SFP will come at the expense of Amgen since 22.3% of Amgen's revenues come from EPO and SFP is designed to make EPO less necessary.
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.