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This is my second article in a series of articles exploring how Amgen (NASDAQ:AMGN) can, and likely will, achieve meaningful growth in revenue and earnings over the next few years. While I am pleased that Amgen reported a great quarter and year today, my focus remains on the mid-to-long term story for the company. As I previously noted, my bullish attitude towards the stock is based on the premise that Amgen has five significant sources of growth to draw on over the next decade:

  1. Growth from currently marketed products

  2. Growth from acquired products (both recent and future acquisitions)

  3. Growth from current pipeline products

  4. Growth from manufacturing and marketing biosimilars

  5. Growth from international expansion efforts (e.g., Japan and China)

While my last article (Part 1) looked at the first and second sources of growth, this article (Part 2A) and the following article (Part 2B) will explore the third -- that is, growth from Amgen's current pipeline. Subsequent articles will address the fourth and fifth sources of growth relating to biosimilar manufacturing and marketing and international expansion efforts.

With that, let's get started . . .

Growth from Current Pipeline Products

Amgen has one of the most underappreciated product pipelines among large-cap biotechs and pharmaceuticals. I believe many analysts and market participants have started to realize this fact, as evidenced by the recent rise in Amgen's share price. In particular, Amgen has ten pipeline products that are expected to generate registration-enabling data by 2016. These products, along with their lead indication and peak annual sales estimates, are listed in the table below.

(The peak annual sales estimates shown in the table above either stem from analyst estimates or from my own analysis based on publicly available information).

An adequate discussion of these ten late-stage pipeline products will take quite a bit of space. For this reason, I have decided to split my discussion of this topic into two articles. This article (Part 2A) will explore the two cardiovascular and five oncology products in Amgen's pipeline while my next article (Part 2B) will explore the three products listed under "Other Therapies." As the above table indicates, I believe Amgen's late-stage pipeline has the potential to generate total peak sales of about $16 billion between now and 2023 to 2025. Of this $16 billion, I expect $5.5 billion to come from Amgen's cardiovascular therapies and $5.5 billion to come from Amgen's oncology (cancer) therapies (including Kyprolis).

1. Cardiovascular Therapies

A. Evolocumab

Evolocumab is perhaps the most important product in Amgen's pipeline. Evolocumab enhances the liver's ability to remove bad cholesterol from a patient's blood by inhibiting a protein known as PCSK9, and is therefore being evaluated as a therapy against cardiovascular disease. The exciting news for shareholders is that evolocumab, along with other PCSK9 inhibiting drugs, have the potential to replace the multibillion dollar statin drug market, as these new drugs have proven to be far more effective at lowering cholesterol in recent studies. When I say "multibillion," I really do mean "multi" as in plural. In 2007, Statins, including Pfizer's (NYSE:PFE) Lipitor and AstraZeneca's (NYSE:AZN) Crestor, generated about $34 billion in sales. Lipitor alone, the best selling drug of all time, racked up an estimated $125 billion in sales for Pfizer between 1997 and 2011. Amazingly, Lipitor was still able to generate sales of $9.6 billion in 2011, which was its last year under patent protection.

Unfortunately, Amgen is not the only company developing a PCSK9 inhibiting drug. Regeneron (NASDAQ:REGN) is developing a similar drug in conjunction with Sanofi (NYSE:SNY), and Pfizer also has one in the works. Nevertheless, in this case, I believe the pie is large enough for each of these companies, including Amgen, to have a large slice of the action. The following slide was presented as part of Amgen's Annual Business Review meeting in February 2013 and gives us an idea of the potential market for PCSK9 inhibiting drugs.

As you can see, in 2011, there was an estimated 265 million people living with dyslipidemia, or high cholesterol, in the US, EU5, and Japan. Of these 265 million people, only about half were ever formally diagnosed, and of those only 95 million were treated with drugs. Of the 95 million people treated with drugs, 45 million had coronary heart disease or the equivalent, and of those 5 million were statin intolerant. Furthermore, of the 45 million with coronary heart disease, 17 million had low-density lipoprotein cholesterol levels above 30% of their target level. At a minimum, I expect PCSK9 drugs will be used in the statin intolerant patients and those who are unable to get cholesterol levels below the 30% target level while on statins.

Needless to say, there is an enormous potential for Amgen and others to make money treating/preventing heart disease. Indeed, a recent article reported that about one-quarter of Americans over 45 now take statins and that heart disease is the number one killer of both men and women in the United States. In fact, one in four deaths in the United States, or about 600,000 annually, is attributable to heart disease according to the Centers for Disease Control and Prevention. Moreover, it is estimated that healthcare costs and lost productivity associated with coronary heart disease in the United states exceeds $100 billion annually.

Analysts estimate that evolocumab could generate $5 billion in peak annual sales for Amgen by 2023. But, if the stars align in Amgen's favor, I think evolocumab could achieve peak annual sales of between $7 and $10 billion. Consider the following: (1) brand name statins, such as Lipitor and Crestor, sold for about $160 per month retail in 2011 and (2) an estimated 19 million people bought statins four or more times in 2005. If we assume conservatively that the wholesale price for PCSK9 inhibiting drugs comes in at $100 per month and that 20 million people take these drugs an average of six times per year (although probably more due to population growth), then we get market for PCSK9 inhibiting drugs of about $12 billion annually. With this market size, Amgen could rake in varying levels of revenue from evolocumab, depending on its achieved level of market share:

Of course, if the class PCSK9 inhibiting drugs are ultimately able to replicate the grand level of sales achieved by statins ($34 billion in 2007), it is entirely possible that Amgen's evolocumab could hit the $10 billion mark with only a 30% market share. At the $10 billion level, evolocumab would be in league with Gilead's (NASDAQ:GILD) mega-blockbuster Hepatitis C drugs Sovaldi and ledipasvir, which are expected to collectively reach peak annual sales of about $12 billion in the next five to ten years. While I recognize that $10 billion in peak sales for evolocumab is mere speculation at this point, I think it is important for all investors to explore the possibilities and probabilities from time to time to get an idea of what could happen. For the purposes of my overall revenue estimate for Amgen in this series, I have assumed peak annual sales of $5 billion for evolocumab by the end of 2023.

B. Ivabradine

In September 2013, Amgen announced that it had obtained commercial rights in the U.S. to ivabradine from Servier, a privately-run French research-based pharmaceutical company. Ivabradine, approved in the EU as Procoralan, is used to treat chronic heart failure and stable angina in patients with elevated heart rates. Amgen plans to use existing data for ivabradine to file for approval this year.

As far as peak annual sales potential is concerned, I won't go into much detail here because I don't think it will have a material impact on Amgen's overall sales. Although I had some difficulty trying to estimate the market size for this type of drug based on the information available to me, I did find one article indicating that the market for chronic heart failure drugs could reach $3 billion by 2022. This doesn't seem like a huge market, so I have assumed peak annual sales of ivabradine in the United States to reach $500 million by 2023. This may seem a little optimistic, but I have to believe that Amgen's management sees potential in ivabradine or it wouldn't have been willing to trade its rights to commercialize omecamtiv mecarbil in Europe to obtain the drug. As you may be aware, Omecamtiv mecarbil is in Phase 2 studies for the treatment of heart failure and is being developed under a collaboration agreement between Cytokinetics (NASDAQ:CYTK) and Amgen.

2. Oncology Drugs

Amgen is building a presence in the oncology space, that I believe will be a key to the company's success going forward. Amgen has an excellent website where you can view animations showing the various ways its investigational cancer therapies work. Below are the five cancer therapies in late-stage development.

A. Kyprolis

I wrote about Kyprolis in Part 1 of my series, so I won't go into detail here. In short, I estimate peak annual sales for Kyprolis of $2.5 billion by 2023, which is within the $2 and $3 billion range put forth by many analysts.

B. Talimogene laherparepvec (T-vec)

T-vec is a novel cancer immunotherapy drug, meaning that it works by stimulating the body's own immune system to reject and destroy tumors. Amgen is developing T-vec for the treatment of metastatic melanoma. Amgen acquired the drug when it acquired BioVex for up to $1 billion in 2011. T-vec is in Phase 3 trials and registration-enabling data is expected to be announced sometime during the first half of the year.

I will refrain from discussing T-vec in much detail here, as several great articles discussing the drug have recently been published on Seeking Alpha, including this one. Basically, it is thought that T-vec will have a place in the treatment of stage III melanoma, but will likely find itself outgunned in the much larger stage IV arena by the likes of nivolumab, an anti-PD1 drug being developed by Bristol-Myers (NYSE:BMY), and lambrolizumab, an anti-PD1 drug being developed by Merck (NYSE:MRK). From what I have read, analysts believe T-vec could achieve peak annual sales of $1 billion based on the size of the smaller stage III treatment market. For the purposes of my overall revenue estimate for Amgen in this series, I have assumed peak annual sales from T-vec of $1 billion by 2023.

C. Blinatumomab

Blinatumomab, like T-vec, is a novel cancer immunotherapy drug but with a different mechanism of action. It is a bi-specific T-cell engager (BiTE) in Phase 2 trials for the treatment of acute lymphoblastic leukemia (ALL). BiTEs work by engaging a patient's immune system in a fight against cancer cells. Specifically, as shown in the diagram below, BiTEs form a link between a patient's T-cells and tumor cells and trigger the naturally occurring process of programmed cell death.

Image courtesy of Wikipedia.

In December 2012, Amgen reported positive Phase 2 results from a study evaluating the drug in adults with relapsed refractory ALL. ALL is not the most common type of leukemia, accounting for only about 12% of total leukemia diagnoses. Nevertheless, it is the most common form of leukemia in children under age 15 and therefore there is a real need for effective drugs in this market. In 2013, it is estimated that 42,000 people were diagnosed with ALL worldwide, of which 6,000 were located in the United States.

I could not find an estimate of peak annual sales for blinatumomab, so I came up with my own rough approximation. GBI Research, for instance, anticipates that the global leukemia therapeutics market for the four major types of leukemia, including ALL, could grow to $7.6 billion by 2018, which is almost double the $4.0 billion market in 2011 (a CAGR of 9.5%). Since ALL accounts for roughly 12% of all leukemia cases, we can reasonably infer that the global ALL therapeutics market will grow to about $1.0 billion by 2018 (12% of $7.6 billion). Thus, we should anticipate global sales of blinatumomab to be less than $1.0 billion by 2018.

So, what is a reasonable estimate for peak sales of blinatumomab? Well, Ariad (NASDAQ:ARIA) received FDA approval at the end of 2012 for ponatinib (marketed as Iclusig) for the treatment of both ALL and chronic myeloid leukemia (CML). According to an article by FiercePharma, Iclusig is priced at about $10,000 per month. If we attribute this pricing level to the dosing requirements of Amgen's blinatumomab, we can come up with a rough estimate of sales for each patient treated with the drug. A press release discussing the results of Amgen's Phase 2 trial of blinatumomab indicated that patients were treated with the drug for four weeks at a time for up to five cycles -- in other words, for up to 5 months total. Given this information, it is reasonable to conclude that Amgen could generate up to $50,000 in sales (5 months x $10,000) for each patient treated with blinatumomab.

Assuming that Amgen is ultimately able to treat 30% of the 46,000 patients diagnosed with ALL worldwide each year, and further assuming that Amgen is able to charge an average of $40,000 per patient, I believe Amgen could generate $500 million in annual peak sales from blinatumomab by 2024. This seems reasonable given that the global ALL therapeutics market will continue to grow beyond 2018 (for instance, if we assume that the $1.0 billion ALL market will grow at a CAGR of 5% for five years, the market will be $1.3 billion by the end of 2023). While $500 million won't move the needle much for Amgen, there is the potential that this novel immunotherapy could be used to treat other forms of cancer. In fact, Amgen has received orphan drug designation for blinatumomab from the U.S. Food and Drug Administration (FDA) and the European Medicines Agency for not only the treatment of ALL, but also chronic lymphocytic leukemia (CLL), hairy cell leukemia, prolymphocytic leukemia and indolent B cell lymphoma.

D. Trebananib

Trebananib is an angiogenesis inhibitor, which basically means it inhibits the formation of blood vessels needed to feed nutrients and oxygen to growing tumors. The idea is that tumors will shrink or be prevented altogether since they cannot grow beyond a certain size in the absence of oxygen and other essential nutrients. Amgen is evaluating Trebananib for the treatment of recurrent ovarian cancer. The drug is currently in Phase 3 trials and registration-enabling data is expected sometime during the second half of this year.

The ovarian cancer drug market is expected to triple over the next decade, increasing from $460 million in 2011 to $1.4 billion in 2021, and angiogenesis inhibitors are expected to account for more than 60 percent of sales by the end of this period (2021). It appears likely that Roche's Avastin and Amgen's Trebananib could become the dominant players in the market over the next few years. In 2008, approximately 225,000 women were diagnosed with ovarian cancer worldwide. In 2013, approximately 22,240 new cases of ovarian cancer were diagnosed in the United States alone. And, interestingly, since the mid-1970s, the incidence of ovarian cancer in women over the age of 65 has increased by about 50%.

Based on the assumption that (1) the ovarian cancer drug market grows to $1.6 billion by 2023, (2) angiogenesis inhibitors are able to account for 60% of the market, and (3) Trebananib sales account for just over 50% of total angiogenesis drug sales, I believe Trebananib could reach peak annual sales of around $500 million by the end of 2023. While $500 million is by no means a game changer for Amgen, Trebananib could play a bigger role in the future, as it is in early phase trials for several other indications, including breast cancer, renal cancer, and various solid tumors.

E. Rilotumumab

Last but not least of the oncology drugs is Rilotumumab. Rilotumumab is a human monoclonal antibody that inhibits the action of hepatocyte growth factor/scatter factor (HGF/SF). Studies have shown that the activity of HGF/SF and its receptor c-Met are linked to disease progression in several types of cancer. Amgen is investigating Rilotumumab for the treatment of gastric (stomach) cancer and initiated Phase 3 studies for this indication in 2012.

While stomach cancer is not as common as it used to be in the developed world, it is still fairly common in the developing world and in some parts of Asia. It is estimated 990,000 people were diagnosed with stomach cancer worldwide in 2008. China is known to have the largest population of stomach cancer patients, with about 400,000 new cases being reported there annually. In fact, stomach cancer is third deadliest form of cancer in China, lagging only behind lung and liver cancer. I'm sure Amgen is well aware of this fact and believe it is a big factor behind the company's push into China through its recent joint venture with Zhejiang Beta Pharma Co., Ltd.

As for stomach cancer in the developed world, approximately 21,600 new cases were reported in the United States in 2013 and approximately 83,000 new cases were reported in Europe in 2008. Interestingly, South Korea and Japan have one of the highest rates of stomach cancer, which is thought to be linked to the high salt content of their diets. In 2008, an estimated 20,000 and 40,000 people were diagnosed in South Korea and Japan, respectively.

So how big is the stomach cancer targeted drug market? Well, for starters, Roche's (RHBBY) Herceptin is currently one of few targeted cancer drugs approved for the treatment of advanced stomach cancer. But because Herceptin is also used to treat a number of other cancers, we can't really look solely to historical Herceptin sales for the answer. That said, a look at Herceptin pricing might give us a way to do some back-of-the-envelope math to estimate the sales potential for rilotumumab. According to one academic article on the cost efficacy of Herceptin use, the cost of treating stomach cancer with Herceptin was about $16,000 per patient on average. If rilotumumab is ultimately proven to be more effective than Herceptin, I would expect Amgen could obtain the same or slightly higher pricing for the drug.

Assuming rilotumumab is ultimately used to treat 30,000 stomach cancer patients per year in the developed world at an average price of $20,000 per patient, and 80,000 stomach cancer patients per year in the developing world at an average price of $5,000 per patient, it is not unreasonable to conclude that rilotumumab could see peak annual sales of $1 billion by the end of 2025 ($800 million by the end of 2023).

Conclusion

My goal in this article was to make the following points:

  1. Amgen's pipeline is robust, with ten pipeline products generating registration-enabling data between now and 2016.

  2. Annual revenue from Amgen's cardiovascular pipeline products could amount to $5.5 billion by the end of 2023, as indicated in the table below.

  3. Annual revenue from oncology pipeline products could amount to $2.8 billion (excluding Kyprolis) by the end of 2023, as indicated in the table below. If we include Kyprolis sales, total oncology sales could reach $5.3 billion ($2.8 billion + $2.5 billion) by the end of 2023 (recall from my last article that I estimate Kyprolis will reach peak annual sales of $2.5 billion by 2023).

Of course, it is possible that a few of the pipeline products featured in this article will never make it to market. Nevertheless, I think it is fairly likely the products currently in Phase 3 trials will eventually be approved, and I believe some of my estimates to be conservative because they do not include sales from future indications.

The table below combines my sales estimates for Amgen's currently marketed products and Onyx-acquired products discussed in Part 1 (which includes Kyprolis) with my sales estimates for the cardiovascular and oncology pipeline products (excluding Kyprolis) discussed in this article.

As this table indicates, despite declining sales in currently marketed products, I expect Amgen to see robust sales growth between now and 2017 due to the combined effect of growth from Onyx-acquired products and growth from Amgen's cardiovascular and oncology pipeline. The exciting thing is that this level of growth looks achievable without even considering revenue added from the three late-stage pipeline products that I plan to discuss in my next article (Part 2B) -- specifically, Romosozumab, Brodalumab, and Velcalcetide. Until then, please feel free to comment.

Source: Don't Underestimate Amgen: Part 2A, Cardiovascular And Oncology Pipeline Products

Additional disclosure: I do not warrant the accuracy of any data provided in this article. My bullish conclusion in this article is solely my opinion. You should not treat any opinion expressed in this article as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of the author's opinion.