Affymax' (AFFY) red blood growth factor drug Omontys (peginesatide) was granted FDA approval – good news for the firm. The approval is a remarkable achievement for Affymax. The firm has proven a capability developing biological products and there is no doubt that AFFY will sell the drug Omontys for patients with chronic kidney disease on dialysis, as it is dictated by the FDA.
The question is: Should we believe the articles, which suggest that the approval of Omontys would threaten Amgen’s (AMGN) growth?
Affymax will generate revenues from the sales of Omontys; this is a fact. Yet, there is no rationale behind suggesting that Amgen would be devastated by Omontys capturing part of its Epogen market. As a matter of fact, Affymax will be competing for half of the market only, because, as we have concluded from previous announcements, Amgen has already secured half of the market. This is a mere reality. As Affymax was speeding toward FDA approval for Omontys, and Medicare was considering making a change in its reimbursement for dialysis to a flat rate, Amgen signed long-term supply contracts with dialysis providers - a seven-year contract with DaVita to supply at least 90% of the dialysis company's anemia remedies, and long-term contract with Fresenius Medical Care. These two firms account for around half the dialysis market. Affymax can still generate large revenues from the rest of the dialysis market provided it executes a great marketing strategy.
Still, the issue is not competition over a 25-year-old product. It does not make sense to believe that the best biotechnology company marketer for around three decades would let its growth depend on one old drug. Amgen has one of the richest product pipelines and several new drugs on the market. Many of them have recently been approved and are already generating tremendous revenues. At the top of the list of new approved drugs is the firm’s osteoporosis drug denosumab being sold now under the trade name Prolia for osteoporosis and Xgeva for prevention against skeletal-related events (SREs) in patients with bone metastases from solid tumors (excluding multiple myeloma). Recently, The Lancet published an article about the drug’s role in delaying the onset of bone metastases in patients with castration-resistant prostate cancer (CRPC).
Some analysts forecast $700 million in Affymax’ Omontys sales by 2017. This is good news for AFFY holders, but not bad news for Amgen, whose Epogen has been generating revenues for years that exceeded those of many breakthrough drugs without interruption by hiccups to be usually caused by critics, competitions, false claims or by third party payers.
As for Amgen itself, its stock has been manipulated – not to say boxed – for over four years. Each time AMGN received excellent news about new drug approvals, articles were written about the decrease in the sales of the 25-year-old drug. When denosumab was approved for osteporosis – known to have a huge market – it was rare to read positive articles from among the many written against the firm. When the same drug was approved for the prevention of cancer metastasis – a bigger market – only peer review journals that investors do not read, as they cannot understand them, were obliged to write the drugs’ benefits for cancer patients.
Nevertheless, Amgen is still the largest of the biotech sector’s firms and is still running with strong, steady legs on the road toward outperforming the large pharmaceutical industry, as it did the biotech group. Amgen is great. Its pipeline drugs are being studied in more than 35 clinical trials on various cancers, inflammatory diseases, neurological diseases, cardiac diseases and metabolic diseases. Its monoclonal antibody PCSK9 inhibitor has normalized the cholesterol level that resisted all current drugs is in Phase II trials. Instead of being excited about the novel drug, the critics preferred to remind investors that Regeneron (REGN) and Alnylam (ALNY) also have monoclonal antibodies that inhibit the same target. We don’t really know what that statement would mean in a market that brought $35 billion to the statins and other anti-cholesterol developers that the new drug is on its way to sooner, or later replace?
The cholesterol market has become the largest drug market in history, and the recommendations by health authorities and other organizations in the U.S. may be contributing to further growth in the U.S. Preventive Services Task Force (USPSTF) has strongly recommended routine screening for men 35 years and older and women 45 years and older for lipid disorders and treatment of abnormal lipid levels in people who are at increased risk of coronary heart disease. They also recommended routine screening of men aged 20 to 35 years and women aged 20 to 45 years who have other risk factors for coronary heart disease. In other countries, the recommendations are less severe, probably because these countries’ budgets are much smaller than U.S. healthcare budgets. We can say the same about the U.S. and foreign insurance companies.
With all what is perpetrated about the dangers of cholesterol, with all the lowering made of the normal cholesterol levels with each developed new anti-cholesterol drug since 1965, one can say that the market is in very good hands. We read in Wikipedia that once people are on statins, further testing provides little benefit except for determination of compliance with treatment. It is easy to translate this into, “When people are hooked to anti-cholesterol drugs, they are doomed to stay with them forever.”
Should we really concerned about Amgen’s growth?
Disclosure: We are long Amgen.