Amgen: A Random Gamble?

Amgen (AMGN) currently concerns me because of the possible competitor to Epogen, which is a large portion of their revenue. Though this uncertainty may be “priced into the stock”, the fact that the decision is uncertain means there are negative and positive outcomes priced in.

I, for one, would not want to partake in this volatility, as it resembles nothing more than a random gamble. If Amgen is truly desired, I would suggest allowing the outcome of the patent case to surface first. Then I would wait a couple weeks for investors’ reaction and the stock price to cut back on volatility. If the judge rules that Roche (RHHBY.PK) is allowed to release Micera, then I would expect an initial overreaction by shareholders. Then, a slight rebound, followed by another overreaction to analysts revisions of estimates. Only after the stock price is able to contain the new earnings estimates would I consider purchasing the stock at what should be a significantly lower price. If the judge rules that Roche is not allowed to release Micera, then I would expect an initial overreaction to the “good” news and subsequent consolidation of the stock price. Again, I would not consider purchasing the stock until after this consolidation.

Also, after reading through several articles it appears as though there is a relatively negative perception of Amgen’s corporate culture. In two separate articles, authors have contrasted Amgen’s corporate spoiling to Genentech’s (DNA) and Genzyme’s (GENZ) corporate responsibility. Where Amgen’s executives are described as wastefully spending money on corporate jets, Genentech’s are revealed to fly commercial. Furthermore, Amgen is coming under fire for its marketing practices.

John Dingell (Democrat), chairman of the Committee, said that "millions of dollars have been poured into aggressive marketing campaigns, despite mounting evidence that these therapies pose serious risks."

In March, the FDA advisory panel recommended further restrictions on the anemia drugs Epogen and Aranesp. They are recommending that these treatments only be used for terminally ill cancer patients. For the most part, the FDA adheres to the advisory panels recommendations, but this cannot be guaranteed. Not only are Epogen’s revenues potentially reduced from competition of Roche, but also on new restrictions on its usage.

Epogen and Aranesp are blockbuster drugs used for cancer patients to counteract the anemia (loss of red blood cells) that results from chemotherapy. However, there have recently been 8 clinical trials supporting the case that these drugs actually increase the proliferation of the cancer. There are a couple speculations over the mechanism of such action:

1. The drug which provokes the growth of red blood cells may spur the growth of blood vessels which will provide nutrients to the cancer cells allowing them to proliferate
2. Cancer cells themselves have a receptor for the drug, and react to it in a similar manner as red blood cells.

From the above-linked article:

Dr. Arthur J. Sytkowski, an associate professor of medicine at Harvard who has studied Epo for 30 years, said scientists assumed Epo did nothing except spur red blood cell formation. "Nobody’s to blame for this," he said.

I do agree with him in that no one is to blame. But language like that makes it seem like he is speaking after the fact, and that Epo indeed negatively effects cancer patients. The defense that Amgen gives is that:

Amgen says there is no convincing evidence that Epo does anything in the body besides spur red blood cell production. The company thinks the excess deaths in the trials among Epo users might stem from blood clots. The clinical trials in question all used the anemia drugs to raise patients’ red blood cell levels more than what is recommended in the drugs’ labels. At those levels, blood clots are a known side effect.

The fact that Amgen denies any potential negative effects of Epo in light of the release of several studies directly contradicting that stance portrays Amgen as defensive and desperate. But, in all honesty, we cannot expect anything more out of a company that relies on Epogen (and the related Aranesp) to bring in $6 billion/year. Though Amgen portrays itself as very defensive, as a business it must maintain the quoted stance. And it is allowed to maintain this stance because the FDA has decided to still allow the usage of Epogen and Aranesp. They just have to be used with the lowest possible dosage.

One of the studies related to Epo found that keeping Epo away from cancer cells may actually be a possible treatment to destroy them! This study was conducted by Matthew Hardee and Yiting Cao and is titled “Erythropoietin Blockade Inhibits the Induction of Tumor Angiogenesis and Progression.”

An important finding of our studies is that EPO blockade in window chambers disrupted tumor neovascularization and growth, particularly in the window chambers implanted with R3230-GFP cells secreting the R103A-EPO antagonist which was associated with virtual disappearance of tumor-associated blood vessels, and eventually, the implanted tumor cells.

Our findings suggest that further investigation is warranted to employ erythropoietin blockade for the therapeutic modulation of tumor angiogenesis.

Sytkowski is right in that there is “no one to blame.” Amgen is not at fault because up until recently there was no knowledge of Epo’s relationship to cancer growth. And if further studies further ascertain Hardee’s findings, who could blame Amgen for being scared. The notion that a drug marketed to assist cancer therapy actually progresses cancer growth has is sadly ironic. And if this were to leak out to the general public, I’m certain many patients will note the irony and let out a couple of awkward chuckles as they ponder the possibility of paying thousands for chemo, then paying thousands for Epogen to grow back the cancer cells that were lost in chemo.

(Food for thought: Of Amgen’s 2007 revenues, approximately 6.1 out of 14.7 billion came from dialysis drugs based on EPO.)

Other than revenue concerns over the dialysis drugs, Amgen’s near term future outlook (1-3 years) seems dominated by the prospects of its osteoporosis drug in development called Denosumab. There are a lot of hopes pinned on this drug mainly because the osteoporosis market is so large. Sales for Denosumab are projected to potentially reach $2 billion (at the high end) of the current $7 billion market. Currently, Merck dominates the market with its drug Fosamax ($3 billion in sales/year); however Merck’s patent expired on Feb 5, 2008.

The belief is that Denosumab has the potential to replace Fosamax. In its most recent Phase III results, Denosumab was shown to be better than Fosamax at improving bone-mineral density. However, there was also a higher incidence of bacterial infections that required hospitalization. Amgen claimed that these infections were easily treated with antibiotics. Regardless, the high infection rate will ultimately affect Denosumab’s marketability. The fact that the patent for Fosamax has expired means there is potential for a generic and much cheaper competitor to Denosumab. Though Denosumab may improve bone density better, the degree is uncertain. Assuming Denosumab even gets FDA approval, patients will have to weigh the costs versus the efficacy of each drug.

Disclosure: none

Comments

[Ketan Desai:]

Most of Amgen's Epo/Aranesp problems are already factored into the stock price. The future of Amgen is dependent on its pipeline, of which Denosumab (for osteoporosis) is perhaps the most prominent. The competition in the osteoporosis market is not just with Fosamax, but with many other drugs. I will be writing an analysis on this soon.

2008 May 12 07:24 AM

[amgen troll:]

All problems with "corporate culture" aren't factored in the stock price! The are over 1100 lawsuits for wrongful termination. The lawsuits vary from being raped on campus to being forced to participate in lesbian sex and discuss it in staff meetings! Ventura County Courts (Janal Urich vs. Stephanie Kafonek VP MD & Amgen et al) Of course they have the two reps saying that they were told to go into MDs office and remove patients' charts to get insureance companies to pay for Embrel. Exec Vp George Morrow gave this directive. The reps were told to create more business and "that it is a win win situation," Morrow said. The reps are both suing for $15 million. The morale has been severely low for about 2 years and to add salt to the wound the Southern California Real Estate Market is in one of the worst markets ever. Some house values are down more than 30%. Also, staff members that are layed off or terminated (even wrongfully) may have a relocation lien. Amgen's benefit for relocation was 20% down payment at 3-4% interest only automatically withdrawn from paycheck. This loan is due 45 after seperation and is typically $100ks.

2008 May 12 12:37 PM

[pfizer troll:]

Amgen has been loaded with "deadwood" for a long time. It still is. As with most corporations, Amgen is an "at-will" company. Basically this affords them the opportunity to fire "at-will". No contracts are offered, although relo packages are offered. You do not have to take their relo offer. It is still a buyer beware when agreeing to their terms. As for the hearsay lawsuits, allow the courts their due and let all sides be heard before throwing dirt. If you bought a house in Southern California in the past 4 years, you gambled, and lost. My wife was offered all of the above to come to Amgen, we accepted the moving expenses and passed on the rest. Do your homework before accepting anything, from anyone. Amgen is still a great company and has brighter days ahead. Current employees need to quit your bitching, and do the job for which you are compensated. Trust me, it could be ALOT worse.

2008 May 12 09:52 PM