Amgen Benefits From Affymax Recall

| About: Amgen Inc. (AMGN)
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Medical advance has its ups and downs, risks and rewards. A promising new drug, not long after its introduction to clinical practice, caused serious side effects that were not experienced during clinical trials.

Five patients died and fifty reported severe allergic reactions from the anemia drug Omontys made by Affymax (NASDAQ:AFFY) and partner Takeda Pharmaceutical. In February all lots were recalled and dialysis centers were instructed to discontinue its use until further information is available.

Omontys is used to treat anemia in patients who have chronic kidney disease and are undergoing dialysis.

The reported serious hypersensitivity reactions, including anaphylaxis, have occurred within 30 minutes after the initial administration of Omontys in new patients. Hypersensitivity is a sometimes fatal condition that can arise when the body's immune system reacts to drugs or other foreign intrusions, like bee stings.

Omontys had been approved by the FDA in March 2012. Omontys' key advantage is that patients need to be injected or infused once a month, compared to up to 12 times a month for Epogen patients.

Since the product's launch, over 25,000 patients have been treated with Omontys. There was a 0.02 percent rate of "fatal" reactions (about 5). The overall hypersensitivity reactions were 0.2% (about 50) with one-third (15) being serious including anaphalyxis or hospitalization.

Three of the serious anaphylactic reactions associated with fatal outcomes were reported in February. The two deaths reported prior to February were deemed to be cardiovascular in nature, probably not related to the drug, according to outside experts hired by the company.

At this point, Affymax is unable to identify which patients may be susceptible to hypersensitivity reactions.

Affymax's experience during the clinical trials was very different.

The rate of hypersensitivity was about the same, but it was the seriousness that was very different. In the clinical trials with more than 4,000 subjects receiving Osmontys, 5 subjects had hypersensitivity reaction but they were not serious, and 1 subject had a serious hypersensitivity reaction but with no cardiovascular symptoms.

The most common side effects observed in 10 percent of the dialysis patients were diarrhea, vomiting, high blood pressure and joint pain. All these occurred after the first dose of Omontys.

By contrast, in the post-marketing reports the severity of symptoms ranged from mild reactions to anaphylaxis, some of which have been life-threatening and fatal.

The clinical program was done with a single dose unit, and the post-marketing program was done with multi-dose vials.


End-stage kidney dialysis patients are among the nation's most chronically ill and are disproportionately minority and elderly.

Amgen (NASDAQ:AMGN) controls 95 percent of the market and had a monopoly lasting for 23 years in the US. Amgen grew into a giant company on the strength of that lucrative monopoly.

After the approval of Osmontys, Amgen was expected to lose market share to Affymax steadily, and other rivals after Epogen loses market exclusivity in 2015.

Today, most people undergoing kidney dialysis receive Epo, which helps relieve severe anemia, a condition that can sap their energy. Many cancer patients are also given the drug to combat anemia caused by chemotherapy.

In the old days, before Epo came on the market, the only remedy for anemia was frequent blood transfusions, which carry considerable risks.

The marketed brands are Epogen, Procrit and Aranesp and the business also benefits Johnson & Johnson (NYSE:JNJ) and Roche (OTCQX:RHHBY). All these products are used to boost the formation of hemoglobin, a protein in red blood cells that delivers oxygen throughout the body. The drugs are used to reduce the need for blood transfusions.

Sales of the older anemia drugs have fallen sharply since 2007 because of a series of safety problems and restrictions on their use. Amgen said Aranesp sales fell 11 percent to $2.04 billion in 2012, and Epogen sales fell 5 percent to $1.94 billion.


Fresenius Medical Care (NYSE:FMS) is one of the largest operators of kidney dialysis centers in the U.S. Fresenius runs approximately 2,000 dialysis centers in the U.S. and collectively treats over 150,000 patients a year.

Prior to the recall, the company agreed to use Osmontys in just 100 centers, with plans to expand following initial evaluation. It was evaluating 56,000 Omontys administrations on 18,000 patients, and recently said it would contemplate a long-term purchasing deal for the drug with Affymax.

Following the recall however, it is less likely that Fresenius will sign a long-term supply contract with Affymax any time soon and may continue to use Epogen.

Investor's summary

Kidney dialysis is a huge market.

According to a recent Brown University report, in end-stage renal disease, kidney failure leaves dialysis as the only means of survival. It became one of Medicare's biggest costs after 1972, when the program expanded to care for anyone in the country who need treatment, regardless of age.

Dialysis is expensive and the costs to purchase related anemia drugs is Medicare's single biggest drug expenditure, amounting to $3.9 billion in 2007.

Affymax: Affymax Inc. shares plunged 85% on the day of the recall.

For Affymax, it would be tough to bring back Omontys; in any case it appears unlikely in the near-term.

Affymax may not be able to bring back Omontys at all, unless it conducts a convincing study showing that the drug is free from allergic reactions or finds a way to identify the patients susceptible to hypersensitivity reactions.

Omontys revenue for the nine-month period ended Dec. 31, 2012 was $34.6 million as reported by Takeda.


The news of the Affymax recall shored up the leading positions of Amgen's drugs Epogen and Aranesp, which together provide more than a quarter of Amgen's sales. The recall removes a competitor and improves Amgen's chances of retaining its relationship with dialysis giant Fresenius Medical, RBC Capital Markets analyst Michael Yee says. It may also signal heightened FDA scrutiny of other rivals, including cheaper biosimilars, coming onto the market.

UBS analyst Matthew Roden says sales of Amgen's Epogen will improve while Omontys is off the market, and adds that the recall is good news for Amgen because the FDA might become more cautious about approving newer anemia drugs and generic versions of biotech drugs.

When Fresenius entered a contract with Affymax to use Omontys in July 2012, it rang alarm bells for Amgen investors as they became concerned that the drug could become a permanent addition at Fresenius's dialysis centers with ever larger market share.

Oppenheimer analyst Boris Peaker writes:

"We believe Epogen, with sales of $1.9 billion generated entirely in the US, is the most likely to benefit from the Omontys recall while Aranesp may have a mild benefit. For reference $782 million of the $2.0 billion in Aranesp sales were generated in the US."

On the negative side, Epogen sales could be weighed down by pricing pressures and biosimilar drugs such as Roche's Mircera, which is scheduled to launch in mid-2014. US Epogen sales will decline year over year by an estimated 5% in 2013 and 6% in 2014.

Big-name biotechs, like Amgen and Biogen Idec (NASDAQ:BIIB), that are branching into biosimilars might have the market edge due to their reputations for quality.

For the time being however it appears that Amgen, even temporarily, regained its old monopoly and gained valuable time to accomplish its wide-ranging plans for reinventing itself.

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.