Amgen Likely to React Dramatically to Early FDA Approval of Osteoporosis Drug

Includes: AMGN, NVS
by: David Greene

After the market closed Tuesday (June 1), Amgen (Nasdaq:AMGN) announced that the FDA approved the company's osteoporosis drug, Prolia (denosumab), for post-menopausal women at risk of suffering bone fractures. The drug inhibits the destruction of bone material and increases bone strength and mass by reducing the proteins which trigger bone-destroying cells. Although the drug was approved in Europe just a few days ago, the "surprise" was that the approval was not expected until July 25 in the US.

As with most new drugs, there are side effects-- back pain, high cholesterol and urinary bladder infections. However, there are some analysts that estimate the product could see annual global sales up to $3.3 billion in 2014. Oppenheimer & Co. forecasts sales of the drug for osteoporosis alone reaching more than $2 billion a year in the global market. Amgen has filed for the drug's approval in helping prevent bone complications in cancer patients with clinical data expected later this year to validate expectations that the drug also prevents prostate cancer from spreading to the bone.

Amgen will present Phase III data on denosumab in advanced cancer patients at the American Society of Clinical Oncology (ASCO) meeting June 5-8. According to the abstract summaries posted at the ASCO website, dunosumab is more effective in late stage clinical trials of advanced cancer than Novartis' (NYSE:NVS) drug, Zometa. Zometa is considered to be the best available therapy at delaying significant fractures "or other skeletal-related events".

How big is the market? The National Institute of Arthritis and Musculoskeletal and Skin Diseases has projected that one out of every two women over age 50 will break a bone in their lifetime due to osteoporosis. A market analysis cited by Amgen estimates that osteoporosis-related fractures will cost the strained U.S. health care system $25 billion annually by 2025. Because Prolia requires only two subcutaneous injections per year, it is reasonable to assume a high adoption rate. Indeed, Amgen offered a survey which indicated that approximately 50 percent of patients discontinue oral bisphosphonate therapy within the first year. Oftentimes, oral osteoporosis drugs, such as Fosamax and Zometa, have side effects which patients cannot tolerate, or simply have a regimen requiring daily doses, which results in many patients not being treatment compliant.

AMGN's announcement had another surprise--the potential blockbuster drug will be available within the next two weeks at a wholesale price of $825 per 60 milligram injection (subcutaneous) every six months. There is no analyst out there that has ANY revenue from Prolia starting by June 15 when there was no expectation of approval before July 15.

Do not be surprised if AMGN reacts dramatically to this news. Although there are 14 research analysts with a Buy to Strong Buy recommendation on AMGN (who will most likely update their research reports to reflect six more weeks of sales from Prolia), there are 5 analysts with a Hold Rating and one "Moderate Sell". Although late to the party, these cautious analysts, at the minimum, will most likely raise their ratings. And with a 21.4 million share Short Interest (as of May 14), the painful "surprise" may be in the Short Squeeze club.

Disclosure: Long AMGN

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