Amgen Faces a Crucial Court Decision : Biotechnology: It has a monopoly on an anemia drug. If it loses a patent suit, it may have to share the lucrative market--and pay damages.

Amgen Inc. has only one product to sell, but when it’s the latest biotechnology blockbuster drug, one can be enough.

Called erythropoietin, or EPO, it knocks out chronic anemia in patients with kidney disease. Like insulin for diabetics, EPO is their only medical alternative.

The drug’s success has vaulted the Thousand Oaks company to the top tier of the biotechnology industry. At the moment Amgen enjoys a monopoly on a $300-million-a-year business. EPO profits are piling up at the rate of nearly $50 million annually.

While Wall Street has stumbled this year, Amgen’s stock has more than doubled. On deck, Amgen has a second drug designed to help cancer patients ward off infections. Analysts say it will be an even bigger winner than EPO.

Is there anything wrong with this cheery diagnosis? Maybe so.

In the next month or two, a federal appeals court in Washington should release its decision in a critical case involving rival EPO patents held by Amgen and Genetics Institute, a Cambridge, Mass., concern. The decision could secure the EPO market for Amgen. Or, Amgen could lose its rights to the drug. Or, as most analysts expect, the court could effectively force Amgen to share the EPO business and leave it vulnerable to a hefty damages suit.

Jeffrey R. Swarz, an analyst with the investment firm of Goldman, Sachs & Co., said that if the appeals court upholds both EPO patents, Genetics Institute will promptly sue Amgen for “past and present damages in excess of $100 million.” Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley, expects the court decision to go against Amgen and to knock 20% off Amgen’s stock price.

Amgen must also worry about damages it may have to pay a Johnson & Johnson subsidiary, which helped fund Amgen’s EPO research and owns the rights to sell the drug for all anemia treatments except severe kidney disease. J&J; maintains that it was deprived of profits because Amgen botched J&J;’s chances for quick government approval to sell the drug. A Chicago arbitration judge is reviewing the case.

Swarz believes that “J&J; has asked for very significant damages of between $100 million and $200 million.”

“In a worst-case scenario, Amgen may be looking at $300 million in damages” to settle both EPO cases, Swarz said. Granted, Swarz and other analysts conceded, the final financial damage to Amgen should be much less. But for now the only certainty is uncertainty.

Biotechnology is the science of re-splicing genes, which contain the hereditary instructions for life, so that cells can be “engineered” to keep copying, or cloning, substances which can be used as drugs. For years, outsiders have urged Amgen to settle its EPO suits rather than risk its fortunes at the hands of courts that may not understand the subtleties of the science. “It would have been very practical to settle,” Swarz said.

“If you don’t defend your patents, it’s the same as having no patents,” barked Amgen’s chief executive, Gordon Binder. “Nobody else is going to defend your patents. Not the FBI, not the highway patrol. A company that doesn’t defend its patents is on the way to going out of business.”

Last December, a court in Boston ruled that Amgen and Genetics Institute held valid EPO patents.

Genetics Institute licensed its EPO drug to a joint venture between Chugai Pharmaceutical, a major Japanese drug company, and Upjohn Co., the Kalamazoo, Mich., pharmaceutical powerhouse. Chugai-Upjohn has been trying to catch Amgen since June, 1989, when the Food and Drug Administration gave Amgen the go-ahead to sell its anti-anemia drug.

Chugai-Upjohn was thought to be only a few months from winning government approval to sell its EPO drug, but there is widespread speculation that the FDA doesn’t want to rule on the Chugai-Upjohn drug until the patent case is settled.

Final settlement of the EPO case is “years away,” warned Vector Securities analyst Peter Drake. He likens the pitched battle to the 14-year-old Kodak-Polaroid court struggle over instant cameras. Polaroid’s patents were upheld by the courts--but Kodak has yet to pay any damages.

Meanwhile, time is money for Amgen, he said. The longer Amgen keeps the EPO market to itself, the more likely it will still dominate the business when competition is finally allowed.

Analyst David Stone of Cowen & Co., a former product manager for Genetics Institute, thinks that the EPO case will probably be settled by Amgen agreeing to a cross-licensing deal, perhaps paying 10% of its EPO revenue to Genetics Institute.

He said it might cost Amgen $100 million to settle all its EPO litigation. That sum works out to a present-day value of about $2 per share of Amgen’s stock, he said. On Monday, Amgen’s stock closed at $54.625. “Amgen has played a high-risk strategy. If it ends up costing them $2 a share, they’ve won,” Stone said.

Erythropoietin is a protein in the blood stream that spurs production of red blood cells, which transport oxygen throughout the body. Although scientists discovered it in 1906, it occurs in the body in such tiny concentrations that until biotechnology there was no way to use it as a drug. Then an Amgen scientist found the gene that triggers production of EPO. By splicing that gene with some Chinese hamster cells, the company was able to create a mini-cell factory that keeps reproducing EPO.

About 72,000 patients take the drug, including John Cole, 41, editor of a newspaper in Lorain, Ohio. Ten years ago he had a kidney transplant. When his new kidney failed, Cole needed dialysis treatments plus weekly blood transfusions--which left him worrying about getting AIDS or hepatitis from tainted blood supplies.

Cole forced himself to work each day, “but that was it. I’d go home and just taking out the trash was a laborious experience. It was just a feeling of pure exhaustion.”

Four years ago, as “a guinea pig” in Amgen’s test of the new drug, he felt his “energy level surge,” he said. He’s been on EPO ever since. Cole still needs dialysis treatments, but he’s yet to have another blood transfusion.

He puts in 50 hours a week on his job, and now “I have the energy to do whatever I want afterwards.” He works out in a gym, lifts weights and rides a bicycle. “The drug is one of the most important things that ever happened to me,” he said.

It’s the sort of story that has made EPO worth fighting over. Amgen and Genetics Institute hold much different patents on EPO. Amgen’s patent covers part of the biotechnology process for making EPO, while G.I.’s patent covers a purified form of EPO that was separated from urine.

Although Genetics Institute’s method isn’t practical--it can’t produce enough EPO--the protein is similar to what is manufactured in a lab. (The company’s scientists later figured out how to make EPO using biotechnology.)

Amgen’s next drug is granulocyte colony stimulating-factor, or G-CSF, which spurs the production of white blood cells that fight off bacterial infections. FDA approval is expected in a few months, and G-CSF has the look of a winner because in tests it has helped cancer patients who are undergoing chemotherapy to ward off infections.

Binder said “in the long run” G-CSF should be an even bigger success for Amgen than EPO.