Lack of 3rd Drug Poses Problems for Amgen : Biotechnology: Despite spending $376 million in three years, finding a new product has proven elusive for the Thousand Oaks company.
The stock market had a conniption last month when biotechnology giant Amgen Inc. said its sizzling sales growth was slowing a bit. Amgen, a Wall Street darling when its sales soared each quarter, saw its stock plunge 25% that day.
Peeved shareholders then filed the obligatory lawsuits, alleging Amgen misled investors about its prospects. Amgen denies that, but small wonder the holders are upset.
Overall, Wall Street has hacked $5 billion from Amgen’s total market value in just four months; it now stands at about $4.7 billion. The stock itself, closing Monday at $35 a share on the NASDAQ market, has plunged from $78 in early December.
But the Street is focusing on the wrong problem. The real dilemma is that the Thousand Oaks-based concern, which rocketed to $1 billion in sales in just four years on the success of its first two drugs--which are the industry’s two best sellers in the United States and made Amgen biotechnology’s de facto leader--doesn’t have a third drug anywhere near ready for market.
Looking for an encore, in recent years Amgen has touted half a dozen drug ideas, but some have quietly been abandoned. Its product pipeline remains hollow even though the company spent $376 million on research over the past three years, and will spend another $270 million this year.
Some find it puzzling that in the mid-1980s Amgen could develop two wonder drugs with 200 employees and $20 million in R&D; spending a year, while Amgen today has 2,150 more employees and its R&D; has mushroomed 10-fold, but it still doesn’t have a third drug. Never mind finding one with the same potential as the two Amgen already has.
Analysts are also raising questions about Amgen’s chief executive Gordon Binder. They worry that the 57-year-old former Ford Motor Co. controller, who came to Amgen as a finance executive in 1982, lacks the Midas touch of Amgen’s founder, George Rathmann, who resigned as chairman in 1990.
Rathmann is widely credited for an intuitive skill to zero in on good ideas and to keep scientists excited about projects. When others pressured Rathmann to kill the project that later produced Amgen’s first drug, he refused because one scientist stayed up, sometimes all night, working on a two-year obsession to crack the genetic combination for the key protein that makes red blood cells. The scientist finally found what he was looking for, and the company’s next drug find was an even bigger gold mine.
“Rathmann did a remarkably good job of making sure the road from discovery to market was as rapid as possible,” said Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley. “And Binder hasn’t done a good job at producing more products.”
Rathmann left planning to retire to the ski slopes, but he got bored and now runs Icos Corp., a fledgling Seattle biotech firm. Meanwhile, Amgen keeps mining gold from those two products that Rathmann left behind.
Amgen’s two existing drugs are Epogen, which fights anemia in kidney-dialysis patients by boosting red blood cell production, and Neupogen, which helps the body’s immune system by stimulating infection-fighting white blood cells and is used on cancer patients undergoing chemotherapy. Epogen was approved for U. S. sale in 1989, while Neupogen came to market in 1991. Last year Amgen’s Neupo gen revenue hit $544 million versus $506 million for Epogen.
To be sure, Amgen is still a vibrant, growing and very profitable company, and Binder, chief executive since late 1988, helped guide that expansion. Last year Amgen earned a princely 33% after taxes, or $358 million on sales of $1.1 billion. Despite the recent slowing in the sales growth of Epogen and Neupogen, earnings are still expected to climb 10% to 15% this year (after excluding one-time gains and charges from the 1992 results).
“I’ve made a contribution to that” success, said Binder.
But there is no rival for Epogen, and Neupogen has only one competitor, a different white-blood-cell biotech drug with a reputation for side effects. One observer complained that Amgen could have grown nearly as fast “by using an 800 telephone number” to take orders.
There remains the challenge of finding drug No. 3, and Amgen’s current top projects include “consensus interferon,” a drug to help fight hepatitis B. One rival biotech drug is already on the market, but it’s only partially effective and other companies are eyeing the same hepatitis target. Perhaps significantly, consensus interferon isn’t a new idea; Amgen was working on it a decade ago.
Probably Amgen’s biggest recent disappointment has been a quartet of “growth factors,” or wound-healing drugs, to help the body’s scar tissue grow faster. It’s a vast potential market, but Amgen’s test results were baffling, as they were for other biotech rivals. Amgen is now down to one potential growth-factor project. “No one else has solved the problems either,” said Binder.
“Most of the things Amgen is now doing are incremental rather than revolutionary,” said Gregory Brown, an analyst with Vector Securities International. “Each product they are working on has significantly smaller markets than Neupogen or Epogen.”
Even Binder concedes this. “Just by the law of averages the typical product we introduce is very likely to be smaller,” he said.
In Amgen’s defense, most biotech drugs now on the market are copies of relatively easy-to-find body proteins, easy at least compared to the current generation of research, which figures to be more difficult and costly.
And wonder drugs don’t fall off trees. Even conventional pharmaceutical giants such as Merck & Co. and Upjohn have failed recently to uncover new wonder drugs.
Still, some analysts question why Amgen, with $555 million in cash, hasn’t bought a bunch of small biotechnology firms to fill its empty product pipeline, especially considering how cheap biotech stocks are. Said Vector’s Brown: “If I only have two products, and small potential markets, I’d go out and buy a company.”
But Binder said: “We’ve focused on trying to acquire product rights rather than acquire companies.”
Amgen does have licensing pacts with three small biotech companies which, if successful, might give Amgen more drugs to peddle. One venture is with Regeneron Pharmaceuticals Inc. in Tarrytown, N. Y., which is developing drugs for Parkinson’s disease and other neurological ailments. But the Regeneron/Amgen venture won’t yield results for at least five years, said McCamant.
Meanwhile, Wall Street frets over how much more growth can be mined from Amgen’s current drugs. Both Epogen and Neupogen are expensive, and doctors are finding ways to squeeze more out of the drugs at less cost. (Earlier this month, the AIDS activist group ACT-UP protested Neupogen’s price in a demonstration at Amgen’s headquarters.)
Neupogen is now a source of hope for AIDS patients already taking the drug AZT--whose many side effects include knocking down the number of white blood cells. Doctors rely on Neupogen to help AIDS patients restore their ability to fight off infections.
Dr. Angelo Chinnici, in Asbury Park, N. J., calls Neupogen “life in a bottle.” Two years ago he treated a childhood friend who was severely ill with AIDS. “The drug gave this woman one year of quality life with her three children,” he said. His friend later died, but Chinnici is sold on the drug’s value.
The problem is paying for it. Until recently Chinnici was administering Neupogen to some AIDS patients three times a week--the monthly drug tab was $2,000--and insurance companies usually refused to pay for it.
Previously, Chinnici drew from a Neupogen vial what he needed for a single patient, then threw out the rest of the drug. Neupogen has no preservatives and physicians are warned not to break the vial’s seal more than once, for fear a second syringe could introduce microorganisms into the drug. Now Chinnici treats three to five patients out of one vial of Neupogen.
How? “Multi-dipping,” he said.
Chinnici inserts a needle into a Neupogen vial, fills up one syringe, removes it, then screws on more syringes, filling each with the dose for a different patient, without removing the needle from the vial. He stores the contents in a refrigerator and schedules patients about the same time. “A lot of physicians are doing this,” he said.
The same short cuts are happening with Epogen. Some studies have shown that kidney-dialysis patients on Epogen--who face $5,000 a year in drug costs--can keep their red blood cells up to a healthy level despite getting 10% to 40% less of the drug, if doctors inject Epogen just underneath the skin instead of intravenously.
Dr. Emil Paganini, head of the dialysis unit at the Cleveland Clinic Foundation, was delighted by the test results. “It yields a bigger bang for your buck,” he said.
Despite these trends, not everyone is concerned about Amgen’s growth prospects. David Stone, an analyst at Cowen & Co., predicts that future uses of Neupogen for pneumonia and other infectious diseases will win regulatory approval in two years--and effectively become Amgen’s third major product. By 1996, Neupogen’s annual sales will reach $1.4 billion, he estimates.
McCamant disagreed, predicting that Neupogen’s sales will grow 20% in the next year or two, then decline because of rival drugs coming to market.
Either way, Amgen has “set such a high standard that anything less than perfection is viewed as a flaw,” said Philip Whitcome, Amgen’s former head of strategic planning, who now runs a biotech company called Neurogen Corp. in Branford, Conn. “The initial success of Amgen was determined by George Rathmann,” and whether the company surges again, or declines, that will “be the legacy of Gordon Binder,” Whitcome said.
Meanwhile, he said, Amgen “is like Alice in Wonderland, running faster and faster just to stay in place.”
Amgen Inc. At a Glance Epogen was the first biotechnology drug brought to market by Amgen Inc., but its second product, Neupogen, is now its best seller. Epogen is largely limited to the kidney-dialysis market, while Neupogen can treat a variety of infections. Despite Amgen’s rapid expansion, its stock has plunged in recent months because of concerns that the drugs’ sales growth will slow. Meanwhile, Amgen has increased its research and development spending in hopes of finding another wonder drug, but success has been elusive so far.
