Amgen Still Looking for Sequels to Blockbusters

These should be champagne days for shareholders at biotechnology giant Amgen Inc., but the only ones celebrating the company’s performance are short sellers.

This month, after the company’s six-year lull without a new drug to market, the U.S. Food and Drug Administration approved the sale of Amgen’s third product, called Infergen, to combat the hepatitis C virus.

And Amgen’s wait for drug No. 4 should be short. It’s all but certain, analysts say, that early next year the FDA will approve Amgen’s product, called Stemgen, to help cancer patients survive high doses of chemotherapy.

But Wall Street has been savaging the stock. Amgen’s shares closed Friday at $48 on Nasdaq, down 27% since June, as $4.8 billion has vanished from its total market capitalization. Even news of Infergen’s FDA approval hasn’t budged the stock.

Why? Fears are widespread that sales will be slow for Epogen, one of Amgen’s two established blockbuster drugs, because of possible Medicare reimbursement cutbacks. Amgen also faces a threat from an upstart biotech rival that could end Epogen’s dominance.

For years, Amgen has been the nation’s most successful biotech company, but it’s also been labeled as a huge, but limited, two-product company. Granted, both drugs marked scientific breakthroughs and mushroomed into billion-dollar-a-year products. Epogen triggers the production of red blood cells and combats anemia in patients with kidney disease. Amgen’s second product, Neupogen, is a white blood cell drug that helps stave off infections such as those contracted by AIDS and cancer patients.

But Amgen’s next pair of drugs are likely to be singles, not home runs.

Infergen, the hepatitis C drug, is something of a copycat of products already sold by Schering-Plough and Hoffmann-LaRoche, so Amgen’s late entry might top out at $100 million a year in sales, said Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley.

Amgen’s next drug, Stemgen, targets a cutting-edge technology involving peripheral blood progenitor cell transplants. Some doctors have shifted away from bone-marrow transplants in favor of less costly blood-cell transplants that avoid toxic side effects when chemotherapy is used aggressively to fight breast, ovarian and lymphoma cancers.

Stemgen would be part of this cell-transplant regimen, but only 35,000 patients have these transplants annually. So McCamant pegs Stemgen’s sales in the $50-million to $100-million-a-year range.

Cynthia Robbins-Roth, editor of Bioventure View in San Mateo, says that while Amgen’s two newest drugs may be modest sellers, “that’s OK. They are building the pipeline with complimentary products. It’s always easy to sell more than just one drug when salesmen visit doctors.”

A more immediate worry for Amgen are sales of its mainstay drug, Epogen.

The Health Care Financing Administration, a supervisory agency for Medicare, is considering a proposal to cut Epogen’s reimbursements by 10%. The average kidney patient needs $7,000 of Epogen a year. Said Amgen spokesman David Kaye: “We’ll talk with HCFA to help them understand why the current reimbursement is appropriate.” But analysts have already slashed their estimates for Epogen sales.

Amgen also faces a threat from upstart Transkaryotic Therapies Inc. (TKT), a Cambridge, Mass., biotech concern, because its GA-EPO drug, now in human tests, would directly compete with Amgen’s Epogen if it reaches market. And TKT has signed up German drug giant Hoechst as its partner.

“What we do is quite different” from how Amgen’s drug works, contends Richard Selden, chief executive at TKT. Amgen’s drug triggers a mechanism in the body that is critical to producing the vital EPO protein. But TKT’s drug, Selden said, targets a different part of the body--dormant kidney cells--to boost critical red blood cell counts.

Last spring Amgen sued TKT, alleging patent violations. Amgen’s first Epogen patent is 10 years old--a U.S. drug patent runs 17 years--and in April Amgen was granted two more Epogen patents that it says give it broader protection.

“It makes perfect sense that Amgen will defend their turf. We have a different view of what that turf is,” said Selden.

Much of Amgen’s fortunes will rest not just with lawyers, but with the results of 10 other developmental drugs now being tested on humans.

So far this decade Amgen has spent $2.4 billion on research and development. Infergen, Amgen’s hepatitis C drug, took more than a decade to reach market, McCamant noted. “I know how much they spent on R&D.; But what’s it producing? I’m not impressed.”

“The last several years we’ve put in place an extensive pipeline of drug candidates,” said Amgen’s Kaye. “By the year 2000 we hope to have additional products on the market. A number of them could be revolutionary, but it takes time.”

One promising test drug is MGDF, a gene-spliced copy of a protein that produces platelets, oval disks that make blood clot. Doctors are eager for a platelet drug to stop chronic bleeding, which is especially common in cancer patients undergoing chemotherapy. Lung cancer, ovarian cancer and bone-marrow transplant patients often develop low platelet counts because chemotherapy kills both good and bad cells, and this bleeding can be fatal.

It’s a three-way race to get a biotech platelet drug to market. Genetics Institute in Cambridge, Mass., seems to be in front with its Neumega drug, which may get FDA approval in early 1998. Both Amgen, with its MGDF product, and rival Genentech’s similar TPO platelet drug, are a year behind in the race.

Dr. John Glaspy of UCLA’s medical school is in Phase 2 testing of MGDF on patients, and he remains enthusiastic. “From a doctor’s standpoint, this is an incredibly important tool that we will have soon. I’d be real surprised if it takes three more years” to win FDA approval for the drug, he said.

Predictions on the potential size of the platelet drug market range wildly, from $100 million to $1 billion a year, with possibly three companies battling over it. But Glaspy doesn’t see MGDF becoming a blockbuster, like Amgen’s first two drugs.

“I never thought the market for [MGDF] was as great as Epogen or Neupogen because there are much fewer clinical situations for it.”

He notes that a patient taking MGDF must wait about 14 days before blood platelet counts jump, while Neupogen triggers higher white blood cell counts in less than two days.

Another Amgen test drug with great expectations and great risks is GDNF. For a year it’s been tried on patients with Parkinson’s and Lou Gehrig’s disease. The latter, also known as ALS, is a fatal nervous system disorder that typically strikes young people, who gradually become paralyzed. Death usually comes within five years.

There are about 30,000 ALS patients. There’s another 1 million Americans with Parkinson’s, a slower-developing degenerative nerve disease, and while there are various treatments, life expectancy is typically reduced by 10 years.

Amgen is testing GDNF on ALS and Parkinson’s patients by administering monthly injections into the brain through a surgically implanted catheter. Dr. Walter Bradley of the University of Miami medical school is heading an ALS trial. “If we can get the drug into the right place, the hope is this will help slow down the disease by preventing nerve cells from dying.” The disease is so devastating, Bradley said, that “ALS patients would take horse manure if it made them feel better. And so would I [if I had ALS].”

Daniel Vapnek, Amgen’s former research chief and now a consultant, said animal tests of GDNF were “extremely promising” and reversed some symptoms of Parkinson’s. But Vapnek knows that upbeat lab results on animals are a long way from getting similar results in human tests. “Those are the kinds of risks you take with these drugs,” he said.

Amgen is also plugging away at its well-publicized obesity drug called leptin. But at least 10 hormones, including leptin, have been found in lab tests to play a role in regulating body weight, and more than a dozen drug companies are chasing bioengineered solutions for a potential $30-billion market. By year’s end, Amgen will start a second round of human tests of leptin on diabetic and obese subjects.

McCamant is not high on leptin’s chances, preferring several rival drugs in development. But Robbins-Roth counters: “Do I believe leptin itself will be a drug [that reaches the marketplace]? Probably not a huge drug. Do I believe Amgen knows how to use this as a tool for research in how to come up with better drugs? Yes.”

Indeed, with Amgen’s stock trading near its two-year low, Robbins-Roth, a former Genentech research scientist, calls it a buying opportunity. “The depths of Amgen’s R&D; is profound. My gut instinct is they know how to start developing products for very complex biological diseases. I think Amgen is going to come out on top.”