Amgen Faces Hazards to Its Health


By almost every measure, Amgen Inc. has made it to the top of the mountain.

Whether measured by revenue, profit or market value of its stock, it is the biggest biotechnology company in the world. Moreover, its top two drugs--each ringing up more than $1 billion a year in sales--assure the company of solid profit while extending the lives of patients suffering from kidney failure and cancer.

For the record:
12:00 AM, Dec. 03, 1998 For the Record
Los Angeles Times Thursday December 3, 1998 Home Edition Business Part C Page 3 Financial Desk 1 inches; 34 words Type of Material: Correction
Amgen CEO--In a story Nov. 30, The Times incorrectly identified George Rathmann as the first chief executive of Amgen Inc. In fact, UCLA scientist Winston Salser was the initial chief executive and recruited the company’s scientific advisors.

Yet after an 18-year climb to the summit, Amgen’s perch seems precarious.

Consider what the Thousand Oaks-based company is facing: a long-simmering patent dispute that threatens its best-selling products, a federal effort to cut Medicare spending on its leading drug and a running dispute with a pharmaceutical giant that could cut into Amgen’s bottom line.


And as analysts look at the company’s pipeline of products in development, they fret that the best candidates are still a long way from market.

In biotechnology and drug development--in which a useful product can be displaced by a more effective competitor, or an unexpected side effect can sideline a potentially profitable product--life at the top is inevitably insecure.

Perhaps the biggest source of insecurity for Amgen these days is its patent war with Transkaryotic Therapies Inc.

The Cambridge, Mass.-based company has developed a novel way of producing Amgen’s best-selling drug, Epogen, the product that propelled Amgen to the top of the biotechnology heap with sales reaching $1.4 billion a year and climbing. The drug, a version of the naturally occurring protein erythropoietin, or EPO, is used to treat anemia in kidney dialysis patients and in cancer patients treated with chemotherapy.


Amgen has hauled Transkaryotic into federal court, claiming patent infringement.

“It might take as much as $200 million to develop a new product, but it might take $20 million to copy it,” Amgen Chairman and Chief Executive Gordon Binder said. “We believe every time we develop a new product, someone will try to copy it. If we had a large pile of gold bullion, someone would try to steal it. The difference is, if someone stole bullion, we could turn to the police for help.”

This is not the first patent battle over EPO. The last one, against another Cambridge-based company, Genetics Institute, ended with a victory for Amgen in a case that went all the way to the U.S. Supreme Court.

But Transkaryotic and its partner, German pharmaceutical giant Hoechst Marion Roussel, have proved formidable opponents. Although they were unable to get the patent infringement suit thrown out of court, they did get a favorable ruling from the judge that allowed the companies to continue to test their own brand of EPO.

The ruling came this year under a provision of law that shields companies from infringement suits while testing patented products.

Amgen’s response was an all-out effort to persuade Congress to change the law. While Binder, the CEO, emphatically denies that Amgen has tried to exert political pressure, the firm and its employees have contributed more than $500,000 to federal election campaigns since 1994, including $190,000 in contributions to the Senate and House Republican campaign committees, federal election records show.

Last month, the end-of-session lobbying in Washington failed amid widespread industry opposition to hasty changes in the 14-year-old statute.

“Most companies not involved with it did not have a full understanding,” Binder said. The lobbying was intended to correct a drafting error in the original statute, he said.


Transkaryotic’s president and CEO, Dr. Richard F. Selden, contends that when Amgen got an unfavorable ruling in court, it went behind the scenes to overturn the law. “This needs to be done in an open session of Congress, not behind closed doors,” he said.

Amgen filed suit when it did, he said, because its executives “figured they could disrupt us and slow down our programs.”

He is braced for combat. “We assume Amgen will try to battle us around the world,” Selden said.

In fact, Amgen’s infringement lawsuit will likely be resolved only after Transkaryotic brings matters to a head, probably by seeking Food and Drug Administration approval to market its drug, which is expected to occur late next year.

And the battle between the two companies may not end there. Selden says Transkaryotic is prepared to move ahead with testing of a second human protein product he won’t identify. Several Wall Street analysts speculate it will be a new version of Neupogen, Amgen’s other billion-dollar-a-year product. The injectable drug is widely used by cancer patients to boost levels of white blood cells, which have been depleted by chemotherapy.

Analysts take the Transkaryotic-Hoechst challenge seriously, but are divided over which side will prevail.

“We’ve done our own patent analysis,” said Thomas J. Dietz, a managing director at Pacific Growth Equities. “We are very comfortable that the process by which [Transkaryotic] manufactures its product is not caught by any of Amgen’s patents.”

“We reached the conclusion that Amgen will ultimately prevail,” said Dennis Harp, biotech analyst at BT Alex. Brown. Harp points out that even if Amgen wins, Transkaryotic will be able to enter the European markets in a few years. However, he sees strong growth ahead for both companies.



Thus far, Amgen has proved to be a boon to shareholders. Those who snatched up the stock during its lowest ebb in the 1980s have enjoyed as much as a 500-fold increase in value. Fixed in company lore is the Amgen employee who sold shares in those early years to buy a car, now referred to as “the $1-million Volkswagen.”

Originally called Applied Molecular Genetics, the company was launched in 1980 by a small group of venture capitalists who believed there was room for another biotech company along the lines of Genentech Inc. and Biogen Inc., recalled George Rathmann, the company’s first chief executive.

Rathmann soon assembled a top-flight scientific advisory board. High on its list of drug candidates was EPO, a protein produced in the kidney that stimulates red blood cell production.

When the kidneys fail, patients don’t produce enough EPO; they become anemic and require frequent blood transfusions.

In 1976, Eugene Goldwasser’s lab at the University of Chicago isolated EPO in minuscule amounts from 2,500 quarts of urine--a breakthrough largely unheralded at the time. When he wrote university officials that the substance might be worth a patent, he never got a response. “The university lost out on a billion-dollar-a-year drug, and I lost out on 1% of it,” Goldwasser said in a recent interview.

Companies soon approached him with ideas for producing EPO to treat anemia in kidney failure patients.

But several scientists realized that if they could find the gene for EPO, they could splice it into cells for turning out commercial quantities of the protein. In the early 1980s, in a triumph of genetic engineering, two companies succeeded: Amgen and Genetics Institute.

A decade later, after a bitter patent battle, a federal court determined that Amgen scientist Fu-Kuen Li made the discovery months ahead of his counterpart at the rival firm. The ruling gave Amgen and its partners exclusive rights to produce EPO.

Today, the company is the sole source of EPO for kidney dialysis patients in the U.S., where sales of Epogen have grown steadily to $1.4 billion a year. Amgen also manufactures the drug for Ortho Biotech, a division of Johnson & Johnson, which markets it in Europe and, to treat anemia brought on by chemotherapy, in the U.S.

Analysts have been keeping their eye on a long-running battle Amgen has had with the Health Care Financing Administration, which sets policy for Medicare. The federal health program has been picking up 80% of the cost of Epogen for kidney dialysis patients in the U.S. since the drug was first marketed in 1989--that’s about $940 million a year, according to a 1997 inspector general’s report.

Earlier this year, the Clinton administration failed in an attempt to persuade Congress to cut reimbursement for EPO by 10% to eliminate a windfall going to kidney dialysis clinics and hospitals. This month, federal officials announced they planned to cut the payments administratively--an action that could put pressure on Amgen to cut its prices.

In the meantime, Amgen is testing a long-acting replacement for Epogen that has performed well in clinical trials. The new drug would lengthen the time between treatments and allow Amgen to compete with its own licensee, Johnson & Johnson, in Europe and for the non-dialysis market in the U.S.

Johnson & Johnson has objected, arguing that the new version is covered by its license. The matter is expected be settled in arbitration next year. A win would be a major coup for Amgen. There is little room for a compromise, according to Amgen’s Binder. “In this case, it’s likely to be one way or the other, in or out,” he said.


Analysts see the long-acting EPO as the most important drug in the company’s development pipeline and are watching the results carefully.

Bear, Stearns & Co. analyst David Molowa recently downgraded the stock from “buy” to “attractive” because of problems he sees in the product pipeline. “At current prices, the stock is performing very well based on a strong underlying business,” he said. “But for the stock to move higher, you have to assume a positive outcome on the [Johnson & Johnson] arbitration.”

Other drugs in development have disappointed.

Leptin, a human hormone that plays a role in weight regulation, has so far had mixed results in treating obesity. In September, the company abandoned a drug it was developing to stimulate blood platelet production in cancer chemotherapy patients and platelet donors. Testing of the drug was stopped when some donors receiving the drug unexpectedly developed low platelet counts.

The company has already begun sales of Infergen, approved for treatment of hepatitis C, but it faces competition from other products already on the market.

It is negotiating with the FDA for final approval of Stemgen, a product aimed at an estimated 12,000 cancer patients who undergo stem cell transplants each year.

There are still other drugs in development that could tap into much bigger markets, including treatments for Parkinson’s disease, osteoporosis and rheumatoid arthritis.

Developing new drugs is by its nature a risky business, Binder said, in which companies are judged by their latest success.

“It is not unlike the oil business or the movie business,” he said. “In the oil business, you drill a lot of holes, and a lot of them are dry and only a few come in. In the movie business, you make a lot of movies, but there are not a lot of blockbusters.”


Paul Jacobs can be reached via e-mail at


Amgen’s Product Pipeline

Amgen has three approved products on the market and several others in development. Here’s a sampling:


- Use: A genetically engineered version of a natural protein that stimulates red blood cell production, this drug is approved for use in kidney dialysis patients and cancer patients receiving chemotherapy.

- Status: Approved by the Food and Drug Administration in 1989. Sales have reached $1.4 billion a year.


- Use: Another engineered protein, this drug stimulates production of infection-fighting white blood cells. Prescribed for cancer patients receiving chemotherapy and AIDS patients.

Company is seeking approval for use in patients with severe pneumonia.

- Status: Approved by the FDA in 1991; has sales of $1.1 billion a year.


- Use: An artificial version of human interferon, this drug has been approved for patients with chronic hepatitis C.

- Status: Approved by the FDA in late 1997; competes with two other interferons already on the market; has sales of about $20 million a year.


- Use: This drug stimulates production of stem cells, which create both red and white blood cells. It was tested on cancer patients undergoing high-dose chemotherapy followed by stem cell transplantation.

- Status: Recommended for approval by an FDA scientific advisory committee; negotiations with FDA continuing.

NESP (novel erythropoiesis stimulating protein)

- Use: This drug is a long-acting version of Epogen.

- Status: Undergoing tests. Arbitration will determine whether NESP will be able to compete in markets in which Johnson & Johnson currently has licensed exclusive rights for Epogen.

OPG (osteoprotegerin)

- Use: A naturally occurring protein that regulates bone mass, this drug is being developed for osteoporosis and treatment of cancer that has spread to bones.

- Status: Undergoing clinical trials in healthy, post-menopausal women.

GDNF (glial cell line-derived neurotrophic factor)

- Use: This drug appears to protect neurons from cell death and could prove useful in the treatment of Parkinson’s disease.

- Status: Being tested on Parkinson’s patients.

Source: Amgen