Troubled Amgen's pipeline dreams

NEW YORK (CNNMoney.com) -- Amgen, king of the biotechs, sits on a shaky throne.

Amgen's (down $0.09 to $54.77, Charts, Fortune 500) lead products -- anti-anemia drugs Epogen and Aranesp -- suffer under the weight of ramped-up FDA warning labels; the stock is down nearly 20 percent this year; and the biotech faces a distant threat: a biogenerics bill that is gaining traction in Congress.

Reinforcements are on the way. Some analysts believe the world's leading biotech will take the sting out of its problems with the help of an experimental drug called denosumab, or d-mab for short. D-mab is being tested primarily as a cancer drug, but its potential is multi-faceted.

Denosumab is in late-stage testing for four different potential uses: to prevent the spread of cancer in bone tissue; to prevent cancer-related bone damage; to treat post-menopausal osteoporosis; and to treat bone loss caused by hormone reduction therapy for breast or prostate cancer. D-mab is also being studied, in earlier-stage tests, as an anti-inflammatory for rheumatoid arthritis.

"D-mab is probably Amgen's last hope to return to 'growth' company status," wrote Mark Schoenebaum, analyst for Bear, Stearns, in a recently published note. "Denosumab is, in our opinion, the most important late stage product left in Amgen's pipeline."

Schoenebaum said that success for this potential blockbuster is "critical" to Amgen's growth. The drug market for just one of its indications -- post-menopausal onset of the bone disease osteoporosis -- totals $7 billion, with nearly half of that going to a single drug: Merck's (down $0.42 to $49.40, Charts, Fortune 500) Fosamax, which totaled $3.1 billion in 2006 sales. Amgen is preparing to take on this potential competitor by conducting a head-to-head experiment comparing d-mab to Fosamax.

Schoenebaum said results for the d-mab/Fosamax trial, as well as other late-stage d-mab trials, are expected in 2008.

Treatment for post-menopausal osteoporosis is the "most promising" of the potential uses for d-mab, said an associate analyst for Michael King, analyst for Rodman & Renshaw. King projects a late 2008 launch, working up to $1 billion in annual sales within five years.

"We think d-mab could be a big winner, but not for a few years out," said the associate.

Amgen, based in Thousand Oaks, Calif., also sees promise in its recently-launched colorectal drug Vectibix. But a pair of promising new drugs may not be enough to offset Amgen's formidable challenges, according to some analysts, because has the company has run into trouble with its top-selling duo: Aranesp and Epogen.

Lazard analyst Joel Sendek wrote in a published note "that the Amgen pipeline is not robust enough to replace lost [Epogen and Aranesp] revenue."

Both these drugs are used to protect the red blood cells in patients taking chemotherapy, which often reduces red blood count, resulting in anemia. In March, the FDA heightened warning the labels for Aranesp and Epogen, as well as Johnson & Johnson's (down $0.22 to $62.06, Charts, Fortune 500) competing drug Procit, saying that these drugs could have sometimes-fatal side effects.

"We do believe these drugs, Epogen and Aranesp, are safe and effective when used according to the FDA label," said Amgen spokesman Dan Whelan. He said the Food and Drug Administration would be holding an advisory committee meeting on this topic in the fall, and that Amgen "looks forward to participating."

Aranesp and Epogen, which together exceeded $6.6 billion in 2006 sales, also face potential competition from Roche's anti-anemia drug CERA, which received an "approvable" letter from the FDA and is currently awaiting a regulatory decision.

James Reddoch, analyst for Friedman, Billings, Ramsey, said the Centers for Medicare and Medicaid Services are expected to issue recommendations on insurance coverage for Aranesp in mid-July, and again in October. "We would recommend investors remain on the sidelines" until after the government agency take

But the specter of biogenerics could be the greatest threat of all -- not just to Amgen, but all biotechs, including the industry's No. 2: Genentech (Charts).

The biotech industry is currently exempt from the pressure that low-cost generic drugmakers like Teva Pharmaceuticals Industries (up $0.12 to $41.39, Charts) present to name-brand drugmakers like Pfizer Inc. (down $0.03 to $25.87, Charts, Fortune 500) Name-brand drugs are protected by patents, but only for as long as the patents last.

Biotech drugs, like Big Pharma, also face patent expirations, but they have no serious competition from generics because the FDA does not have a regulatory structure to review and approve biogeneric drugs.

But a biogenerics bill, crafted by Rep. Henry Waxman, D-Calif., the father of the generic drug industry, and supported by political heavy-hitters like Senators Hillary Clinton, D-N.Y. and Charles Schumer, D-N.Y., is expected to go to the Senate floor at an undisclosed date. This bill would establish a regulatory system to approve generic versions of biotech drugs, once their patents expire.

"The bill still has several legislative hurdles to clear before it is law, but we believe that the support for this bill is strong enough that the odds favor passage this year," wrote Reddoch of FBR, in a published note.

Reddoch described Amgen as "particularly susceptible to generic competition," considering that a generic version of Epogen has already been approved by regulators in Europe, where biogenerics have a foothold.