Amgen Sapped by Anemia Drug Woes

The shares declined for a second day Friday after the FDA recommended a stronger warning label for the biotech's anemia drug

Amgen (AMGN) shares continued to head lower on May 11 following a sell-off on the previous day after a Food and Drug Administration committee recommended stronger warning labels and further safety testing for certain anemia drugs used by cancer patients that are sold by the biotech giant and Johnson & Johnson (JNJ).

Amgen shares fell 2.9% to $55.67 in heavy volume of nearly 39 million shares on the Nasdaq on May 11, on the heels of a 9% drop in the previous session. Amgen shares also touched a new 52-week low of $55.07 when the market opened. Meanwhile, J&J shares were down a penny at $62.49 on the New York Stock Exchange.

The drugs affected by the FDA's recommendation are Amgen's Aranesp and Epogen and J&J's Procrit, which are in a class of medications called erythropoiesis-stimulating agents, or ESAs. They stimulate the production of red blood cells, and are approved to treat anemia caused by chronic kidney disease, and can also be a side effect from chemotherapy treatments in cancer patients.

The FDA committee focused on the risks of using of these drugs in cancer patients. Back in March, the FDA warned that more safety information should be provided on all three drugs' labels (see BusinessWeek.com, 3/9/07, "Amgen Dips on Drug Warning News"). It focused on cardiovascular and cancer-related risks when the medications were taken at higher-than-recommended doses.

The FDA is considering attaching new restrictions to their labels specific to certain tumor types. The FDA further recommended that the labels include a minimum recommended hemoglobin level at which patients would begin taking them, notes S&P Equity Research analyst Robert Gold in a note on May 11, in which he kept his buy opinion on shares of Johnson & Johnson. "We are pleased that there was no recommendation to lower the minimum hemoglobin target for maintenance therapy, as this would have, in our view, significantly impacted sales," Gold says. "We think the situation is manageable should the FDA adopt these recommendations," he says.

However, it still remains unclear how drastically the FDA will ultimately act in articulating the restrictions, says HSBC analyst Gene Mack, who downgraded Amgen shares to neutral from overweight on May 11. Mack says he didn't expect a negative outcome. In fact, he thought that no significant shifts would be recommended by the FDA.

Mack said in a note that believes Amgen now looks to be dependent on its pipeline more to offset the decline in Aranesp demand rather than to fuel near-term earnings per share growth. In turn, he cut his price target for Amgen to $65 from $87.

Indeed, the recent safety concerns and recommendations for label changes have hurt Aranesp sales. Amgen recently reported that Aranesp sales fell to $1.02 billion in the first quarter, down from $1.11 billion in the fourth quarter of 2006.

Amgen and J&J say their drugs are safe when used at the right dosage, and will work the FDA on its recommendations, according to news reports. About two weeks ago, Amgen said a study found Aranesp-treated patients had improved levels of hemoglobin and significantly lower risk of blood transfusions (see BusinessWeek.com, 4/19/07, "Amgen Gains on Aranesp News") -- which helped breathe some life into the company's stock.

S&P Equity Research analyst Steven Silver kept a buy recommendation on Amgen shares after the big drop on May 10. "We believe this outcome was largely priced into the shares prior to the news, and view the reaction as overdone," wrote Silver in a note. He says he now thinks Amgen is less likely to reach its 2007 revenue forecast, but sees "solid core sales for approved doses and indications, and a late-stage pipeline that should reduce its reliance on sales of its anemia drugs." Silver kept his 12-month target price for Amgen at $70. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Cos. [MHP].)