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Rebuilding Amgen's Bones


One risk of running the world's largest biotechnology company is that you can easily fall victim to your own success, a lesson that Amgen Inc. (AMGN) Chief Executive Kevin W. Sharer knows all too well. On Apr. 18, Amgen disappointed Wall Street with 14% sales growth in the first quarter. Most biotechs would kill for 14% sales growth. But for Amgen the news added to a stock swoon: Shares are down about 17% for the year.

Amgen's past few years of growth have built up expectations. In 2005, thanks to hit drugs such as Aranesp, for anemia, the Thousand Oaks (Calif.) company pushed profits up 55%, to $3.7 billion on sales that jumped 18%, to $12.4 billion. Amgen hit No. 9 on the BusinessWeek 50 ranking of top-performing companies. Now impatient investors wonder what's next.

A key part of Sharer's answer doesn't exactly roll off the tongue: It's denosumab, a molecule that prevents bone loss caused by osteoporosis and other diseases. The global osteoporosis market is at $6 billion in annual sales today, and with a rapidly graying population, it's growing 25% a year. So with top-line sales a pressing issue, Amgen will be making a difficult step in the biotech world, where companies usually cater to specialty markets. Amgen's osteoporosis drug would take it beyond niches, such as oncology and dermatology, into a mass market already served by giants such as Merck & Co.'s (MRK) Fosamax.

During the first-quarter earnings announcement, Amgen further dismayed the Street by saying that its scientists need to analyze a full three years of late-stage trial data before it seeks Food & Drug Administration approval for denosumab. Some investors hoped Amgen might have enough data after two years. Now the highly anticipated osteoporosis treatment isn't likely to hit the market until 2009. Sharer is neither surprised nor apologetic. "With a drug that could be taken for years by millions of people, heck, we'd better be sure it's safe and effective," he says. That's especially important in light of Merck's Vioxx fiasco.

Amgen is wasting no time in taking potshots at Merck, a dominant player in the osteoporosis market. At an analyst meeting earlier this year, it presented research showing that 70% of patients taking top-selling osteoporosis drugs such as Merck's Fosamax drop out in the first year of treatment because of heartburn, ulcers, and other side effects. And Roger Perlmutter, Amgen's executive vice-president for research and development, calls attention to concerns that drugs such as Fosamax may cause deterioration of the jawbone. Perlmutter says that denosumab mimics the body's natural mechanism for blocking the formation of bone-destroying cells. Fosamax, on the other hand, slows down the activity of cells that have already formed. Amgen's drug may need to be taken only twice a year, vs. once every week for Fosamax. What's more, Amgen's drug doesn't bury itself deep in the bone for years the way Fosamax does, Perlmutter says. For all those reasons, he adds, "we think there would be much less risk of adverse effects."

Not so fast, counters Merck. "We have clinical trial data on 17,000 patients and extensive experience with Fosamax," says Anastasia Daifotis, vice-president for endocrine clinical research at Merck Research Laboratories. "It's presumptuous for [Amgen] to make comparisons when we haven't seen that much data on denosumab." Daifotis points out that in an Amgen study published in February, 2% of denosumab patients left the trial early because of bad side effects, whereas none of the Fosamax patients had to pull out.

ATTENTION DEFICIT

Clearly Amgen's anti-Fosamax stance is motivated in part by investor impatience with the company's historically thin pipeline. But the public attack may also help the biotech grab the attention of general practitioners who prescribe osteoporosis meds. Amgen ultimately will need to build a new sales force that can win the loyalty of busy primary-care doctors, who are constantly inundated with Big Pharma sales pitches. Although the company can't formally market the drug until the FDA approves it, some observers say talking it up early is a savvy strategy. "At worst, they're educating the market. At best, they're creating a level of enthusiasm," says Joel Sendek, an analyst for Lazard Capital Markets (LAZ).

Meanwhile, Amgen's other bankable franchise is under attack. Roche is seeking approval for a drug that would compete directly with Amgen's anemia treatments, Aranesp and Epogen, which account for half its revenues. On Apr. 11, Amgen asked that the International Trade Commission ban imports of Roche's drug, claiming it violates Amgen's patents. The uncertainty about the outcome will likely drag down the stock indefinitely. Amgen could get a new colon cancer drug approved later this year, but that's a smaller opportunity than osteoporosis. Observes Kris H. Jenner, vice-president and portfolio manager for T. Rowe Price (TROW), which owns 1% of Amgen's shares: "Amgen is in a difficult place." One way out of that spot would be to turn denosumab into a hit.

By Arlene Weintraub


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