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Are Amgen investors overreacting to Prolia drug setback?
Analysts examine prospects for biotech reclaiming growth-story status
By Val Brickates Kennedy, MarketWatch
Last Update: 12:42 PM ET Nov 5, 2009
BOSTON (MarketWatch) -- Amgen Inc. shares have taken a beating in recent weeks over news that hotly anticipated bone-loss drug Prolia is faced with regulatory snags, but are investors' fears well-founded?
Thousand Oaks, Calif.-based Amgen AMGN has been seeking to have Prolia, also known as denosumab, approved for two treatment indications: bone loss in post-menopausal women and bone loss caused by certain hormone therapies in prostate- and breast-cancer patients.
Investors have had high hopes for Prolia, with many expecting the product to jump-start Amgen's sputtering top line and potentially help transform the biotech giant back into the growth story of yore.
But then came news that Prolia's approval by the Food and Drug Administration might not be the slam-dunk that many had hoped.
On Oct. 21, Amgen announced, along with the release of lackluster third-quarter financial results, that the FDA said it needed to see additional clinical studies for Prolia before it could consider approving it to treat bone loss associated with breast and prostate cancer.
The FDA has also requested additional studies that would show Prolia doesn't hasten progression of the disease or negatively affect overall survival.
The news came days after Amgen said the FDA will not approve Prolia for the treatment of postmenopausal osteoporosis without additional information. In that case, however, the FDA isn't requesting that additional clinical trials be conducted.
News of Prolia's setback has weighed heavily on Amgen's stock.
The shares fell about 5% following the Oct. 21 news, and have been trending lower ever since. They reached a 52-week and three-month high of $64.76 on Aug. 13, then hit a three-month low on Wednesday at $51.72.
Worries over Aranesp, other drugs
The negative reaction is primarily based on nagging fears that Amgen's once-hot anemia-fighting treatment Aranesp will continue to see tepid sales. The product, which belongs to a class of drugs known as ESAs, has been plagued in recent quarters by the tighter prescribing restrictions and reimbursement guidelines.
Of the $15 billion in revenue Amgen took in during 2008, a little over $3 billion was from sales of Aranesp.
Adding to Amgen's woes, Aranesp is facing heightened generic competition overseas. The product could likewise soon see generic competition in the U.S., as many of the health-care reform legislative drafts contain provisions allowing for the regulatory approval of "generic" biotech drugs.
At the same time, sales of Neulasta and Neupogen -- two other leading revenue drivers -- have remained solid but have generally seen only single-digit growth.
Moreover, sales growth for Enbrel, Amgen's popular rheumatoid-arthritis drug, has been slowing with the entrance of several rival medications into the marketplace. Co-marketed with Pfizer Inc. PFE, Enbrel garnered Amgen $3.6 billion in 2008.
Enter Prolia.
If approved for both indications, Prolia could account for up to 15% of Amgen's top line in 2013, according to Robert W. Baird & Co. analyst Christopher Raymond.
Raymond estimates that if the drug is approve for both conditions, Prolia could by 2013 have sales as high as $2.5 billion, with about $1.6 billion of that coming from the U.S. market. He estimates the U.S. market for the osteoporosis indication to be worth about $750 million, with the cancer indication valued at around $820 million.
In a recent interview, Raymond said he thinks the selling in Amgen shares precipitated by Prolia's setback has been overdone.
The FDA's response on the osteoporosis indication, said Raymond, is "not much of a delay." He noted that most of the FDA's issues have to do with the product's labeling and the planning of certain post-marketing studies.
"People are losing sight. The questions the FDA is asking are pretty benign," said Raymond.
"I'm still holding out hope they get approved by the end of the year for that indication," Raymond added. "In the worse-case scenario, the approval will be put off until next year."
As for the cancer indication, Raymond said that a key Phase III trial for skeletal-related events, or SREs, in prostate-cancer patients will be a major factor for the FDA. The data are due early next year but could come out even earlier.
Analysts at Lazard Capital Partners, in a recent note, said they think Amgen will probably win approval for both indications -- eventually.
"We believe the SRE trial data could be sufficient for approval of denosumab for the treatment of bone loss associated with hormone ablation therapy in both breast and prostate [cancer] if the pending SRE trial reveals positive data," wrote analyst Joel Sendek.
"We push back approval of denosumab for post-menopausal osteoporosis treatment to the second quarter 2010 from first quarter to be conservative, and delay approval for prostate and breast cancer bone loss until 2011," Sendek told clients.
But Sendek added that he's unconvinced that Prolia's approval can turn Amgen back into a major growth story.
"We believe Amgen's long-term earnings per share growth prospects are limited despite strong potential for denosumab due to clinical risks to the ESA franchise and competitive threats to Enbrel, denosumab and the Neupo franchise," Sendek added.
And if the FDA doesn't approve Prolia for either indication?
"Amgen's going to have some serious problems," said Raymond.
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