Big Biotech Amgen Facing Pivotal Year In 2016

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B iotech pioneer Amgen has long depended on its flagship drugs for its revenue stream, but the next few years could see a changing of the guard as new medications overshadow the old.

Currently, more than half ofAmgen 's ( AMGN ) sales come from drugs that debuted in the 1990s: the sister drugs Neulasta and Neupogen, both of which stimulate production of white blood cells, and Enbrel, which treats immunology conditions such as rheumatoid arthritis and psoriasis. Amgen's legacy anemia treatment, Epogen, still provides 9% of sales after being approved way back in 1989.

However, as some of the earliest and therefore simplest biologic drugs, they've also been the first targets for rivals waiting to sell what are known as biosimilars once patents lapse on Amgen's products. Biosimilars aren't quite like generic drugs, which are identical copies of the originals, but they are similar enough to be used interchangeably by at least some physicians.

Biosimilars of Neupogen have been sold for a few years in Europe, and this yearNovartis ' ( NVS ) version, Zarxio, entered the American market. It has put more weight on the growth of Amgen's launches.

Repatha's Launch

Probably the most anticipated Amgen launch this year was for Repatha, a treatment for high cholesterol approved in Europe in July and in the U.S. in August.

Repatha is one of a new class of cholesterol medications called PCSK9 inhibitors, also being developed by several other drugmakers. In fact,Regeneron Pharmaceuticals ( REGN ) and its partnerSanofi ( SNY ) launched their own PCSK9 inhibitor, Praluent, just a month earlier than Repatha in the U.S.

Since the clinical trials indicate similar effectiveness for both drugs, the two have been duking it out for payer deals. Last month Amgen was put on the preferred formulary ofCVS Health ( CVS ), while Regeneron and Sanofi did the same withUnitedHealth (UNH).

Analysts agree, however, that the crucial test for Repatha will come next year. That's when Amgen reports on the first results from its trial measuring Repatha's effects on cardiovascular outcomes -- that is, whether it actually reduces cardiovascular events like heart attack and stroke. Praluent's corresponding tests come shortly after.

Though the FDA approved both Repatha and Praluent based on their ability to lower LDL or "bad" cholesterol, that ability doesn't mean that they automatically improve heart health.

Better Than Expected?

In a Dec. 14 note upgrading Amgen to overweight, Morgan Stanley analyst Matthew Harrison estimated that outcomes data could add 20% in annual sales of Repatha, even if Praluent (as is likely) gets the same result. But his upgrade was driven by a survey of cardiologists that found it could do better than expected even before that.

"While we will be the first to acknowledge that survey data tends to skew toward high uptake, the cardiologists and PCPs (primary care physicians) we surveyed believe PCSK9 inhibitors can obtain 30% to 40% share of patients ... prior to outcomes data," Harrison wrote. "This is well above what both we and the consensus model (see), and even if the penetration was cut in half, it would still be above consensus."

Seeing The Upside

Analysts call for peak annual Repatha sales of $4 billion to $5 billion, but Harrison isn't the only analyst who sees upside to that number. RBC Capital Markets analyst Michael Yee recently wrote he thinks sales could be twice that.

However, the peak isn't expected until 2020, and the need to negotiate with payers is keeping the launch fairly slow in the near term.

Amgen has a few other cards to play, though, starting with blood-cancer drug Kyprolis.

Amgen came by Kyprolis when it acquired Onyx Pharmaceuticals in 2013 for $10.4 billion. Many investors at the time balked at the price tag, but Amgen has been working to justify it by doing more research to expand the drug's label.

When the FDA first approved Kyprolis for multiple myeloma in 2012, it cleared the drug only for advanced cases -- those who'd had at least two prior treatments -- and only in combination with another drug called Velcade. Also, Amgen couldn't put any survival benefit on Kyprolis' label, as the clinical trials hadn't proven the benefit.

Amgen won approval for somewhat less advanced multiple myeloma this summer, and it produced studies demonstrating a survival benefit, as well as Kyprolis' effectiveness without Velcade. In the most recently reported third quarter, Kyprolis sales jumped 46% from a year ago to $137 million.

Overall, Amgen's earnings rose 18% to $2.72 a share for the quarter, beating analyst estimates by 34 cents. Sales increased 14% to $5.72 billion, also ahead of Street views.

Unusual Events

It was the best sales growth in some years, but Amgen acknowledged that some of it was due to one-time events, such as one customer's abnormally large purchase of Enbrel. Amgen's guidance was more modest; analysts overall are expecting a slowdown, with earnings up 5% in the current quarter and up 6% next year.

The Street expects earnings growth to jump to 16% the year after that, but the longer-term outlook depends on the success of drugs currently in the pipeline.

Analyst Harrison pegs June 2016 as the likely report date for the results of a late-stage study of romosozumab, a medicine Amgen is developing for osteoporosis. If it succeeds, the drug could eventually reach blockbuster status, with more than $1 billion a year in sales.

But in the nearer term, Amgen doesn't have many levers left to keep growth pumping, says Wells Fargo analyst Jim Birchenough.

"With a highly leveraged balance sheet and commitment to its dividend policy, we view Amgen's business development opportunities as much more limited than peers'," Birchenough wrote in a Dec. 3 report, initiating coverage at neutral.

"While Amgen has been able to beat consensus estimates for the past five years, with share repurchases and aggressive cost cutting, we believe that further cost cuts would be difficult to achieve and that focus will increasingly be on top-line performance," Birchenough said.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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