With just a passing glance at the headlines, it would be easy to assume Amgen, Inc. (NASDAQ:AMGN), along with several other biotechs, is headed into a multiyear headwind. That’s because in early March — for the first time ever — the Food and Drug Administration approved a biosimilar drug.
Biosimilars are drug molecules so closely resembling the molecular structure of existing, so-called “biologic” drugs that they work just as effectively as the biologics without causing any adverse side effects due to their slight differences. Historically, even once biologic drugs lost patent protection, the molecules were so complex they often couldn’t be recreated. Technology developed in recent years, however, has overcome this hurdle, posing a direct threat to AMGN and other biopharma names.
That threat became an alarming reality to owners of Amgen stock on March 5. That’s when Novartis AG (ADR) (NYSE:NVS) won the FDA’s approval of Zarxio, a biosimilar version of Neupogen, which helps cancer patients fight off infections. Amgen sold $1.2 billion worth of Neupogen in 2014. It might be only a small part of the company’s annual sales of $20 billion, but with more biosimilars on the way from other biotechs, the introduction of Zarxio could simply mark the beginning of bigger trouble for AMGN.
It’s too soon to assume the worst for Amgen stock, though.
Meet the New Amgen
How does the expression go? Fight fire with fire?
While it’s true Amgen will be under increasing pressure now that the FDA has indirectly acknowledged that it has no fundamental problem with biosimilars, it’s not like the company is dead in the water. Amgen is working on several biosimilars of its own, and it is perhaps en route to becoming more of a threat to other biopharma companies than other biotechs are to Amgen.
One of the biggies in the AMGN biosimilar-development pipeline is ABP-501 — its answer to rheumatoid arthritis (RA) drug Humira, manufactured by AbbVie Inc (NYSE:ABBV).
Amgen already has an RA drug on the market in Enbrel, though it’s not a biologic. To capture at least some of the more than $6 billion in revenue per year Humira is driving, Amgen needs a head-to-head competitor. If all goes as planned, the company will have that competitor on the market shortly after Humira loses its U.S. patent protection in 2016.
All told, the Amgen website reports that six biosimilar trials are underway and that the company aims to develop its own versions of infliximab, rituximab, adalimumab (Humira), cetuximab, trastuzumab and bevacizumab. The company expects to have five biosimilar drugs on the market by the end of 2019.
Although Amgen only expects to generate about $3 billion in annual sales from the six biosimilar drugs it currently aims to copy, the biologics off which they would be based collectively generate about $45 billion revenue. If analysts are right in their expectations that a biosimilar can reduce the selling price of the original drug between 20% and 30%, Amgen’s biosimilar programs might prove even more detrimental to other biotechs than they would be beneficial to AMGN stock. Both are victories, however.
In the meantime, Amgen continues to pioneer drugs that will continue to hold patent protection for a long while.
Topping that last is multiple myeloma therapy Kyprolis, which Amgen now owns via its 2013 acquisition of Onyx Pharmaceuticals. While Kyprolis sales thus far have been lackluster, its approved uses have been somewhat limited. The company hopes more recent research will prompt the FDA to widen the drug’s application, ultimately leading to more revenue.
And that’s just one of Amgen’s conventional drug trials currently underway. In total, the company has 40 trials underway — 13 of which are in phase 3 — aside from its biosimilar programs. Amgen is sure to have a few big winners in that mix.
Bottom Line for AMGN
This isn’t to say the next few years are going to be easy ones for the company. Owners of Amgen stock — and investors of most biotechs for that matter — might want to adjust expectations now that the introduction of biosimilars is going to give rise to fierce competition. In many ways, biotech stocks will be forced to morph from growth names to more value-oriented plays. AMGN is still in a position to lead the pack, though, and, amazingly enough, to dole out a decent dividend along the way.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
