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Amgen: Astrazeneca Deal A Signal Of Cost Containment?

 April 05, 2012 01:47 PM

Amgen, Inc. (NASDAQ:AMGN) and AstraZeneca PLC (NYSE:AZN) have announced an agreement to develop jointly and commercialize five compounds from Amgen's inflammatory portfolio, including brodalumab.

The deal will provide Amgen with additional resources to progress its portfolio optimally, and benefit from the strong respiratory, inflammation and asthma development expertise of AstraZeneca's biologics arm MedImmune

Brodalumab had encouraging data published in its phase 2 study, and is set to enter phase 3 studies this year. The 12-week, dose-ranging study, achieved its primary endpoint with the mean percentage improvement in the psoriasis area and severity index (PASI). It scored higher in all brodalumab groups than in placebo groups.

[Related -Amgen, Inc. (NASDAQ:AMGN): What Will Drive Amgen This Year?]

The following are the five compounds to be jointly developed by Amgen and AstraZeneca:

Brodalumab: Being investigated for psoriasis (completed Phase 2 and planned Phase 3), psoriatic arthritis (Phase 2) and asthma (Phase 2).

AMG 139: Being investigated in Phase 1b for Crohn's disease.

AMG 181: Being investigated in Phase 1a and Phase 1b for ulcerative colitis and Crohn's disease.

AMG 557: Being investigated in Phase 1b for autoimmune diseases such as systemic lupus erythematosus.

AMG 157: Being investigated in Phase 1b for asthma.

[Related -Forest Laboratories, Inc. (NYSE:FRX): Should Astrazeneca Plc Buy Forest Labs?]

Amgen will receive a $50 million upfront payment, with both companies sharing costs and profits following an initial catch-up period where AstraZeneca will incur 65 percent of the costs until 2014. The deal is structured to give more than 50 percent economics to Amgen, while shifting development costs to the partner.

The deal is an incremental positive for Amgen, which wants to cut R&D costs and maximize margins.

"In our view, a viable bull case on AMGN shares is that new management could expand margins, and this deal could signal a shift toward narrowing its focus and reducing R&D spend," UBS analyst Matthew Roden wrote in a note to clients.

For 2011, Amgen's R&D expenses came in at $3.12 billion, up 12 percent from $2.77 billion in 2010.

"We have long recognized the breadth of Amgen's mid-stage pipeline as a boon (albeit potentially expensive to develop), and thus we view today's deal as a way to monetize assets that could have been squeezed out as R&D budgets are prioritized," said Roden, who has a "neutral" rating on Amgen shares.

Amgen has the largest revenues among its biotechnology peers. Its flagship drugs include Epogen and Neupogen and second-generation compounds, Aranesp, Neulasta and Enbrel have combined sales of $13.26 billion.

Amgen recently launched Prolia for the treatment of post menopausal osteoporosis and is developing the drug for use in other indications. For the year, total product sales increased 4 percent to $15.29 billion.



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