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Affymax, Inc.'s Pain Becomes Amgen Inc.'s Gain

 February 25, 2013 02:35 PM

(By Mani) Affymax, Inc. (NASDAQ: AFFY) announced a national voluntary recall of all lots of Omontys after reports of serious hypersensitivity reactions including anaphylaxis. The recall would benefit Amgen, Inc. (NASDAQ: AMGN) as it could remove the primary competitor temporarily to its core anemia franchises Epogen and Aranesp.

Drugs like Epogen, Aranesp and Omontys fall into a class known as erythropoiesis-stimulating agents, or ESAs, which are used to treat anemia as they increase the number of red blood cells.

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

Affymax disclosed they had treated over 25,000 patients in post-marketing. There was a 0.02 percent rate of "fatal" reactions (about 5). The overall hypersensitivity reactions were 0.2% (about 50) with 1/3 (15) being serious including anaphalyxis or hospitalization.

Affymax, whose shares plunged 85 percent on the news, discussed the issue with the FDA which agreed to the recall. Until further information is available, Affymax has instructed dialysis centers to discontinue use, thereby giving a potential boost to Epogen sales.

Following the recall, it is less likely that Fresenius Medical Care AG & Co. KGAA (NYSE:FMS) sign a near-term supply contract with Affymax and now may continue to use Epogen. Shares of Amgen, the world's largest biotechnology company, were up more than 4 percent.

[Related -Amgen, Inc. (AMGN) Q3 Earnings Preview: Pipeline In Focus]

Fresenius Medical Care, one of the largest operators of kidney dialysis centers in the U.S. and were evaluating 56,000 Omontys administrations on 18,000 patients, recently said it would stall the rollout of Omontys as it contemplates a long-term purchasing deal for the drug, according to Feb.14 a regulatory filing.

"We will now pause expansion of the pilot that began in late July 2012. We are now working to analyze the full set of efficacy and safety profile information and feel that the current scale of our experience with the use of the drug is adequate to complete this analysis," Fresenius Chief Medical Officer Franklin Maddux wrote in a letter to Affymax.

At that time, shares of Palo Alto, California-based Affymax fell as much as 33 percent. Before that, the stock was up more than 50 percent.

The U.S. food and drug administration (FDA) had approved Omontys in March 2012 for the treatment of anemia in chronic kidney disease patients on dialysis. Omontys' key advantage was that patients need only injections once a month, compared to up to 12 times a month for Epogen patients.

Omontys revenue for the nine-month period ended Dec.31, 2012 was reported to be $34.6 million by Takeda. The company has a strategic alliance agreement with Takeda Pharmaceutical Company Limited to develop and commercialize Omontys.

When Fresenius entered a contract with Affymax to use Omontys in July 2012, it rang alarm bells for Amgen investors as they became concerned that the drug could become a permanent addition at Fresenius's dialysis centers.

Most had expected Fresenius to expand Omontys (now has about 6 percent market share) and further erode Epogen share. However, now that threat has been subdued, at least for the near-term.

The latest recall should remove one of the overhangs on Amgen over the near-to-mid term as the dialysis market may slow or not shift towards Affymax. Amgen controls 95 percent of the market but has been expected to lose share to Affymax steadily, and other rivals after Epogen loses market exclusivity in 2015.

"We believe Epogen, with sales of $1.9B generated entirely in the US, is the most likely to benefit from the Omontys recall while Aranesp may have a mild benefit. For reference $782M of the $2.0B in Aranesp sales were generated in the US," Oppenheimer analyst Boris Peaker wrote in a note to clients.

Still, Epogen sales could be weighed by pricing pressures and biosimilar erythropoiesis (EPO) drugs such as Roche's Mircera, which is scheduled to launch in mid-2014. Furthermore, the lower price biosimilars may continue to present headwinds to the Amgen's EPO franchise in the long term.

"We currently estimate US Epogen sales declining y/y by 5% in 2013 and 6% in 2014," Peaker said

Amgen, too, is not lagging behind on biosimilars. In fact, Amgen's next leg of growth lies in biosimilars, which are nothing but officially-approved subsequent versions of innovator biopharma products made by a different company after the expiry the patent and exclusivity of the original product.

Biosimilars will become a bigger focus, and would be a key part of long-term growth post 2017 and Amgen's disclosure of Humira and Remicade as targets are not necessarily surprising as these two are the largest biologics in the world.

For Affymax, it would be tough for them to bring Omontys back to the market unless they conduct a convincing study showing that the drug is free from allergic reactions. However, this appears unlikely in the near-term.



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