"Amgen isn't getting much love from Washington these days.
The Internal Revenue Service has gone after the biotech for billions of dollars in back taxes. Lina Khan's Federal Trade Commission is seeking to block its $27.8 billion acquisition of Horizon Therapeutics, a move some insiders think was at least partly prompted by a blistering letter from Sen. Elizabeth Warren. And, in rare unanimity for a polarized institution, the Supreme Court recently ruled against Amgen in an important patent case.
But Amgen's looming patent cliff is the bigger headache. Many of its top-selling drugs are set to face sharp revenue declines this decade as their patents expire and competition stiffens. And while Amgen introduced new products -- including the cholesterol drug Repatha that was the subject of the patent-infringement lawsuit -- its growth prospects toward the end of the decade look challenging.
One drug under threat is blockbuster Enbrel, a treatment for autoimmune diseases such as rheumatoid arthritis. While the drug doesn't lose exclusivity until 2029, it is already facing headwinds because AbbVie's Humira is putting pressure on the entire class of drugs. Both drugs work by blocking a substance known as tumor necrosis factor, which contributes to inflammation. But AbbVie is facing biosimilar competition and, to protect its market share, it has been offering steep rebates to pharmacy-benefit managers. The bigger rebates could in turn take away market share from similar drugs such as Enbrel, says Brian Skorney, an analyst at Baird. Enbrel brought in $579 million in total sales in the first quarter, badly missing analyst estimates of $817 million according to a poll by Visible Alpha. Another drug, Otezla, missed estimates due to competition from a Bristol-Myers Squibb rival. Prolia and Xgeva, two bone-health drugs, helped offset some of that growth pressure, but they face patent expirations later this decade.
To respond to patent expirations, big pharma companies can boost their research and development efforts, buy or partner with small companies or swallow a large company. With the Horizon deal, Amgen opted for the third option, attracting antitrust scrutiny. But even before the FTC action, investors didn't love the acquisition. The stock declined in the weeks after the deal's announcement, partly in reaction to Amgen's paying a hefty price and assuming a large amount of debt to finance the deal. But part of the concern might stem from the growth trajectory for Horizon's key product. The crown jewel in the acquisition is the drug Tepezza for thyroid eye disease. The drug raked in nearly $2 billion in 2022. To make the Horizon deal work, Amgen would want to see those sales continue to climb. Horizon in November upped its guidance for the treatment, predicting more than $4 billion in peak sales. But Wall Street is skeptical.
After Horizon reported a 19% slide in Tepezza sales to $405 million in the first quarter, SVB Securities analyst David Risinger lowered his peak annual sales estimate to $3.1 billion from $3.5 billion, noting that fewer U.S. patients are being treated than he had anticipated.
Tepezza is indeed a good drug, but it might be too good from Wall Street's perspective -- patients normally undergo a six-month treatment and then stop. "It's a finite duration regimen," Umer Raffat, an analyst at Evercore, wrote after the Horizon deal was announced. "And such drugs always peak fast."
One way in which Amgen could benefit from the deal in America's convoluted healthcare system, the FTC contends, is by leveraging a broader suite of products during negotiations with the vertically integrated health insurers. According to this rationale, Amgen would use the Horizon products to cross-bundle its products, meaning it would condition rebates to pharmacy-benefit managers on a product in exchange for preferred formulary placements for other Amgen drugs. Amgen says it won't do that.
"The FTC's claim that Amgen might 'bundle' these medicines (offer a multi-product discount) at some point in the future is entirely speculative and does not reflect the real world competitive dynamics behind providing rare-disease medicines to patients," the company wrote in response to the FTC action.
Most legal experts think Amgen will eventually prevail over the FTC, partly because the judge slated to hear the case was nominated by former President Donald Trump. Ironically, if the FTC were to win, though, investors probably wouldn't mind all that much. And that is the bigger problem for Amgen: Wall Street is unimpressed with the company's growth prospects with or without Horizon." [1]
1. Washington Is Least of Amgen's Worries --- The biotech company is facing a patent cliff scarier than government actions. Wainer, David.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 25 May 2023: B.10.
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