Can This Blockbuster Drug Keep Shining?

For years, biotech company Amgen (Nasdaq: AMGN  ) has dominated the anemia market with its blockbuster drug, Epogen. The product has scored billions of dollars for the company and rewarded shareholders handsomely. As Amgen continues its rise, however -- the company's stock has risen more than 35% year-to-date -- Epogen's time looks to be running out. Can Amgen continue its great run even with competition rising and its star's patent due to expire soon?

Bridging the moat
Amgen's recent earnings report showed small gains for Epogen, with sales growing 3% after falling  in 2011. The company' s flagship product has delivered a windfall for shareholders, but now that its U.S. patent is set to expire in 2013, Epogen looks to be on its last legs.

Generic competition is rising, with drugmaker Hospira (NYSE: HSP  ) conducting a phase 3 trial on a biosimilar. Small competitor Affymax (Nasdaq: AFFY  ) has also risen high this year on a  competing anemia drug, Omontys, being approved by the Food and Drug Administration, giving Amgen shareholders plenty of reasons to worry.

As they should -- Amgen must spearhead a way to secure its future in the kidney failure market. The industry produces some serious revenue power, with around 400,000 people on kidney dialysis every year in the United States alone. Amgen can't allow such a market to simply vanish, and continuing to tap it for profit will define a cornerstone of the company's future. Given that diabetes -- which has risen to affect nearly 10% of adults worldwide -- is a leading cause for kidney failure, Amgen can certainly win big if it can continue its success in this arena.

Life after expiration
Fortunately, Amgen has already begun preparing for life after Epogen. Despite the declining fortunes of Epogen and similar chronic kidney  disease drug Aranesp – both of which recorded declining sales in the company's last annual report – Amgen has signed deals with major dialysis providers. A contract with dialysis provider DaVita (NYSE: DVA  ) will lock in Epogen for 90% of DaVita's treatments.

Amgen has also signed a non-exclusive deal with major provider Fresenius (NYSE: FMS  ) , giving the company plenty of future financial flexibility as it continues to develop its strong pipeline. I wouldn't worry about massive revenue losses from Epogen just yet, particularly with the stock soaring despite the slowdown of the drug. Still, it's concerning that the company's pipeline doesn't have a surefire blockbuster replacement in late-stage trials to suit up for its longtime star, and Amgen will have to hope Epogen continues to sell well in the coming years.

Can Epogen keep it up?
Will that hope come to pass? It certainly seems like it. DaVita and Fresenius treat around two-thirds of all dialysis patients  in the U.S. annually, and their deals with Amgen will go a long way to keeping the latter rolling. Still, it would be folly to dismiss Affymax's Omontys from gaining a foothold in the anemia market. When Epogen's patent expires as well, no doubt Hospira's biosimilar will take another bite out of the drug's shrinking pie. However, this is no reason to shy away from Amgen -- the company is still on solid ground, and even with Epogen beginning to ride off into the sunset, Amgen has plenty of road ahead of it.

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Fool contributor Dan Carroll has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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