The Neulasta Question

In a couple of years, Amgen  (NASDAQ: AMGN  ) will have to face the music when the patent for its $4 billion a year drug, Neulasta, expires in the U.S. and Europe. The patent for sister drug Neupogen has already expired in Europe, and it's set to expire in the U.S. by end of this year, jeopardizing an additional $1.2 billion in sales. Add to the mix falling sales from its kidney disease drug pipeline and questions need to be asked if Amgen the ability to compensate for such potential losses?

Top-tier products
Neulasta and Neupogen collectively treat the loss of certain white blood cells caused by chemotherapy, and the drugs collectively deliver $5.3 billion a year in revenue.  With the European patent gone, Neupogen is to face competition in the European market from Teva Pharmaceuticals' (NYSE: TEVA  ) Lonquex. The arrival of a generic drug to market can cause up to a 80% loss in revenue in the branded drug, but even if Teva was to grab just 40% of Neupogen sales, it would cost Amgen close to $0.5 billion a year. Teva is no doubt looking to Neulasta's patent expiration in 2015 as the big payoff. Should Lonquex grab a bigger share of the market in its first year, it could prove very costly for Amgen when a Neulasta equivalent emerges.

Enbrel is Amgen's shining star of its drug pipeline. The value of the rheumatoid arthritis market is expected to reach $38.5 billion in 2017. In this market, Enbrel is grabbing an ever increasing slice of the pie: Current sales of $4.2 billion were a 14% jump on 2012 to $4.2 billion after a 4% jump the previous year. Rights to market Enbrel outside of the U.S. and Canada are reserved to Pfizer (NYSE: PFE  ) . For Pfizer, Enbrel delivered more than $3.7 billion in sales in 2012 and is the third biggest individual revenue earner for the company. Amgen currently has a collaboration agreement with Pfizer to market within the U.S. and Canada, but this is set to expire in October. However, royalty payments to Pfizer will remain in place until 2016, but after then all revenues from sales will belong to Amgen. Better still, the long-term potential for the drug looks secure with a patent extension to 2028.

Amgen's Aranesp and Epogen each bring in close to $2 billion a year. The drugs are used to treat kidney disease related to dialysis, cancer, and other conditions. However, sales of each are falling from competition, weaker efficacy, and reduced dosage recommendations for Aranesp in the U.S. Aranesp competes against Procrit from Johnson & Johnson (NYSE: JNJ  ) ; Procrit is licensed to Johnson & Johnson from Amgen and has the same efficacy as Aranesp. Procrit generated sales of $1 billion over the last four quarters, but it has also seen sales decline over the same period.

Competing drugs from Roche and Teva are about to enter the European market. In addition, Roche's Mircera is expected to enter U.S. markets in 2014 after a 2009 settlement between the companies -- Mircera generated global sales of $410 million in 2012. Teva Pharmaceuticals' Eporatio has yet to record any sales figures in Europe.

In the absence of a genuine alternative, the fall in sales for Aranesp, Epogen, and Procrit is somewhat surprising. Should a true challenger emerge, sales of all three drugs would probably plunge. As a side note, while still preliminary, research on an oral-delivered drug versus current injectable form could also shake things up. Based on current sales trends, Amgen could lose up to $300 million in revenue this year.

Growth pipeline
Amgen can take comfort in its secondary pipeline of drugs that have yet to break billion-dollar sales but are enjoying respectable growth.

Sensipar sales for 2012 were $950 million. However, with 11 competitors in the market, it will do well to continue the double-digit growth enjoyed over the past two years, but the revenues it delivers are substantial. 

Xgeva and Prolia contain the same active ingredient and are used in the prevention of skeletal-related events in patients with bone metastases from cancer. Sales have soared from $41 million in 2010 to $1.2 billion in 2012. These drugs compete against Novartis AG's Zometa and a generic form of Zometa. In some quarters, Xgeva is perceived as more expensive and less effective in the treatment of bone complications in multiple myeloma patients. However, sales of Xgeva for the first two quarters of 2013 are up on the fourth quarter of 2012 on increased unit sales. Should Xgeva and Prolia maintain a quarterly sales growth of 4% (annualized at 17%), it would bring an additional $200 million in annual revenue. However, outside of the U.S. Xgeva is performing particularly well: It secured 40% of the French market since its launch in Q1 and is enjoying 33% quarter-on-quarter growth. It's likely that the final sales figure for 2013 will be more than $1.4 billion.

Amgen has also reported positive phase 3 data for T-Vec, for the treatment of malignant melanoma and trebananib for ovarian cancer. Survival analysis data for T-Vec is expected in the first half of 2013 and for trebananib in the second half of 2014. The ovarian cancer market is expected to reach $1.4 billion in 2021 (up from $460 million in 2011), with the malignant melanoma market likely to be comparable. While it's still in the early days for these treatments, solid progress is being made.

Expectations
Amgen stands to lose nearly $2 billion to $3 billion in annual sales once the Neulasta patent expires. Sales from other drugs in its pipeline will need to take up the slack, particularly with fast-growing Xgeva and Prolia facing generic competition. More difficult for the company could be managing the falling sales of Aranesp and Epogen, as efficacy was already under question prior to the dosage restrictions, even if the slippage is relatively modest. However, the patent extension on Enbrel gives a sound footing going forward and will be key in securing a consistent revenue stream, especially given the size of the rheumatoid arthritis market.

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