Amgen Playing Hardball

While its anemia franchise drugs are under attack by the medical journals, Amgen (Nasdaq: AMGN) has been fighting Roche's attempts to bring its rival anemia drug, Mircera, to market in the United States. Yesterday, investors got a new update on this battle.

In November of last year, Roche's Mircera was approved by the FDA as a treatment for kidney disease-related anemia. This would have been unambiguously good news for Roche, because Mircera would be competing against Amgen's multibillion-dollar revenue producers Epogen and Aranesp in the chronic kidney disease market, but Amgen won a patent infringement suit in October and moved to prevent Roche from marketing Mircera.

A temporary injunction was granted against Roche's marketing of Mircera. In an attempt to get the drug onto the market, earlier in the month Roche offered to pay Amgen a 20% royalty on its sales of Mircera. As The Associated Press reported, Amgen rejected this offer, and a judge proposed allowing Mircera onto the market only if Roche paid a 22.5% royalty on Mircera sales instead.

Roche's royalty offer compares very favorably to the 10% royalty that Amgen's partner Johnson and Johnson (NYSE: JNJ) pays on sales of Epogen (under the Procrit brand name) in markets outside of dialysis patients.

The likely reason Amgen won't take Roche up on its better royalty offer is because Amgen markets Epogen and its other anemia drug, Aranesp, for the same patient population that Mircera is approved to treat. Therefore, Mircera would primarily be taking revenue away from Amgen's sales of its anemia drugs and not the smaller royalties it receives on Procrit. Presumably, Amgen earns a much higher margin on in-house sales of its anemia drugs than the 20% Roche is offering.

What really would have been interesting, though, is if Mircera had been approved for an indication outside of chronic kidney disease. Then it would have been competing with J&J's Procrit more directly, instead of Epogen. Even in that case, Amgen probably would still have balked at Roche's royalty offer, because Aranesp is used to treat other conditions, like cancer-related anemia, and Amgen would also be afraid of off-label Mircera sales for dialysis patients.

The royalty discussions would be a lot less acrimonious for Amgen part if it actually had something to gain from Mircera being on the market, and it looks like the settlement will likely be settled by a judge.