Amgen Secures Its Future

If drug companies aren't continually bringing drugs through the clinic and onto the market, their future prospects will be bleak when the generic competition arrives. Last night, Amgen (NASDAQ:AMGN) took another step toward staving off this threat when it was announced that the FDA had given its approval for the company's colorectal cancer drug, Vectibix.

Vectibix is important for Amgen because in a few years it is possible that the company's $2.5 billion anemia drug, Epogen, might face generic threats. Therefore, Amgen needs to get more drugs onto the market to ensure that the company can keep its sales growth up.

Amgen didn't develop Vectibix entirely by itself. The company acquired the drug when it bought out Abgenix late last year. Amgen has a history of acquiring young biotechs, so to judge whether the $2.2 billion Abgenix acquisition was a good deal, it will be interesting to see what Amgen predicts Vectibix sales to be in the future.

A good point of reference for what sales of Vectibix could end up looking like is the $308 million in sales achieved by ImClone Systems' (NASDAQ:IMCL) Erbitux, which is a very similar drug, for the first six months of this year. It should be noted that Erbitux is approved to treat other types of cancer besides colon cancer, but Amgen should be able to get Vectibix approved in these indications as well.

Sales of Vectibix will start next month. The most important thing to pay attention to is how fast Vectibix sales ramp up compared to when ImClone launched Erbitux. A few months of sales should provide a good indication of which company is winning the marketing battle (at least until new data on the drugs comes out).

Another important thing to watch is how ImClone responds to the competitive threat of Vectibix. Amgen noted in its press release today that it would price Vectibix about 20% lower than Erbitux. A price war would not produce positive outcomes for either drug's margins, but the most likely outcome is that ImClone's marketing partner, Bristol-Myers Squibb (NYSE:BMY), will react with Erbitux price reductions and increased promotion of Erbitux.

Another catalyst for Amgen is the possible approval of Vectibix in the EU and Canada. Word on the outcome of the drug in these places should come sometime later this year.

No matter what the response is from the forces behind Erbitux, it look likes Amgen achieved the first critical step to securing its future yesterday by getting its first targeted therapy approved.

Can't get enough investing advice? Demand more Foolishness in your daily life? Take a 30-day free trial of any of our newsletters. No matter what you're investing style, we've got one for you.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .