Amgen's New Osteoporosis Drug: It May Not Fly Under Healthcare Reform

Last Updated Jun 3, 2010 2:25 PM EDT

Biotech giant Amgen (AMGN) finally won FDA approval for an osteoporosis drug that Wall Street types predict will be the industry's next big blockbuster -- but it did so at perhaps the most precarious time in the history of the American health care system. The healthcare reform law will slap pharma companies with new rebates and fees on expensive brand-name drugs, making those products less profitable for their manufacturers, and less appealing to Medicare and private insurers, who will be looking for cheap alternatives.

Amgen's new drug, Prolia, was approved by the FDA to treat post-menopausal osteoporosis (PMO). It will cost about 30% more than rival bone-loss remedies such as Boniva and Actonel. Ouch.

But Amgen has a second market in its sites for Prolia -- one that just might turn the drug into a health-reform success story, not to mention a model for other drug companies. The company has also applied for FDA approval to market the drug to breast cancer and prostate cancer patients who are undergoing a hormone treatment that weakens their bones. (Amgen is now doing additional trials at the FDA's request.)

What's more, the company is conducting tests designed to show that Prolia prevents cancer from spreading to the bones -- an indication that could push sales of the drug to as much as $6 billion annually, some analysts predict. That would be a massive boost for Amgen, which today brings in about $15 billion a year from its drugs to treat anemia, rheumatoid arthritis and infections caused by chemotherapy.

Fact is, Prolia will likely perform much better in the oncology market than it will in osteoporosis. Consider the numbers: Prolia for PMO, a twice-yearly injection, will cost $1,650 a year. It will be marketed to elderly people, many of whom will be covered by Medicare. True, more patients will be eligible for Medicare under the Affordable Care Act. But the fees that the government will levy against branded products will reduce pharma company revenues on those product by about 4%, predicts PriceWaterhouseCoopers.

For Amgen, this is all complicated by the fact that one of the most widely used osteoporosis drugs ever, Fosamax, is now available as an ultra-cheap generic. That means doctors will be so pressured to save the government money that many will prescribe Prolia only as a last resort -- for patients who just don't respond to less pricey drugs.

The FDA approved Prolia for use in women who already have osteoporosis and face a high risk of fracture. That's a fairly limited patient base, considering that Amgen executives initially hoped to prove the drug would be useful in milder cases, perhaps even in women who didn't yet have the disease. "This whole field is moving away from the concept of prevention," says Felicia Cosman, a professor of clinical medicine at Columbia University and medical director of the clinical research center at Helen Hayes Hospital in New York, which participated in the Prolia trials.

Cost pressures have a lot to do with that, she adds. "We're very excited to use this medicine, but we want to use it in patients for whom its really exactly the right drug."

Cancer, on the other hand, presents a much brighter picture. Once Amgen completes all the trials the FDA is demanding, it will likely hold the most robust set of data for any bone-loss drug in the oncology setting. That will give Amgen a competitive edge over Novartis's Zometa, a $1.5-billion-a-year drug that is already widely used by cancer patients. And it could translate to a compelling pricing advantage for Amgen. The company is testing Prolia in cancer as a monthly injection -- at double the dose given to women with osteoporosis. Some analysts estimate the annual price for the average cancer patient will run about $20,000.

And even though the oncology market will also be vulnerable to some cost-control pressure under healthcare reform, it won't leave Amgen entirely dependent on Medicare payments, as it will be in osteoporosis. What's more, the worries about side effects that dogged Amgen during FDA hearings last year will be much less pressing in the cancer setting, where doctors are more likely to determine that the benefits of the drug outweigh the risks.

Investors applauded the FDA's earlier-than-expected approval of Prolia, pushing Amgen's shares up nearly 10% to $56 a share. Barclays Capital analyst Jim Birchenough predicts the company's shares will rise another 50% if the oncology trials pan out.

Granted, it's a bit early to declare a complete victory; Amgen has a lot of work to do before it can get an answer from the FDA on the oncology indications. Nevertheless, other pharma companies might learn from Amgen's example. The company's scientists spotted the drug's potential in cancer early on and pursued it, even though the $8-billion-a-year PMO market looked like a safer bet. Now a whole new set of healthcare-reform demands has altered the landscape, and potentially brightened the outlook for one hungry biotech company.

The lesson for Big Pharma managers: Be innovative, take risks, and most importantly, reduce your reliance on government payouts. Medicare is no longer the safe haven it once was.