The thousands who work at Amgen Center Drive in Thousand Oaks are about to experience competition like they never have before. As the nation looks to stem skyrocketing health care costs, a new drug market is set to break wide open — posing the threat of declining revenues and profits as well as fresh opportunities for the world’s largest biotech company. Thousand Oaks-based Amgen Inc. has entered the world of biosimilars — essentially generic versions of the expensive biologic medicines it develops — hoping the investment will generate billions in new revenue. The opportunity comes on the heels of a decision Amgen made late last year to partner with Parsippany, N.J.-based Watson Pharmaceuticals Inc. to develop and sell cancer fighting generic-like drugs. “This as an exciting new field — basically a brand new industry being created overnight,” said Scott Foraker, head of Amgen’s biosimilar unit. “We are playing to win.” For years, Amgen and other biotech firms have argued that their drugs — made from live cells — could not be copied like medicines derived from chemicals, hence the name biosimilars. Doing so, biotech companies said, could unleash unsafe versions of their therapeutics on the public and lessen the motivation to develop new products. But with the 2010 health care overhaul mandating the FDA to create an expedited approval process for generic versions of biologics, Amgen is jumping into the game. Foraker said Amgen anticipates its first biosimilars to become available in the second half of this decade, and by the next decade, could generate more than $2 billion a year and serve as a supplemental business to Amgen’s core business of original offerings. Amgen inked $15.6 billion in revenue last year, up 4 percent from a year earlier. But profit declined 20.4 percent in 2011 to $3.68 billion as costs rose. Amgen has struggled to produce a blockbuster drug recently and announced hundreds of layoffs last fall as it restructures its research and development team. The company’s road to success in biosimilars remains challenging. Amgen’s entrance into the market will require a delicate tap-dance around potential pitfalls. The company also will have to face competitors hawking knock-offs of Amgen’s biotech drugs and convince doctors — once its drugs come off patents — that Amgen drugs are still the best. “They won’t be as profitable,” said Steven Casper, a professor at the Keck Graduate Institute of Applied Life Sciences of The Claremont Colleges, who has long studied Amgen. New pressure Foraker said Amgen, which currently has slightly less than 30 employees in its biosimilar unit, could launch further partnerships to make biosimilars in the future, although the Watson deal is expected to be its largest such arrangement. The company will also target other drugs besides oncology medicines, but Foraker declined to reveal which ones. In filings with the Securities and Exchange Commission, Amgen has said the introduction of biosimilars in the United States is expected to increase competition and put downward pressure on prices, sales and revenues. It’s already doing so in Europe, which has seen biosimilars in place since 2006. Last year, Amgen saw international sales of Neupogen fall 15 percent to $301 million. In its fourth-quarter conference call, Amgen said biosimilar competition reduced unit sales of the drug, which is used to fight infections during chemotherapy. “It’s already impacted their European business,” said analyst Christopher Raymond of Robert W. Baird & Co. But the experience in Europe shows biosimilars will force a shift, not an existential threat to Amgen and others, said analyst Bret Holley of Oppenheimer & Co. Raymond agreed calling the decline “manageable.” Amgen has said two other drugs Aranesp and Neulasta have been able to retain their price premiums and hold their own in market share against biosimilar competition in Europe. According to researcher IMS Health, the United States provides the largest long-term opportunity for biosimilar drugs, although in the short-term the biggest return will come from developing countries. By 2020, the worldwide market for biosimilars is expected to reach between $11 billion and $25 billion, accounting for 4 to 10 percent of the biologic market, according to IMS Health. Amgen and others want a piece of that market. Future development As part of the Watson-Amgen partnership, Watson will put in up to $400 million in co-development costs and will share in product development risks, while Amgen’s contribution remains uncapped and the firm will take primary responsibility for developing, manufacturing and initially commercializing the oncology knock-offs. Amgen’s drugs are not part of the deal, and the company said it will not create generic-versions in the future because of the extremely high-cost to bring biologics to the market. The medicines are expected to carry a joint Amgen-Watson label. Some observers say that puts Amgen in the awkward position of fighting to retain its market share on its original drugs, while at the same time arguing doctors should prescribe Amgen-made biosimilars of competitors’ products. Foraker doesn’t see it that way. He said Amgen’s entrance into biosimilars will provide doctors with a safe and reliable version of original drugs that carry the trusted Amgen brand name. “I think that gives us credibility,” he said. Amgen, Foraker said, also views biosimilars as a way to expand in emerging markets such as Asia and Latin America, by providing those countries more lower cost drug options. The exact impact on Amgen’s U.S. operations — which account for the vast majority of its revenue — isn’t yet clear. The FDA appears to be moving toward a more stringent approval process that will be more favorable for biotech firms than the approval process in Europe. Analysts say that will likely lessen the negative effect on Amgen’s profits. The Congressional Budget Office has estimated biosimilars could save the nation $25 billion in health care spending over ten years. Basically, Amgen and other biotech companies that have made efforts to enter the biosimilar market are hedging their bets, Casper said. The ideal situation is for the generic versions to vanish, he said. But since biosimilars are coming, the second best situation is to be able to profit on that new world on the horizon. Foraker sees it a different way: Amgen’s entrance into the market is a plus for the company, patients and the nation’s health care system. “It’s a win-win,” he said.
Amgen Explores New Drug Market
