Although still trading near its 52-week low, Amgen Inc. got a boost at the end of January thanks to better than expected earnings and new data showing that osteoporosis drug denosumab outperformed Fosamax (alendronate, Merck & Co. Inc.) in a Phase III trial.

Amgen reported 2007 adjusted net income of $4.8 billion, up four percent over 2006, and adjusted earnings of $4.29 per share, up 10 percent over the previous year. Product sales of $14.3 billion represented a three percent gain over 2006, and fourth quarter product sales in particular surprised analysts, coming in at $3.62 billion and beating consensus estimates of $3.44 billion thanks to a strong (or at least less weak) finish by Amgen's two erythropoietin stimulating agents (ESA) Aranesp (darbepoetin alfa) and Epogen (epoetin alfa).

But Amgen's shares still lost 32 percent of their value in 2007, a year Chairman and CEO Kevin Sharer said "stands out as the toughest we've ever faced." Although 2008 is off to a promising start, investors have to wonder if the ESA franchise is really stabilizing, if Amgen's other approved products can continue to grow, and just how important pipeline products like denosumab will prove to be.

Denosumab: Amgen's white knight?

Amgen's next new product slated to hit the market is the idiopathic thrombocytopenic purpura drug Nplate (romiplostim, formerly AMG 531), which is scheduled for review by an FDA advisory panel in March. But given the relatively small ITP market, Cowen and Co. analyst Eric Schmidt said the product "is probably not going to move the dial" for Amgen.

Instead, all eyes are on denosumab, Amgen's only other late-stage product candidate.

Denosumab will initially target the $7 billion osteoporosis market, which is dominated by bisphosphonates like Fosamax, Boniva (ibandronate, F. Hoffmann-La Roche Ltd.), Actonel (risedronate, Procter & Gamble) and Reclast (zoledronic acid, Novartis AG). Despite the prevalence of their use, Amgen spokesperson Kerry Beth Daly said bisphosphonates, which inhibit the osteoclasts that break down bone, can be "tough to take." She explained that the majority of osteoporosis patients stop taking the drugs within the first year because they don't want to deal with side effects when their disease is asymptomatic.

Denosumab works by a different mechanism: it is a fully human monoclonal antibody designed to target RANK ligand, a primary mediator of the formation, function and survival of osteoclasts. Daly said it "should not have the gastrointestinal side effects and renal complications associated with bisphosphonates." Additionally, the drug may have a better impact on bone quality, geometry and strength, she said.

Some of those claims remain to be proven, but others are beginning to pan out. Last year, Amgen said a top-line analysis indicated a Phase III trial in women with earlier stage osteoporosis met its endpoints. Then in January, the company reported top-line data from a non-pivotal, double-blind, head-to-head study comparing denosumab administered subcutaneously twice a year to Fosamax administered orally every week.

In the year-long study of 1,189 women with postmenopausal osteoporosis, the denosumab group achieved 40 percent higher bone mineral density at the hip compared to the Fosamax group, the primary endpoint of the study. Denosumab also significantly outperformed Fosamax in some of the secondary endpoints such as bone mineral density at the hip trochanter and distal radius. The incidence and types of adverse events were similar between the two treatment arms, easing fears of increased infection risk seen in a prior denosumab study.

While the initial data from the first two Phase III trials looked good, analysts are eagerly awaiting fracture data expe expected by the end of the year are the final Phase III results of the earlier stage osteoporosis trial, the final Phase III results of the Fosamax head-to-head trial, and Phase III data from a trial transitioning patients from bisphosphonates to denosuma expected by the end of the year are the final Phase III results of the earlier stage osteoporosis trial, the final Phase III results of the Fosamax head-to-head trial, and Phase III data from a trial transitioning patients from bisphosphonates to denosumab.

Amgen trackers will want to keep an eye out for some of that data at the annual meetings of the European Calcified Tissue Society, May 24-28; the American Society for Bone and Mineral Research, Sept. 12-16; the American College of Rheumatology, Oct. 24-29; and the International Osteoporosis Foundation, Dec. 3-7.

But just how important is denosumab to Amgen's future growth?

Daly said Amgen is "not D-mab or bust" - even though some analysts have referred to the drug as the company's white knight.

Lehman Brothers Inc. analyst Jim Birchenough called denosumab "critical to Amgen given the pressure seen on the ESA business." He predicts the drug will generate sales of $475 million in 2010 and eventually reach peak osteoporosis sales of $1.5 billion.

Christopher Raymond, analyst with Robert W. Baird & Co., expects approximately $600 million from denosumab in 2010. He, too, called the drug "crucial" to Amgen's long-term commercialization plan.

Schmidt models revenues of $200 million from denosumab in 2010 but says the drug could grow to $1 billion by 2012. Yet he added that the future of Amgen's existing $14 billion worth of product sales is more important to the company's growth.

Weathering the ESA storm

At $6.1 billion, Amgen's ESA franchise accounted for roughly 40 percent of 2007 product sales. Yet sales of Aranesp were down 12 percent from 2006, while Epogen was down one percent, thanks to a perfect storm of regulatory and reimbursement issues driven by data suggesting the anemia drugs could up the risk of tumor growth, heart complications and death in some patients.

Fourth quarter ESA sales increased from the third quarter - a possible indication of recovery. But Raymond said he remains cautious ahead of a March meeting of the FDA's Oncologic Drugs Advisory Committee (ODAC), which could result in more label restrictions. Birchenough predicted such restrictions could shave another 20 percent off Aranesp sales, but he added that there's a "decent chance we won't get the worst case scenario" and the panel may instead support physician discretion in dosing, which could result in upside.

Other existing products that analysts predict will continue to grow include the chemotherapy-associated infection fighters Neulasta (pegfilgrastim) and Neupogen (filgrastim), which brought in $4.28 billion in 2007.

Birchenough also expects good things from autoimmune disease drug Enbrel (etanercept), which generated $3.23 billion in North American sales in 2007. He believes an anticipated warning label regarding infection risk will come as no surprise to physicians, and he said Enbrel's safety profile should allow it to overcome competition from Humira (adalimumab, Abbott) in psoriasis.

Schmidt even sees potential for the anti-EGFR antibody Vectibix (panitumumab), which posted sales of $170 million in 2007. Despite the fact that sales declined for four consecutive quarters, he said he is "somewhat optimistic" that Amgen's research into KRAS as a predictive clinical biomarker for selecting probable responders will turn things around.

Beyond existing and late-stage products, Amgen has more than a dozen Phase II programs underway, some with new compounds and some exploring new indications for existing drugs. Analysts will be looking for more detail on these programs at Amgen's "R&D Day" this summer.

Birchenough also expects the company to ramp up licensing activity in 2008. "Amgen really needs to be more active in in-licensing and acquiring assets," he said, adding that the company is "sitting on a lot of cash."