By Jim Shrine

Amgen Inc. won the most significant legal challenge in its longstanding battle with erythropoietin (EPO) partner Johnson & Johnson (J&J) when arbitrators ruled Amgen has all rights to its new red-blood-cell stimulator, novel erythropoiesis stimulating protein (NESP).

Analysts predict NESP, now in pivotal studies, will become the third billion-dollar drug for Amgen, of Thousand Oaks, Calif., when the product reaches the market in a few years. The arbitrators' binding decision sent Amgen's stock (NASDAQ:AMGN) to a 52-week high Monday. The shares closed at $100.312, up $12.187, or 14 percent.

Early in the day, the stock traded as high as $109, and the company's trading volume of 18.2 million shares was about 10 times the usual volume.

J&J's stock (NYSE:JNJ) fell $2.625, ending the day at $76.875.

"Essentially, the arbitrators' decision handed Amgen a new blockbuster product that's already in Phase III," Dennis Harp, an analyst at BT Alex. Brown Inc., in New York, told BioWorld Today. "We expected J&J would get marketing rights, and the arbitrators might award Amgen a higher royalty rate."

But the victory for Amgen was total. The three-person arbitration panel decided unanimously late Friday that NESP was not just an improvement to the existing EPO product, but a novel molecule, and therefore outside the 1985 marketing agreement between Amgen and J&J.

Amgen's original agreement, signed in 1985 with Ortho Pharmaceuticals Corp., a division of New Brunswick, N.J.-based J&J, gave J&J rights to sell Epoetin alfa (Procrit/Eprex) for non-dialysis uses in the U.S. and for all indications worldwide except China and Japan. Amgen retained rights to sell its brand of Epoetin alfa (Epogen) for dialysis use in the U.S.

In June 1997, J&J began arbitration proceedings, asserting the 1985 agreement also gave it rights to the second-generation product, a hyperglycosylated version of EPO. NESP can be dosed less often since it has a three-fold longer half-life than EPO.

"It is an extremely fortuitous circumstance for Amgen that the advantages of NESP are not as great in its existing Epogen market segment," Harp said. "So, one would not expect NESP to greatly cannibalize Epogen, whereas in the other market segments the advantages of sustained half-life are greater, and the acceptance and penetration of he product should be rather rapid."

Amgen's 1998 sales of Epogen are expected to total around $1.4 billion, as are J&J's' sales for Procrit/Eprex, according to BT Alex. Brown. NESP would compete directly with the J&J products.

Harp anticipated the ongoing Phase III trial of NESP will be completed in late 1999, with the product reaching the U.S. market in 2001 and Europe's market a year later. Resulting sales were estimated at $250 million in 2001, $860 million in 2002 and $1.3 billion in 2003.

At least 11 analysts had upgraded their ratings of Amgen as of early Monday afternoon.

Joe Dougherty, an analyst at Warburg, Dillon, Read LLC, in New York, agreed the ruling was significant for Amgen, but was not as optimistic as others who cover the company.

"Some of the estimates I've heard for the potential of NESP may be ignoring what could be a pretty competitive erythropoietin marketplace in a few years," Dougherty told BioWorld Today. "I don't think J&J is just going to lie down in front of the truck. There are things they and others can do in this market.

"Once-weekly dosing is more of an advantage in some indications and jurisdictions than others," he added. "I'm not sure the European governments are going to pay a lot extra to go to once-a-week dosing in dialysis."

David Kaye, spokesman for Amgen, said the NESP product will fit well with Neupogen for marketing, and a new sales force will not be required.

Neupogen, another billion-dollar Amgen discovery, is a recombinant granulocyte colony-stimulating factor that stimulates the growth of infection-fighting white blood cells.

NESP Phase III Could Be Complete By End Of '99

Kaye agreed the Phase III study of NESP in dialysis patients could be completed late next year, and said trial results to date look positive, in terms of safety and efficacy. He said more than 1,500 patients would be exposed to NESP by the trial's conclusion. Amgen recently began studies of NESP in predialysis indications, and expects to begin oncology studies soon, he said.

The arbitration ruling completes one of a number of skirmishes between J&J and Amgen over spillover sales, data submission and development time lines related to EPO. *