By Mary Welch

In a securities class-action lawsuit against Amgen Inc., stockholders allege the company engaged in insider trading and falsely represented the demand for its two blockbuster drugs, Epogen and Neupogen.

Filed in U.S. District Court on behalf of plaintiffs who bought stock between Jan. 23, 1997, and Aug. 11, 1997, the lawsuit alleges that during this time frame, Thousand Oaks, Calif.-based Amgen issued false statements about the arbitration proceeding between Amgen and Johnson & Johnson (J&J). Amgen also issued false statements about its fourth-quarter results for 1996 and first- and second-quarter results for 1997, the lawsuit claims.

"We don't comment on litigation," said David Kaye, spokesman for Amgen. "I am not aware that we have been served." He said the company had seen a press release issued by Milberg Weiss Bershad Hynes & Lerach LLP, of San Diego, the law firm that filed the action on Aug. 7.

The lawsuit charges Amgen's falsely positive representations, financial statements and forecasts contributed to the company's stock going from $52.50 in mid-January 1997 to $69.366 in May 1997. The stock traded at more than $58 per share through the end of the period covered by the suit.

Amgen Saved $158M By Inflating Stock Price, Suit Says

This alleged artificial inflation enabled Amgen's top executives to sell 525,595 shares for $32.4 million, and allowed the company to avoid a loss of up to $158 million on speculative put option contracts on stock. Those contracts would have been triggered had Amgen's stock fallen below $58 when those put options expired in early August 1997.

"There is no merit to this lawsuit," said Meirav Chovav, a director with Solomon Smith Barney, in New York. "What they are alleging is incorrect. Amgen's sales were in line with what the company predicted."

Chovav called the action "a nuisance stockholders' suit. We've seen it in pretty much every stock, in every industry that has had some difficulties at any one point. For biotech and high tech, this is fairly routine event."

According to Milberg Weiss' prepared statement, Amgen disclosed sales of Epogen (Epoetin alfa) and Neupogen (Filgrastim) that were "well below the levels forecast" for the period covered in the lawsuit. Earnings per share (EPS) for 1997 also failed to meet expectations, the suit alleges. Also during this time, Amgen — although it won the spillover sales arbitration with J&J over Epogen, — still had to pay J&J, of New Brunswick, N.J., more than $96 million, resulting in a $0.35 charge against Amgen's EPS.

As a result, the suit charges, Amgen suffered a major EPS decline in 1997, not the 15 percent increase (from $2.75 to $2.85) the company predicted. The results caused the stock to fall sharply, initially from $49.615 to $44.673. The suit alleges that while Amgen's top executives made more than $30 million by selling the stock, stock purchasers lost millions.

The plaintiffs in the securities lawsuit want to recover damages on behalf of all those who purchased Amgen common stuck during the eight months covered in 1997. Milberg Weiss had no comment on the suit.

Epogen, which stimulates the production of red blood cells, was first approved in 1989 for use in the treatment of anemia associated with chronic renal failure for patients on dialysis. Neupogen, Amgen's second product, is a recombinant granulocyte colony-stimulating factor (G-CSF) that selectively stimulates the growth of infection-fighting white blood cells (neutrophils).

Amgen and J&J fought over sales of erythropoietin (EPO), which they developed together, and an arbitration judge ruled Amgen had to pay J&J $205 million. Amgen sells EPO as Epogen for dialysis patients and J&J sells its brand, called Procrit, for non-dialysis uses, but buyers are likely to use it for either indication, thus creating the spillover sales dispute. (See BioWorld Today, April 16, 1998, p. 1.)

Sales of Epogen increased 14 percent during the second quarter of 1998 to $337 million, up from $295 million in the same quarter last year.

Year-end 1997 sales of Epogen increased 8 percent over 1996 sales, to $1.16 billion from $1.7 billion — making Epogen one of the top selling pharmaceuticals on the market worldwide. The company had predicted single-digit growth during 1997.

Epogen Sales Back Up After Reimbursement Flap

Amgen sent out a press release on June 16, 1997, stating it anticipated a "modest reduction" in the year-over-year growth rate of Epogen sales due to actions taken by dialysis providers in response to new Medicare Hematocrit Measurement Audit (HMA) reimbursement guidelines that were to go into effect Aug. 1.

"Sales of Epogen never did go down," Chovav said. "It wasn't an issue. Epogen suffered because the government changed its reimbursement policies. But the government and Amgen didn't expect it to have such a dramatic effect on sales. And, when the government realized the realities of the market, it backed down and loosened the restrictions. Sales are back to where they were."

Amgen's stock (NASDAQ:AMGN) closed Wednesday at $69.562, down $0.062. *