Analysis: Wall Street split on Amgen

WASHINGTON, March 2 (UPI) -- Reeling from a spate of negative headlines about Aranesp, Amgen held a teleconference with investors this week to help stifle growing concerns about the drug, but not all analysts were persuaded.

Friedman, Billings & Ramsey analyst Jim Reddoch reduced his forecasts for Aranesp sales for 2007 to 2012.

"The conference call was their way to keep people from cutting their numbers more," Reddoch told United Press International.

But to him, the data presented by Amgen, which included a breakout of how Aranesp is used in the cancer market, indicated 12 percent of U.S. sales and 11 percent of Europe sales could be at risk.

Reddoch cut his worldwide Aranesp sales forecast for 2007 from $4.5 billion to $4.3 billion, including $2.9 billion in U.S. sales. He projects the drug will see flat growth in the United States from 2010 to 2012, hovering around $3.2 billion to $3.3 billion.

The Aranesp sales cut also drops Reddoch's earnings-per-share forecast for Amgen. For 2007 he projects EPS will come in at $4.39, down from $4.46. For 2010 EPS drops from $5.93 to $5.72.

The concerns about Aranesp were initially sparked by a study, known as DAHANCA, that came to light recently. The study was halted early because non-anemic head- and neck-cancer patients receiving the drug exhibited a higher recurrence of tumors.

Although some analysts said last week the hoopla over DAHANCA was much ado about nothing, the U.S. Securities and Exchange Commission this week launched a formal investigation into Amgen's delay in publicly disclosing the study results.

Amgen did not respond to UPI's request for comment but has previously said it informed regulatory authorities about the DAHANCA study last year and conceded that it should have informed the public at the same time.

Reddoch thinks the SEC investigation will blow over because it will be difficult to show wrongdoing in the company's decision not to disclose the results to the public. "There are dozens of trials going on with Aranesp right now, which stop and start all the time," he said.

In addition to the Aranesp woes, Reddoch said there are other challenges in store for the company.

"The real issue here is this is just one of several issues they have going on this year," Reddoch said. "There could be further shoes to drop."

This includes the pending congressional action on follow-on biologics, which particularly affects Amgen because they have more exposure than any of the other big-cap biotechs. The Democrats, who now control Congress, want to make it easier for follow-on biologics, or biogenerics, to reach the market.

The headlines about congressional actions in this area could remind everyone Amgen's EPO franchise is at risk of competition from generics, Reddoch said.

Another potential negative is the National Kidney Foundation meeting in April, which could result in new guidelines for the use of Aranesp in renal-disease patients.

This could result in investors lowering their Aranesp forecasts even beyond where they are now, because so far their cuts have reflected concerns in the cancer market and have not taken into account risk in the dialysis arena, Reddoch said.

That could potentially be a big decrease because the dialysis market accounts for a significant proportion of their EPO sales, he added.

At the same time, Amgen may be struggling to find positive news to help balance out the negative.

"There's not a whole lot of positive headlines to make up for it," Reddoch said.

Overall, Reddoch is sour on Amgen and is advising clients to consider Celgene.

"I'm basically making the call that, even with the pullback in stock ... resist the temptation to get into it right now because I think it has some other issues we're going to hear about in the next several months that are going to affect it longer term," he said.

"We're telling people to buy Celgene, to take their big-cap dollars and put it in there," he said, adding that the company has the best growth of all big-cap biotechs with its recent Revlimid rollout.

However, Chris Raymond, an analyst with R.W. Baird, still sees the Aranesp situation as a manageable risk and rates Amgen as outperform.

"We remain buyers of (Amgen) after management reviewed the state of the anemia market and Aranesp's role," Raymond stated in a research report. "Importantly, management indicated that very nearly 100 percent of chemotherapy patients are treated according to label, and in reaffirming 2007 guidance, did not see significant recent changes to physicians' use."

Raymond also sees several potentially positive catalysts for Amgen, including Roche's Mircera, which would be a competitor to Aranesp, not getting approved due to the heightened concern about EPO drugs and the results of the '145 trial, a study involving chemotherapy-induced anemia in small-cell lung cancer patients that targets a high hemoglobin level.

"When we examine the '145 study in light of numerous earlier studies, we are inclined to believe the most likely outcome will show no statistically significant survival benefit for Aranesp in chemotherapy-induced anemia," he stated. "We believe that would be a positive event, as it would reinforce Aranesp's safety."

In addition, Raymond said he thinks the risk to Amgen is already reflected in the share price, so that's another reason to be a buyer.

Raymond did not respond to UPI's request for comment.