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Amgen misses as drug sales decline, looking at denosumab for growth

Amgen Inc. (AMGN) reported first-quarter results after the closing bell yesterday. The world's biggest biotechnology company said its net income, on an adjusted basis, fell 8 percent to $1.12 billion, or $1.08 per share as sales slumped. Revenue decreased 8 percent to $3.3 billion.

The results were below analysts' expectations for profit of $1.15 per share on revenue of $3.63 billion.

Analysts were worried Amgen's anti-anemia drugs, which accounted for more than one-third of its fourth-quarter sales and have been hurt since 2007 -- as studies showed the drugs were overused, increased cardiovascular risks and potential tumor growth, and shortened survival time -- would be hurt further.

Indeed, analysts' concerns were justified. Amgen's worldwide sales of its blockbuster anemia drug Aranesp decreased 18 percent. In fact, nearly all of Amgen's products sales have declined: While sales of Epogen, another anemia drug, increased 2 percent, sales of Neulasta and Neupogen -- used to prevent infection by stimulating production of white blood cells -- decreased 1 percent.

Another concern analysts had prior to the results were regarding Enbrel, Amgen's rheumatoid arthritis drug. Its sales have decreased 20 percent. Both Aranesp and Enbrel completely missed analyst sales projections.

"Our first-quarter sales were affected by the continued deterioration of the global economy, which has led to changes in patient and physician behavior," said Kevin Sharer, chairman and chief executive. It's true. If the common belief was that health care and pharmaceuticals were relatively defensive sectors in the face of a deteriorating economic environment, it has been proven wrong. In fact, an influential research firm, IMS Health Inc. (RX), now expects the U.S. pharmaceutical market to contract 1 to 2 percent this year -- the first contraction in more than 50 years -- because of the deteriorating economy.

It's no surprise then that Amgen cut its revenue projection for 2009 to a range of $14.4 billion to $14.8 billion from the $14.8 billion to $15.2 billion previously expected. It still expects adjusted earnings of $4.55 to $4.75 a share.

Is it all bad news then?

Well, this quarter was largely expected to be bad, as seen by the somewhat mild reaction to the miss -- the stock declined about 2.5 percent in after-hours trading. Yes, there was no top-line growth, but Amgen has managed cost reductions and maintains a healthy balance sheet.

Most important, it is looking to its experimental denosumab bone drug for treating post-menopausal osteoporosis. This drug, which was filed for approval with the FDA in December, could be key to future growth. Analysts are paying close attention to the approval process, but Amgen is quite certain it demonstrated the drug's efficacy and safety. Denosumab is also being tested for cancer, and results from clinical trials should come in the next quarter.

Last, but not least, there is the issue of the recent debate in Congress regarding generic pharma companies able to make copies of biologic medicines -- biosimilars. Unlike chemical pharmas, biotechs have not had to contend with pressure from generics so far, but as the economy worsens and the administration looks to make cuts in health care, this debate could take a different path.


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