Look out below, Affymax investors! The company pulled its only drug off the market, and shares of the company are indicated to fall around 85% this morning, according to Yahoo! Finance.
In collaboration with Japanese pharmaceutical company Takeda, Affymax developed a drug called Omontys for dialysis patients with anemia, or low red blood cell levels. The drug's benefits over existing treatments had some investors optimistic about its commercial potential. But much of that hope was lost on Saturday morning, when the partners announced a voluntary recall of the drug after a small percentage of patients experienced serious initial side effects, leading to a handful of patient deaths.
The market Omontys was looking to penetrate is huge, and dominated by industry giants Amgen and Johnson & Johnson . Amgen's Epogen and Aranesp combined for more than $2.7 billion in sales in 2012. J&J's Procrit, which is the same underlying drug as Epogen, brought in nearly $1.5 billion. And while the overall market for the branded anemia drugs has been shrinking, Omontys only has to be taken once a month versus multiple times per week for Procrit and and Epogen. That advantage could have seen the drug take plenty of market share over the long term, despite rising generic competition.
I won't mince words -- this is a crushing blow for Affymax. With its sole drug pulled off the market for safety concerns, the long-term viability of the company is in serious question. But if the company can determine the reasons for the reactions and address them in an acceptable way, this may not be the end for Omontys and Affymax. The adverse events appeared to only happen during the initial dose, which suggests that long-term use is safe. However, it's clear from premarket activity that investors are expecting the worst.
Management is providing an update to discuss the news at 8:30 a.m. EST. You can access the webcast at Amgen's investor relations page.
Is bigger really better?
Today's Affymax news highlights a key consideration for investors when investing in small biotech stocks with highly concentrated risks. However, even the strongest, most diversified health care stocks have their detractors.
Involved in everything from baby powder to biotech, Johnson & Johnson's critics are convinced that the company is spread way too thin. If you want to know if J&J is nothing but a bloated corporate whale -- or a well-diversified giant that's perfect for your portfolio -- check out The Fool's new premium report outlining the Johnson & Johnson story in terms that any investor can understand. Claim your copy, and a year of free analyst updates, by clicking here now.
The article Down 85%! Why Affymax Is Getting Crushed This Morning originally appeared on Fool.com.Brenton Flynn has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.