Amgen More Dependent on Denosumab Than Ever, But What If FDA Delays Approval?

Amgen’s Q4 results showed, again, how dependent the company is on the FDA coming up with a solid approval for denosumab, its osteoporosis drug.

Revenues were down a little bit to $3.6 billion, but expenses ballooned. The revenue yield on its sales dollars collapsed 23 percent from the prior quarter as expenses went up to $1.1 billion. Amgen now gets just $3.31 in revenues for every dollar its spends on reps et al, when it used to get consistently above $4.

Amgen has suffered because sales of Aranesp and Epogen have been retarded by changes in labelling and reimbursement. Says the AP:

The drugs were once Amgen’s most lucrative, but product sales were hurt by studies showing the drugs sped up growth for certain tumors and were linked to other safety issues. The Food and Drug Administration responded by putting stricter warnings on the label.

But it’s not Aranesp and Epogen reimbursement that’s causing Amgen’s problems. It’s Amgen’s inability to keep its sales costs in line with its actual business. And the relationship with Wyeth on Enbrel isn’t helping. Here’s what the company told the SEC about its SG&A:

higher expenses associated with the Wyeth profit share in ENBREL …The expenses associated with the Wyeth profit share increased 17 percent to $309 million in the fourth quarter of 2008 versus $265 million in the fourth quarter of 2007.

But don’t blame it all on Wyeth. Even if you break out the Wyeth contract, Amgen’s still spending too much on sales reps:

Excluding the expenses associated with the Wyeth profit share, adjusted SG&A expenses in the fourth quarter of 2008 increased by 4 percent versus the same quarter last year.

For the full year, SG&A expenses were $3,708 million in 2008 versus $3,382 million in the prior year, an increase of 10 percent.

In their call with analysts, Amgen brass played something of a double game. They tried to convince the analysts that they would indeed be reining in sales expenses — meaning job cuts — while at the same time ramping up for denosumab, which could be approved as early as October. Here’s the conversation:

Ian Somaiya - Thomas Weisel Partners: I just have a question on the guidance. It seems to imply a certain level of cost cutting measures. I was just hoping you could maybe give us a little bit more insight into that. Is it from R&D is it from SG&A and what portion of the Denosumab launch costs should we assume show up in ’09 versus 2010?

Robert Bradway, CFO: With respect to the cost outlook for 2009, I think we demonstrated in 2007 and 2008 that we have been pretty disciplined about expense management and we will be focused very much in 2009 on our G&A expenses.

Kevin Sharer, CEO: we are trying to invest where we need to invest. That is the pipeline and that is getting ready for Denosumab and that is making sure we have enough money to support the products and we are looking for efficiencies everywhere else we can possibly find them.

Translation for sales reps: Make sure you get yourself transferred to the denosumab force, because the rest of you are at risk of being laid off.

The scariness doesn’t end there. There’s already chatter that the FDA may delay its approval deadline for denosumab. That would be a disaster for Amgen, placing it in the position of staffing up a sales force for a drug that doesn’t yet exist outside a lab. Here’s Reuters:

The company filed in December for approval of the drug for treating osteoporosis in post-menopausal women, and U.S. regulators could approve that indication as early as mid-October.

“We think there is some risk to the FDA missing that deadline,” [Chris James of Rodman & Renshaw] said, citing the agency’s recent track record and the large size of the Amgen filing.