Amgen Feels More Pain

How I long for the days (just a few weeks ago, really) when the biggest worry with Amgen (AMGN - commentary - Cramer's Take) was that its anemia drug Aranesp faced a competitive threat from an overseas rival.

Now, investors are having a collective freak-out because Aranesp, Amgen's top-selling drug, might be hurting patients instead of helping them.

The latest knockdown came Friday, when the Cancer Letter reported on negative results from a Danish study of Aranesp in head-and-neck cancer patients. Making matters worse, Amgen knew about these results in December, but didn't disclose the information to investors. Amgen executives discussed Aranesp at length during the company's Jan. 25 earnings call but for some reason felt that mentioning the Danish study wasn't important.

Big mistake. Amgen's stock fell 2% Friday, just adding to its recent woes. At $66.73, the stock is now down 11% from its recent $75 high, reached just before reporting fourth-quarter earnings.

What makes this downturn all the more frustrating for Amgen bulls, and I count myself among them, is that the stock's recent ramp-up was fueled by increasing confidence in the company's anemia drug franchise, of which Aranesp is the most important component. Swiss drug maker Roche is trying to launch its own anemia drug, Cera, but Amgen has gone to court in the U.S. to block it, contending that Cera infringes on Amgen patents.

A growing number of investors had started to believe Amgen would win this legal battle against Roche. Coupled with prospects for new growth out of Amgen's pipeline, most notably the osteoporosis drug denosumab, Amgen was a compelling investment.

But all this becomes moot if Aranesp is found to hurt patients. With sales of $4.1 billion in 2006, the drug accounts for 30% of Amgen's total product revenue. There is no definitive evidence that Aranesp is detrimental to patients, and in fact, the company has done a fairly good job of defending the drug. But nonetheless, Aranesp sales could be negatively affected as doctors reassess the drug's benefits and risks. Regardless of what happens, the current situation breeds uncertainty, something investors don't like.

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Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.