Predicting renewed sales growth from new marketing efforts, drug maker

Amgen

(AMGN) - Get Report

reported Wednesday that its earnings rose 13%, slightly exceeding Wall Street's expectations.

But the company's net income figures could not conceal surprisingly low demand for its flagship oncology product and disappointing revenue growth, analysts said.

Embroiled in a patent lawsuit with a Lilliputian rival and sensitive to Wall Street's growth expectations, Amgen sought to emphasize the

Food and Drug Administration's

recent approval of new delivery methods and concentrations for Neupogen, a cancer treatment. Revenue growth for the drug was around 8 percentage points below analysts' predictions.

Amgen's shares fell to 68 1/2 in after-hours trading Wednesday. The stock had closed down 4 1/4, or 5.8%, at 69 3/8 before the company released its earnings figures.

For the second quarter ended June 30, the Thousand Oaks, Calif. pharmaceutical company reported net income of $303 million, or 28 cents a diluted share. In the comparable quarter last year, net income was $268 million, or 25 cents a diluted share. Analysts polled by

First Call/Thomson Financial

had predicted earnings of 27 cents a diluted share.

"They did effectively manage the bottom line, as they typically do," said Elise Wang, an analyst for

PaineWebber

. "We didn't think this was going to be much of a quarter to write home about." Wang rates the company's shares buy, and her firm has not done underwriting for Amgen.

Revenue increased 8% from the comparable quarter last year, to $914 million from $821 million.

Analysts were disappointed by sales of Neupogen, used by AIDS and cancer patients to counteract low white-blood-cell count. Wall Street had expected sales to rise about 10%, to around $340 million. Instead, they gained 2%, to $310 million. Sales suffered from "foreign exchange effects and continued low inventory levels at major wholesalers," the company said. "In addition, there was some softness in demand in the quarter due in part to the realignment of the oncology sales force."

Wang said the problem seemed more simple: "The market is becoming saturated and demand is slowing down," she said.

Epogen Shows Slow Growth

Sales of Epogen, the other face card in Amgen's deck, did not make up for the shortfall. After a weak first quarter, Wall Street had expected revenue growth of 15% to 19% for the anemia-fighting medicine that is the world's best-selling biotech drug. Epogen sales hit the low end of that range, rising 15%, to $493 million.

Pressure to develop new drugs outside its two fallbacks is increasing as Amgen faces a threat from Transkaryotics Therapies

(TKTX)

, a small Cambridge, Mass. company that has said it is developing a version of Epogen. Amgen has sued Transkaryotics, accusing it of infringing five of its patents covering 18 claims.

Epogen has long served as Amgen's calling card, and the lawsuit in Judge William Young's Boston courtroom carries patent law implications for the burgeoning biotechnology industry.

In 1989, Amgen won FDA approval to use Epogen as an anemia treatment. The drug's active ingredient, erythropoietin, is a naturally occurring protein that stimulates red blood cell production. Through the trial, which began in May, Amgen's stock price has slipped and its exiguous rival's has gained as the judge made initial ruling in favor of Transkaryotics, including invalidating an Amgen patent.

Both Wang and company officials turned their respective attentions to the so-called pipeline, drug industry parlance for medications under development or seeking FDA approval. The analyst noted that an updated version of Epogen is under FDA review and a new Neupogen is in development. During the quarter, the FDA approved a more concentrated version of the latter for sales in pre-filled syringes, the company said.

"We remain focused on preparing to launch our four late-stage product candidates, NESP, IL-1ra, abarelix-depot-M and SD/01, over the next few years, and our organization continues to grow and change to meet this challenge," said Kevin Sharer, the company's chief executive, in a statement.

NESP, Abarelix and SD/01 are all compounds the company hopes to develop into oncology treatments. NESP, or novel erythropoiesis stimulating protein, is a recombinant protein the company believes may be useful in stimulating red blood cell production. Amgen is studying the use of Abarelix to reduce the production of testosterone in men and estrogen in women. And SD/01 contains a protein that could be useful alongside chemotherapy in treating breast cancer.

The final product Sharer named, IL-1ra is a recombinant anti-inflammatory protein being studied the company believes may be useful for patients with rheumatoid arthritis.