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Amgen Pins Hopes on Bone-Drug Study

The company's hopes for a turnaround hinge largely on the details of a phase III study of drug denosumab that will be released next week.


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hopes for a turnaround hinge largely on the details of a phase III study of the bone-building drug denosumab, which the company will release next week.

Amgen's FREEDOM study investigates the use of denosumab, a drug injected just under the skin once every six months, as a new treatment for women with post-menopausal osteoporosis.

If denosumab can match or surpass the efficacy and safety track record of currently prescribed osteoporosis drugs, it has the potential to generate $2 billion to $3 billion in new annual sales for Amgen, according to various analyst estimates.

That's revenue Amgen desperately needs as it fights to right itself after a disastrous 18 months in which safety, regulatory and reimbursement issues pelted its highly profitable

anemia drug

franchise and sent shares of the company plummeting.

Researchers will present full results from the denosumab FREEDOM trial Tuesday at the American Society for Bone and Mineral Research (ASBMR) annual meeting in Montreal.

Investor expectations for these data are high.

Amgen shares

are up 11% since late July, when the company announced via

press release

that the FREEDOM trial was a success, albeit leaving the details for the ASBMR presentation.

Amgen shares closed at $60.51 Tuesday, off the denosumab-fueled high of $65 in mid-August.

The FREEDOM study tests denosumab against a placebo, and thus doesn't provide a viable comparison to its competition. Wall Street observers will nonetheless consider its efficacy and safety track record with regard to currently prescribed osteoporosis drugs, most notably


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Fosamax (now generic and administered as a daily or weekly pill) and


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Reclast, a once-yearly intravenous infusion.

Osteoporosis is a disease characterized by weak and brittle bones, so the most important clinical measure for any osteoporosis drug is its ability to reduce the number and frequency of bone fractures, typically measured at the spine and hip.

Fosamax reduces the relative risk of vertebral and hip fractures by 47% and 51%, respectively, according to data from previous clinical trials. For Reclast, the vertebral and hip fracture reduction rates are 70% and 41%, respectively.

Generally, most analysts and investors are expecting denosumab to reduce hip fractures between 40% and 50% -- in line with its competitors. That's essentially what's baked into Amgen's stock price already. To really demonstrate superiority over existing drugs (and perhaps provide some upside lift to the stock), denosumab probably needs a hip fracture reduction rate greater than that of Fosamax.

Safety will be another important consideration. Concerns about denosumab causing serious infections have already been raised, although in July, the company stated that the incidence and types of serious adverse events observed in the FREEDOM trial were similar between denosumab and placebo.

Regardless, analysts will be looking especially closely at any serious infections recorded in the FREEDOM study.

Amgen could submit denosumab for Food and Drug Administration approval by the end of the year. If approved, the company could launch the drug in the second half of 2009 or the first part of 2010.

The consensus analyst estimate for annual denosumab revenue is between $2.5 billion and $3 billon within five years of approval, according to Sanford Bernstein analyst Geoffrey Porges. He has a market perform rating and a $57 price target on Amgen, reflecting what he sees as denosumab commercial prospects largely figured into Amgen's valuation already.

JP Morgan biotech analyst Geoff Meacham takes a more bearish view, believing that investors are largely under-estimating the costs that Amgen will incur in order to market denosumab. Amgen's current stable of drugs are prescribed by specialists like oncologists, which allows Amgen to field a relatively small sales force.

As an osteoporosis treatment, however, denosumab will be used much more widely and be prescribed by general practice and family care doctors. This will force Amgen (or a marketing partner) to hire 1,000 sales reps, possibly double that, says Meacham.

Meacham agrees that denosumab could generate more than $2 billion in new revenue for Amgen but says the sales and marketing costs associated with that new revenue will still pinch Amgen's earnings growth in the near future compared to other large-cap biotech stocks like

Gilead Sciences

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For this reason, Meacham has a neutral rating on Amgen and believes the stock is fairly valued at its current price.

Morgan Stanley analyst Steve Harr is taking a bullish view of Amgen and denosumab into the FREEDOM study presentation. He has an outperform rating on the stock and a $72 price target.