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12:00 AM
Jun 11, 2007
 |  BioCentury  |  Finance

Ebb & Flow

The Street had a mixed reaction to the pair of private companies that Amgen (AMGN) picked up last week. One of them seems to be a close fit with AMGN's existing products and sales strategy in renal indications, while the diabetes deal stretches the company into relatively unfamiliar and expensive terrain for general practitioners.

Moreover, the lead compounds from both deals won't be first to market in their class.

Investors liked the first announcement, which came after market close on Monday, that AMGN would acquire renal disorder play Ilypsa for $420 million in cash. AMGN added $0.70 to $57.61 on Tuesday.

By contrast, Wednesday's announcement of the acquisition of diabetes and inflammatory disease company Alantos for $300 million in cash was greeted less warmly. AMGN was off $0.32 to $57.29 on the day.

Ilypsa's lead compound, ILY101, is a metal-free, non-absorbed polymeric phosphate-binding agent that has completed Phase II trials to treat hyperphosphatemia in patients with chronic kidney disease on hemodialysis.

This dovetails with AMGN's renal franchise, which remains anchored by its erythropoiesis stimulating agents - Aranesp darbepoetin alfa and Epogen epoetin alpha - even though use of the ESAs in cancer has become a problem.

ILY101 fits "right in to the nephrology sales force's bag," said Evan McCulloch of Franklin Templeton. However, he cautioned that, "we don't know a lot about that product relative to Renagel. If it's comparable or better, that could be a good fit."

Genzyme (GENZ) markets Renagel, a non-absorbed phosphate binder to treat patients on hemodialysis with chronic kidney disease, which posted $137 million in sales in 1Q.

McCulloch added the deal shows a "willingness to look at smaller product acquisitions."

Oliver Marti, managing director and healthcare portfolio manager at Columbus Circle, is relatively indifferent to the deal. "Nothing about Amgen really excites me other than denosumab" for osteoarthritis, he said.

Marti said he doesn't expect to see ILY101 on the market until 2009, making it largely irrelevant to AMGN's current revenue woes in the cancer space.

The stock dropped $0.03 on Monday after AMGN over the weekend released its comments on the Centers for Medicare & Medicaid Services' proposed National Coverage Decision on ESAs for non-renal disease indications (see BioCentury, June 4).

Sweet tooth

The Alantos deal fits into AMGN's less visible migration beyond its specialty franchises in nephrology and cancer.

The lead compound from the acquisition will be ALS 2-0426, a Phase IIa candidate for Type II diabetes for which ex-U.S. rights have been licensed to French company Servier. The small molecule inhibitor of dipeptidyl peptidase-4 (DPP-4) would be a direct competitor to Januvia sitagliptin from Merck (MRK), which was approved last year.

Novartis (NVS; SWX:NOVN) and Bristol-Myers (BMY) both also have late-stage DPP-4 Type II diabetes candidates. ALS 2-0426 is likely to be "third or fourth in class," McCulloch said.

"Januvia looks pretty good," he added. "They can't beat it on safety, so they'll have to on efficacy. Coming in several years behind will be difficult."

AMGN has two Phase I compounds for Type II disease, AMG 221 and AMG 837, making diabetes "a little bit out of their therapeutic area of focus," said McCulloch.

AMGN also plans to develop Alantos' preclinical matrix metalloproteinase (MMP) inhibitors for osteoarthritis, where it is closer to market with denosumab.

The best news, McCulloch argued, is that a Type II diabetes product would need a GP sales presence, implying that AMGN must be pretty confident about denosumab, which will be targeted at GPs. The company recently announced the compound met all primary and secondary endpoints in a Phase III trial(see BioCentury, April 30).

On the whole, however, McCulloch views the acquisitions negatively, especially the Alantos deal.

"Amgen has been pretty adamant about their ability to cut costs, but doing acquisitions of expensive middle phase projects will do the opposite by bolstering expenditures," he said.

By Friday, AMGN had split the difference and closed up $0.43 to $57.37 on the week.

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