Amgen ready to go shopping

Global biotech company Amgen has acknowledged that proposed changes to the R&D tax credit arrangements would increase the appeal of the Australian biotech industry as the company prepares to embark on a global spending spree.

According to local managing director Ian Thompson, the changes should deliver strong benefits to the local industry, especially to its smaller players. “It will deliver a cash return of R&D spending even for early stage companies yet to turn a profit,” he said.

The legislation will not be passed before July 1. Normally this would mean a wait of 12 months before it could be applied, however a spokesperson for Innovation minister Kim Carr's office said that the government was seeking to take advantage of provisions that would allow it to be introduced retrospectively to apply from July 1 this year.

These developments will no doubt be followed closely by Amgen as it contemplates what to do with $US15 billion that it has set aside to fund acquisitions, expansions and other investments around the world. Like many companies in the biotech industry, Amgen is having to come to terms with the fact that blockbuster drugs are fast becoming a thing of the past, at the same time as low priced generic products threaten to dramatically reduce revenues. The need therefore to make smart acquisitions in order to expand product lines and maintain growth has rarely been as great.

“I think it is fair to say that Amgen is prepared to grow inorganically,” Thompson said. His remarks echo those made recently by his boss, Amgen CEO, Kevin Sharer who has stated that the company is preparing to make a number of strategic acquisitions to expand its product pipelines and customer base.

The company is believed to be one of a handful of suitors wooing promising Danish biotech Ascendis Pharma, which is developing six products focussed on delivering dugs for growth hormone deficiency and diabetes. The company’s technology is aimed at enabling patients to inject insulin and human growth hormone on a weekly, as opposed to daily basis. The current price tag is hovering around the $500 million mark.

As to which companies Amgen might be interested in buying in Australia, Thompson would not be drawn. However, he said that oncology and colorectal cancer were two key areas where the company had identified potential product gaps, while it is also contemplating its foray into neuroscience, specifically schizophrenia.

One of the reasons companies like Ascendis are such appealing acquisition targets is that biotech products of the sort it is developing offer dramatically better sales margins than are currently possible with straight pharmaceuticals. This fact is further underscored by the rising cost of drug development, now estimated at over $US1 billion, and often taking a decade or more before the first sales dollar appears.

In fact, as Thompson points out, Amgen’s latest drug Prolia (denosumab) may have broken all records, costing a colossal $US1.8 billion to develop. Earlier this month Amgen received FDA approval for it use in the treatment of osteoporosis in post-menopausal women, with analysts estimating that the company could reach sales of around $US3 billion within the next five years. Amgen is also now seeking approval for Prolia’s use in delaying fractures and other skeletal events in men with advanced prostate cancer, which could result in significant further revenues for the company.

Nevertheless, for Amgen the development of new drugs is not how the company expects to generate most of its growth over the coming years. As Thompson explained, while the company has been around for over three decades, there remain large gaps in its global market penetration. For instance, it has virtually no presence in Asia, Latin America or the Middle East. The company has identified strong market potential for its existing product portfolio in all of these regions and is in the process of establishing distribution networks and coodinating marketing activities.

Greenfields markets, Thompson said, are becoming the new frontier for biotech companies like Amgen who are facing an uphill battle for drug development in their existing markets, made steeper by the inherent market risks associated with the growth of generic products.

“Probably the best way to make a billion dollars these days is to enter emerging markets with your existing products.”