Amgen's financial forecasts for the Immunex acquisition include a three-month cushion on the start-up date for a new production plant for Enbrel.

Amgen told analysts on a Dec. 17 conference call that it is assuming that the first shipments from Immunex' Enbrel (etanercept) facility in Rhode Island will not begin until January 2003. Immunex has been projecting approval of the facility for shipments in October.

Amgen's conservative approach to the Rhode Island plant timeline highlights one of the underlying dynamics behind the acquisition.

In light of the negative reaction on Wall Street to the proposed acquisition after it was first disclosed Dec. 13, Amgen's challenge is to convince investors that it can make the $16 bil. deal pay off without unrealistic growth expectations for Enbrel.

Amgen's forecast is that the TNF inhibitor will reach $1.6 bil. in sales in 2003 and grow to $2.4 bil. in 2004. At those sales levels, Amgen expects the acquisition to be slightly dilutive on a cash basis (less than 5%) during 2003, and accretive in 2004, bumping earnings per share growth above 25%.

Amgen's estimates for Enbrel are significantly less aggressive than Immunex'. The Seattle company recently forecast $4 bil. in Enbrel sales in 2005; Amgen's forecast for that year is $1 bil. lower.

Enbrel is the centerpiece of the merger, offering Amgen the chance to move beyond its decade-long dependence on Neupogen and Epogen to sustain growth. "Amgen is a relatively narrow company in its footing," CEO Kevin Sharer explained. "At the grand level, having a third leg on the stool really matters."

As an independent company, Immunex was having difficulty convincing investors that its projections for Enbrel are realistic. In addition to the current supply constraints, Enbrel is facing immediate competition from Johnson & Johnson/Centocor's Remicade (infliximab), with potential future competition from Abbott/Knoll's D2E7 antibody and Pharmacia/ Celltech's CDP 870.

FDA approval of the Rhode Island facility is the key to ending the supply restrictions on Enbrel and allowing full promotion of the agent to resume. Immunex currently sources the product from Boehringer Ingelheim in Germany, with a maximum annual supply of about $750 mil. Access to Enbrel has been managed via a patient registry since January (¹ Also see "Immunex Enbrel Patient Starts After Jan. 1 Will Be Via Waiting List" - Pink Sheet, 27 November, 2000., p. 3).

Amgen would "bring in added manpower and expertise to implementing" Immunex' plans to expand Enbrel production, Sharer said. He touted Amgen's "15 years of successful manufacturing history." Amgen is "the largest and most diversified manufacturer of large molecules," Sharer declared.

"We also have a tremendous record with the regulatory authorities, and have withstood recently surprise, in-detail, tough inspections," he continued. "As you perhaps read, not everyone in our industry has a record of this nature."

Amgen believes that Immunex' estimate of an October 2002 start date for the new plant "is possible," Sharer said, but Amgen wants to be "conservative" in its estimates.

Immunex' timeline leaves little room for error, Sharer indicated. "Three validation runs have to be successfully completed" at Rhode Island "and then the plant can be approved by FDA." Each validation run takes three weeks, he noted. Immunex' timeline assumes FDA approval within four months of the final validation run.

By moving the forecast to January, Amgen is building in time for a slower-than-expected FDA review, or for a failed validation run. On "the odd chance that perhaps a validation run or two may not be right, we are only losing a few weeks, not months as in some other processes," Sharer maintained.

Immunex has received approval from FDA for a production process change at the existing BI plant, which will increase yields by 10%-30%. The company also hopes to negotiate for additional production runs (² Also see "Immunex Enbrel Building Sales Force For Psoriatic Arthritis Approval" - Pink Sheet, 27 August, 2001., p. 22).

However, "physicians do not yet believe that we're totally out of a constrained supply situation, so we're not seeing them put large numbers on the waiting list," Immunex COO Peggy Phillips said. "Physicians will wait until there's not a list before they start putting large numbers of patients onto the product."

J&J's Remicade has made headway in the RA market over the past year, Amgen acknowledged. "We've given Remicade a chance to get moving," Sharer said. "We're going to have to come back at them."

The acquisition of Enbrel will expand Amgen's rivalry with J&J. The companies are just beginning a head-to-head marketing battle in the anemia category, with Amgen launching the Epogen successor Aranesp against Procrit (see ³ [A#00630520008]).

Amgen Exec VP Sales & Marketing George Morrow noted that the company's forecast assumes that Enbrel has a 40% share of the biologics RA market.

Morrow outlined in detail how Amgen sees the breakdown in Enbrel sales by indication in the coming years. For 2003, Amgen sees Enbrel meeting its target with an 18% share of the 950,000 patient RA market, 11% of the 100,000 patient psoriatic arthritis market, and 2% of the 450,000 patient psoriasis market.

Amgen generated the projections in consultation with an independent market research firm.

Amgen does not expect new competition in the market before 2004. Sharer suggested that a launch date for D2E7 in late 2003 is possible, but that early 2004 would be more likely. For CDP 870, Sharer believes a 2005 launch is realistic, although late 2004 is possible.

Both agents may have less frequent dosing than Enbrel: Enbrel is administered twice-weekly subcutaneously while CDP870 could be administered subcutaneously once-monthly and D2E7 could be administered every three weeks (⁴ Also see "Pharmacia TNF-Inhibitor’s Monthly Dosing Could Offer Marketing Advantage" - Pink Sheet, 10 December, 2001., p. 19).

Amgen, however, maintains that longer acting agents do not necessarily have an advantage in the TNF inhibition market, particularly in light of the infection risk in the category. "Longer-acting is a double-edged sword here," Morrow declared.

Enbrel's experience on the market will provide an advantage over the newer agents, Morrow said, because physicians will be in the "habit" of prescribing the agent. "Habit is always something that you have to change. We will have a lot of habits going for us," Morrow said. "If the patient is well controlled on Enbrel, the switching barrier is going to be extremely high."

Amgen's forecasts for Enbrel also do not assume any penetration into the early-stage RA market. "There is tremendous room, and again our numbers don't really include an aggressive move towards early progressing RA," Morrow said.

The Immunex acquisition can be viewed as an acknowledgement by Amgen that its own entrant into the RA market, the IL-1 inhibitor Kineret (anakinra), would not on its own provide the product diversification and sales growth that the company wants. Kineret was approved by FDA in November, but efficacy results in labeling appear well below those reported for Enbrel (⁵ Also see "Amgen Kineret Has 12-Month Head Start Before Increase In Enbrel Supply" - Pink Sheet, 19 November, 2001., p. 3).

Amgen declared that Kineret would be a "complementary" product for Enbrel, allowing its sales force to deliver a "fuller" message than competitors. The company believes that it will not have to divest Kineret as part of the antitrust review of the Immunex deal.

Amgen sees about $250 mil. in annual synergies from the merger, including about a 5% reduction in headcount across the combined company. "We are assuming a less than 5% headcount synergy target for the combined company," Sharer said.

"More than half" of the $200 mil. in savings in 2003 expected from the acquisition "are from outside expense reduction in the areas of projects, and some marketing and sales activities that are a bit redundant," Sharer said. "A little bit more than a third are people-related and those people would come from both Amgen and Immunex," Sharer said. In addition, "There is a very minor headcount absorption," he said.

Immunex' Phillips will be joining Amgen as an exec VP. Immunex' top research exec, Douglas Williams, PhD, will continue to oversee the Seattle R&D operations. Immunex CEO Edward Fritzky will join the Amgen board.

The merger formula calls for Amgen to give each Immunex shareholder .44 shares of Amgen stock and $4.50 in cash for each Immunex share. The cash portion of the deal will total about $2.5 bil.; Immunex carries over $1 bil. in cash on its balance sheet to offset part of that amount.

The total value of the deal was about $16 bil. when it was announced Dec. 17. The valuation of the stock portion had declined by 10% since the talks were first disclosed in the financial press. However, Amgen shares began to rebound after the conference call.

Amgen Enbrel Projections Include 3-Month Cushion For Immunex Plant

More from Archive

More from Pink Sheet