Monopoly of AMGN$91($76Billion) compare with AFFY$2.5($75Million) -Now Compare EPOGEN V/s Omontys Sales
The pressure on AMGN’s Epogen franchise is a good sign that Omontys is truly gaining traction in the marketplace. Because AMGN has had a monopoly in this segment for so long, and dialysis providers are continuing to try and lower their costs to treat patients, one has to believe that dialysis providers will want to support the Omontys launch ramp, despite AMGN’s efforts to retain share (currently AMGN has 96% of the $2.7B U.S. ESA market). A key reason that dialysis providers are going to make sure that AFFY succeeds is that they want AMGN’s ESA monopoly to cease to exist. The NY TImes quote below says it all and emphasizes the reason that AFFY will likely get its share of this large market opportunity
“We have suffered under a monopoly now for many years, and Amgen has done pretty much whatever they’ve pleased,” said Dr. John H. Sadler, chief executive of the Independent Dialysis Foundation, a small nonprofit dialysis provider in Baltimore.
Assuming prescription trends in December stage a recovery vs. the November numbers, and affirm continued market share gains for Omontys, AFFY is likely to trade back to the mid-$20 range.
Peer-Reviewed Article in NEJM Carries Significant Weight. The NEJM article adds incremental value for Affymax for a number of reasons: 1) The data have been in the public domain for some time, but are now validated in the gold standard of peer-reviewed journals; 2) The primary efficacy endpoint in the EMERALD Phase III trials (specifically Mean Hemoglobin Levels) clearly shows that Omontys and EPOGEN are equivalent, with curves from the studies that are essentially super-imposable; 3) Safety and tolerability are also statistically equal between the two therapies, and very much the same numerically; and 4) While Omontys’ dosing is quite different than EPOGEN, meaning adoption may take some time to effectively convert patients over, the cost savings and convenience benefits (once-monthly dosing for Omontys vs. 3x per week for Epogen) of Omontys are clear. In our view, sales reps armed with the NEJM article will be that much more convincing to doctors and dialysis centers when marketing Omontys as an alternative to Amgen’s Epogen.
AMGN Earnings Call Demonstrates Omontys Is Having Impact. AMGN’s ESA franchise, consisting of both Epogen and the longer-acting Aranesp product, have sales of about $2.7B annually in the U.S. alone. This suggests that Omontys needs to gain just over 5% of the market to justify its current market cap, and gains over that level of market penetration is upside. We calculate that by conceptualizing $150M in Omontys sales (5.5% of the market) and applying a 4x multiple on sales, which roughly equals the company’s current enterprise value (market cap less cash plus debt) of ~$640M. Analysts see peak sales of Omontys at roughly $500M in the U.S. alone, about 20% of the current market, which seems achievable and implies that the stock could more than double from current levels. Importantly, AMGN had to admit that Omontys is gaining market share, commenting on its earnings call that the year over year declines in Epogen sales in 4Q were due to “competition”, but of course waived off Omontys’ impact by noting that AMGN still has 96% of the market.