I do not think AFFY will have what it take to become a profitable biotech company. The product is equivalent to EPO, but more dangerous in the CKD population and the trials showed a trend toward higher cardiovascular risk in the dialysis population too. Nephrologists are reluctant to change and EPO has a long track record in the clinic that Omontys doesn't this makes for a long hard fight for market share. Plus AMGN has already locked up DVA clinics making 30% of the market essentially off limits.
Once monthly dosing, Omontys biggest selling point, is also it's most under appreciated risk to getting market share in the in center setting. Since Medicare went to a bundled payment structure clinics have been looking for any way possible to use less ESAs and one of the most common has been by changing the dosing algorithm so that pateints who have a high enough hemoglobin level simply are not given their EPO some days, this flexibility is not available with Omontys. Even worse if a patient misses a treatment or are in the hospital the facility and the facility used Omontys they have already paid for the drug and lose the money, if they use EPO they don't have to use drug for a petiant who isn't there. The same dynamic is in place with patients who pass away (which is 20% of the population every year).
Making matters worse is that EPO patents begin to expire in 2014 and will be totally gone the next year letting Roche's Mircera on to the market, this is also a long acting ESA and will certainly encroach on Omontys market share among physician who do want longer half life and biosimilar ESAs will come too moving in on the only other strategy AFFY management has to gain share, which is cut rate contract pricing.
They have made some progress with contracts only by offering a cut rate price, but giving the dosing economics and the problem with missed sessions and eventual biosimilar competition mean the drug will be relegated to sharing the peritoneal and home hemo dialysis market with Mircera and that is only 10% of the market combined. AFFY with their cost base will not be able to get to profitability before competition wears them out.
I have made a ton of money investing in AFFY since the big drop when the trials appeared to fail, but I do not see now as the good time to put new money in. Take profits if you have them. You may disagree, but that is my opinion.
Thanks for the reply. I agree Amgen made a ton of money over the years, but they did it in a monopoly position and AFFY doesn't have that luxury. They won't even have a duopoly after this year. This market was a $2B annual market, but bundling has made that a $1.6B market and the level of price cuts AFFY needs to use to get their contracts makes it a $1.4B market. They have a $150M cost base so they need to get just about 10% share just to break even and that is not even factoring more price cuts when biosimilar competition comes into play. The only hope is a take out by a company that can eliminate the SG&A. That is not a buy thesis, but maybe it is enough to avoid a short. I don't think I would short AFFY, but I would be taking profits for sure.
Good reply, but consider that PEARL and EMERALD were designed to be studied together and the hazard ratio of the combined study was 1.13 which is a trend to worse safety. If you cherry pick the data to just the dialysis setting you got a 0.95 hazard ratio. BUT they EMERALD study was open label, and open label studies are notoriously easier on the evaluated drug when it comes to safety. The drug made it through the FDA though so Kudos to AFFY, they put together a great submission file and convinced a not so easy panel, but now nephrologists are left to ask "Who is the sicker patient, a CKD patient not on dialysis or one on dialysis?" obviously the one on dialysis is sicker. Why would this population be BETTER off than a less sick population. When in doubt wait it out, is the right mantra here, let other people test the drug and use it when the drug is proven in the clinical setting. This would be fine for AFFY, except for the coming biosimilar competition. The timing just doesn't work. They can still hope for a take out so I would not short AFFY, but I would be taking profits.
Looks like I was right. Right for the wrong reason, but it is pretty safe to say now they will never make a profit. Anyway to the morons who thumbs downed my original post you were wrong and I was right. Now the only money to be made is from the $0.25 left for paying out shareholder lawsuits or if Fresenius decides it was a manufacturing issue and the IP is worth something even if it only gives them some negotiating leverage on AMGN