Affymax Prepares to Mount Challenge to Amgen Anemia Drug Monopoly

1/25/12Follow @xconomy

Affymax shocked the world when an FDA advisory committee recommended last month that its anemia drug was good enough to earn a spot on the U.S. market. Now the Palo Alto, CA-based company (NASDAQ: AFFY) is making all sorts of moves behind the scenes that will determine how big a bite it will take out of Thousand Oaks, CA-based Amgen’s multi-billion dollar anemia drug monopoly.

Decisions about the product’s price, who to hire to sell it, and how to negotiate with Medicare and dialysis clinics are all high on the list of tasks facing the Affymax executive team. It’s part of the process of getting ready for March 27, the deadline the FDA has to complete its review of peginesatide, the experimental anemia drug from Affymax and its partner, Takeda Pharmaceuticals. If Affymax can get the green light from the FDA, it will be allowed to sell its product to about 400,000 patients in the U.S. on dialysis treatment, and tap into a market that generated $2.5 billion in sales last year for Amgen’s epoetin alfa (Epogen.)

Medicare has spent tens of billions of dollars on Amgen anemia products over the years, and members of Congress at various points have been critical of how much taxpayer money goes to one company making one drug.

“I don’t want to say there’s pent-up demand, but there’s a lot of interest in the renal community,” in the new product, says Affymax CEO John Orwin. Without disclosing the price, he suggested that Affymax plans to offer a lower-cost alternative. “Healthcare providers are under a lot of pressure to find overall cost-lowering solutions. So we think we’re coming into a favorable environment.”

Given the FDA advisory panel’s lopsided 15-1 vote in favor of its drug, the odds are Affymax will soon be in position to start selling the first alternative to Amgen’s epoetin alfa (Epogen), which has had a monopoly since it was first cleared for sale in 1989. The FDA previously approved a rival from Roche called epoetin beta (Mircera) in 2007, but that drug has been blocked from the U.S. market, at least until mid-2014, because of an intellectual property dispute that Amgen won. Affymax is able to sidestep that minefield because its drug helps stimulate production of oxygen-carrying red blood cells, like Amgen’s, but it is a peptide that is chemically distinct, and works through a different biological mechanism.

Even though Affymax will likely be in position to sell its product soon, it is a classic underdog in this story. Amgen (NASDAQ: AMGN), the world’s biggest biotech company, has contracts in place to provide its anemia drug to Fresenius Medical Care and DaVita, which together control about 70 percent of the dialysis market, analyst Christopher Raymond of Robert W. Baird said in a December 28 note to clients.

Raymond rates Affymax a “buy” with a price target of $13, but he sees many obstacles ahead. Small biotechs often perform poorly in their first days of marketing new products. And even if Affymax sets its price 20 percent lower than Amgen, which Raymond predicts, it will still have to negotiate contracts with the remaining 30 percent of the market that isn’t married to Amgen, and get these providers to change their anemia drug dosing protocols. Currently, dialysis patients get Epogen several times a week with their treatment, and the Affymax drug is only dosed once a month. While that might look like a convenience advantage for the new product, Raymond notes that the transition “will take time as dialysis centers are heavily protocol-driven.” He predicts Affymax will get $21 million in U.S. sales in 2012, and then $128 million the next year.

Many investors never would have predicted Affymax would get this far. Clinical trial results showed in June 2010 that chronic kidney disease patients on its drug had an increased risk of heart-related serious adverse events. The company went ahead and sought FDA approval anyway, partly because the clinical data suggested that the drug offered similar benefit and risk in dialysis patients, a sicker population.

The company has been hiring managers with experience in sales, marketing, and reimbursement, Orwin says. It plans to hire a sales force of about 60-80 people to pitch the product to U.S. kidney specialists at first, and then dialysis centers. The company is recruiting, interviewing, and negotiating salaries with the sales force, and making offers that are contingent on Affymax getting FDA approval. Training shouldn’t be too big a challenge, since most of the sales people will have experience selling other anemia drugs, and only need to learn the specifics of the Affymax product. “We have most of the key leadership positions filled with really terrific people,” Orwin says.

Affymax has been waiting for this critical moment a long time, having hired chief commercial officer Jeffery Knapp back in July 2006. He’s still there, and says he’s had a lot of time to study other company drug launches, and to get to know the right folks at Medicare and in the dialysis community. One of the key decisions has been to identify and recruit the sales force now, but not to actually pull the trigger on hiring people until it has an FDA approval letter in hand. It might need to spend more time on training to get the sales force ready to roll, but that’s a better scenario than hiring the sales force now, training it, and then having them twiddle thumbs for a few months if the FDA delays the application for some reason.

“It’s an expensive proposition to hire a sales force and have an approval date slip,” Knapp says. “From a motivational point of view, there’s nothing better than having an approval letter in hand and sending the staff out, rather than having them site idle for months because there was some kind of delay. I’ve seen it happen many times.”

Pricing of this drug will be key to its market appeal. Affymax hasn’t said what the price will be, but as Orwin said above, healthcare providers are under pressure to limit their spending on anemia drugs ever since Medicare changed its practice and started reimbursing on a fixed amount per patient, rather than just approving claims as they come in. Affymax has flexibility to undercut Amgen on price, because its drug is thought to be cheaper to manufacture than Amgen’s. Raymond estimates that the Affymax drug will cost about $6,000 a year.

Affymax isn’t saying what the price will be, although it is about “95 percent there,” in making that decision, Orwin says. Amgen, for its part, doesn’t appear to be attempting any pre-emptive strike against its emerging competitor by lowering its own price. On the contrary, Orwin says, Amgen has been cutting back on some rebates it previously offered to providers, and has implemented a couple of small price increases in the past year.

Orwin, for his part, didn’t seem to want to engage in any trash talk against his bigger competitor as he gets ready for battle. He does say that there was a lot of interest in the dialysis community in getting an alternative to Amgen’s drug back in 2007 when Roche’s Mircera was approved by the FDA, and that same desire for more choices is back. Now that healthcare budgets are under even more pressure, Orwin says he feels the wind in his sails. “What momentum existed in the community at that time is back. If anything, the forces in our favor are greater now,” Orwin says.

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  • carmen

    why does affymax need such a large sales force if 70% of the market is not available?

  • http://www.xconomy.com/author/ltimmerman/ Luke Timmerman

    Carmen—I don’t think 60-80 is a very big sales force for a company in Affymax’s position, even if it’s going after 30 percent of the dialysis market. The question to ask there—which I didn’t in my brief meeting with Orwin—is how nephrologists each rep is supposed to call on. If that ratio is too high, then the sales reps are spread too thin. If it’s too low, then I’d say you’ve overbuilt the sales force.

  • Cary Lindsay

    I had some great news today via Amgen when they announced the buyout of (MITI). They were my biggest holding in my biotechs, so now I have to reallocate my funds. IMO, the big guys are needing to restock the pipeline with deals like this one. I’m wondering if this move by (AMGN) is a preemptive move for the potential of (AFFY) moving into their turf. I hold a small position in (AFFY),but also have similar positions in (ARQL)(NKTR) and (OPTR). Your article has me leaning for at least getting FDA aproval, but as you mention–having an informed and aggressive marketing team is going to be critical for (AFFY). Decisions! Decisions!As you know, (NKTR) will benefit from (AFFY) getting approval, so I don’t want all my eggs in one basket.

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