Thinking about Life Sciences: The Deconstruction of Amgen Print Version http://blog.aesisgroup.com//2007/08/21/the-deconstruction-of-amgen/print...

Thinking about Life Sciences

http://blog.aesisgroup.com

Wednesday, August 22, 2007

The Deconstruction of Amgen

As some of you may be aware, Amgen announced last week an unprecedented set of layoffs numbering
almost 2,600 employees (or about 14% of its overall workforce).
“We are a company and a management group that faces reality [italics added] and deals with it, and we have a new
reality to face today compared to when we planned this year …”
Amgen CEO Kevin Sharer said in an investor conference call as quoted in Andrew Pollack’s New York Times
article.
What is going on?
Amgen is largely a victim of its own success. It has been the darling of biotechnology ever since it
introduced recombinant erythropoietin (EPO or Epogen® as Amgen calls it) back in 1988. Epogen® has
billions in revenue to Amgen over the years.
Back in 2004, BusinessWeek listed Amgen as one of the most “future-oriented” companies in the world.
Back then, the company was quoted as devoting “just over half of its total outlays to future-oriented
activities, split roughly equally between R&D and capital spending.” How was that massive investment
being spent? In reality it would appear that Amgen has largely been living off the fruits of its illustrious
past.
When Lawyers Run the Show
I have worked with many lawyers over the years and I greatly respect the expertise and professionalism of
many of these legal colleagues. The purpose of this column is not to malign lawyers but rather to point
out that businesses should view their legal resources as a means to an end rather than an end in itself.
From observing Amgen over the years and even having personal experience extending back in the early
1990s, I have come to learn that Amgen – relative to many other biotech firms - is a very lawyer-driven
company. Protecting and extending its EPO franchise has been, in my opinion the leading if not defining
strategy for the company over the past two decades.
As I wrote in a 2006 column – “Does Intellectual Property Matter” I cited two important reasons for the
relative “decline” of intellectual property. These were:
1. Technology develops so rapidly that patent protection can in fact be obsolete even before it
expires. Ever-increasing technology innovation will further accelerate this trend.
2. Medical technology increasingly is based on combinations of individual technologies. These
technologies are often called convergent (or combination) medical technologies (CMT). In
this case, the innovation that a company brings to the market may be only one (or a few) of
the components of a device that utilizes inventions from a number of sources.
In following Amgen over these years, it was dismaying to see the continuing litany of litigation that
seemed to emerge from the Thousand Oaks headquarters. In 2002, for example, an Amgen lawsuit
against Medicare was dismissed. 2005 saw Amgen file a lawsuit against Roche which an International

1 of 3 11/17/2008 12:37 AM
Thinking about Life Sciences: The Deconstruction of Amgen Print Version http://blog.aesisgroup.com//2007/08/21/the-deconstruction-of-amgen/print...

Trade Commission judge later ruled in favor of Roche. Earlier this year, the Supreme Court dismissed a
case brought by Amgen against Sanofi-Aventis and Shire Human Genetic Therapies. In 2004, Amgen
won a seven-year legal battle against Transkaryotic Therapies. And this is just a sampling of the legal
agenda over the past decade.
The story has been a dizzyingly, mind-numbing circus of legal maneuvers. In the end, has Amgen won?
Did it make any friends? Was its focus – as seemingly highlighted by BusinessWeek – really on the future?
Again, I’ve known many brilliant lawyers and, indeed, admired many an innovative legal argument. But, to
effectively “hand over the keys” for the company – as it has seemed over the past years – is not, in my
opinion, the right way to run a life sciences company that ultimately lives or dies on the basis of its ability
to truly innovate and bring new products to market.
Blockbuster Candy, “Safety” Overreach
This leads to the topic of “blockbuster candy.” The prevailing paradigm in the biopharma industry (albeit
simplified) has been that biotechnology firms (like Amgen) research, develop and market fairly complex
molecules (such as proteins). These complex molecules are used to treat relatively specific conditions and
relatively small numbers of patients while the large pharmaceutical companies focus on smaller molecules
with a corresponding “blockbuster” market. In the latter case, drugs such as statins, blood pressure
medications, anti-depressives and so forth treat literally tens of millions of patients and even hundreds of
millions worldwide. This is the blockbuster model and biotechnology companies have largely eschewed
that approach.
Apart from the unfavorable economics of the blockbuster model for biotech firms in which it is generally
difficult to recover the high costs of developing and producing complex biologicals through the
mass-market, one of the most significant challenges to blockbuster drugs is the safety issues that invariably
arise when millions of patients are taking a drug. I wrote about this in a blog entry earlier this year “FDA
Reform Redux: On Business Models, Regulatory Reform and Safety” in which the troubled blockbuster
model intersects significantly with the recent controversies over drug safety as evidenced by the Vioxx and
Avandia headlines.
Most biotech firms have thus avoided expanding their specialized products into blockbuster status –
tasting blockbuster “candy” as it were. A notable exception has been Amgen in which it has recently
worked to expand its EPO indications into ever wider markets including pre-dialysis patients. As the New
York Times article states:
“The new reality is that sales of Aranesp and an older anemia drug, Epogen, are being buffeted by recent findings
suggesting that overuse can worsen cancer, cause blood clots or heart attacks and perhaps hasten death.”
I wrote about the safety challenges with EPO as far back as 1989 and summarized this more recently
earlier in 2007. However, when a company has few other products in the pipeline (perhaps because of its
focus on legal matters) and the current portfolio is at risk of expiring then I can see the “logic” of
throwing a “Hail Mary” and hoping for the best in expanding the current product offering to mega-market
proportions.
It was a big risk - risky not just for Amgen but for patients as well. The results of this strategy are
unfolding now.
As I’ve written in these pages on a number of occasions, the take-away points are as follows:
1. Intellectual property is only one aspect of corporate value. Do not rely on that alone.
2. Partnerships – which is largely the anthesis of filing lawsuits – are what creates value.
3. Drug (and device) safety is important. Ignore it at your peril.
4. The blockbuster model is coming under considerable challenge – from many quarters.
Companies that aim for a blockbuster product are – with very few exceptions – looking to the
past rather than the future.

2 of 3 11/17/2008 12:37 AM
Thinking about Life Sciences: The Deconstruction of Amgen Print Version http://blog.aesisgroup.com//2007/08/21/the-deconstruction-of-amgen/print...

The New York Times article ends with a particularly telling observation regarding the impending Amgen
layoffs.
“In San Francisco and San Diego, executives frequently leave established companies, like the industry pioneer
Genentech, to start new ventures. But there are virtually no such spinoffs from Amgen.”
Indeed, I can’t imagine the many reams of legal briefs that have been generated over the years as providing
the intellectual property necessary to spin off new firms.

Ogan Gurel, MD MPhil

gurel@aesisgroup.com
http://blog.aesisgroup.com/

Amgen biotechnology erythropoietin Epogen EPO innovation intellectual property Aesis Research Group Ogan Gurel

3 of 3 11/17/2008 12:37 AM