Shrewd science: Biotech giant Amgen's success reflects its savvy corporate style
In the late 1970s, Eschbach and a colleague, Dr. John Adamson, did pioneering studies at the University of Washington on a protein called erythropoietin, or Epo. They found it could stimulate growth of oxygen-carrying red blood cells in sheep and correct anemia caused by kidney failure. Some scientists believed that if isolated in large batches, Epo could treat anemia in people.
Amgen believed enough to bet the company. One of its scientists isolated the gene that creates Epo in 1983, and Amgen patented it. The company formed a marketing and manufacturing partnership and risked $20 million to build a factory three years before its product was approved for the market.
Clinical trials eventually showed that genetically engineered proteins of Epo could correct anemia, and the Food and Drug Administration approved the product, branded Epogen, in 1989. Epogen soon eliminated the need for thousands of patients on kidney dialysis to get blood transfusions, and it restored their energy.
"Many people have said it is the biggest advance in treating kidney disease since dialysis, which happened around 1960," Eschbach said. "They've been very successful because it was a legitimate breakthrough."
Amgen has become the leading biotech company with more than scientific prowess, however. Its ability to fend off competitors in court, to keep insurers and Medicare paying for the drug, and to set prices at $7,000 to $9,000 or more a year for each patient have enabled it to become the industry leader by nearly every measure: It is on top in sales, profit, stock price and number of employees. The stock made millionaires out of many employees and investors; it has increased 170-fold since its initial public offering in 1983.
With shrewd marketing and physician education and a management style more corporate than the usual freewheeling biotech, Amgen has been able to reap billions from Epogen and a second hit drug, Neupogen. But after more than a decade without a blockbuster encore, it is getting one by buying Seattle's leading biotech company, Immunex, and its rheumatoid arthritis drug, Enbrel.
Shareholders of both companies will vote on the purchase Thursday: Amgen meets at 10:30 a.m. at the Beverly Hilton in Beverly Hills, Calif., and Immunex meets at noon at Benaroya Hall in Seattle. Regulatory approval is expected soon, and the deal could be completed next month.
Dyes for bluejeans
Amgen began in the early 1980s without a clear idea of how to make money in biotech. Some early projects — developing pig hormones or dyes for bluejeans — fizzled.
George Rathmann, the company's first chief executive, left in 1989 with a reputation as a scientific visionary and savvy businessman. Gordon Binder, an early Amgen financial officer from Ford, took his place.
Binder presided over the Epogen and Neupogen booms, helped the company grow without making big acquisitions and took heat from Wall Street for failing to come up with another blockbuster. Through the 1990s, treatments failed in clinical trials for Parkinson's disease, Lou Gehrig's disease and obesity.
Through those years, Amgen has fought major battles.
In 1991, the FDA approved Neupogen a few weeks before it approved Leukine, a rival drug from Immunex. Amgen's marketing strategy paid off. It won the right to market the drug to chemotherapy patients, while Immunex settled for a smaller market in patients receiving bone-marrow transplants.
When Immunex's drug developed a reputation for side effects — a reputation company veterans say is unfair — Amgen was able to dominate the market, reaching $1 billion in sales in its fifth year and outselling Immunex 24-to-1 at the time.
Leukine was sold earlier this month to German pharmaceutical giant Schering for $380 million.
Amgen has been fighting Johnson & Johnson in court since 1989 over erythropoietin. The two companies reached an agreement in 1985 in which Johnson & Johnson provided cash in exchange for the right to sell the drug overseas and to anemia patients in the U.S. not on dialysis. Amgen got the smaller market: U.S. anemia patients on dialysis.
Both companies have prospered. Last year, Epogen sales hit $2.1 billion, while Johnson & Johnson's sold $3.4 billion worth of the same product, which it markets as Procrit. It is Johnson & Johnson's top-selling product.
In 1998, an arbitrator's ruling gave Amgen the right to market a new, longer-lasting version of Epo, called Aranesp, which could compete in the same lucrative markets as Johnson & Johnson. Amgen says Aranesp could reach $5 billion in sales, making it one of the best-selling drugs ever.
Medicare strategy
Besides victories in the courtroom and in marketing, Amgen's lobbying has helped stop efforts to limit Medicare reimbursement for Epogen. That focus has earned acclaim in business circles, but it has fueled critics who say Amgen has more in common with a conservative drug maker such as Merck than a breakthrough-seeking biotech.
"As soon as your focus becomes earnings growth on a quarter-to-quarter basis, you aren't able to produce innovative research because innovative research does not evolve in a quarter," said Cynthia Robbins-Roth, a former Genentech scientist with BioVenture Consultants in California.
Amgen spokesman Jeff Richardson said the company's success is in its scientific work and focus on patients. He said Amgen's culture still fosters scientific creativity.
It still believes in treating employees well, Richardson said, providing on-site day care with room for 500 children, a cafeteria, on-site dry cleaning, and a 100-acre campus in a Los Angeles suburb with good schools. The average employee's age is 37, and the company's annual turnover rate is an unusually low 5 percent. All employees get stock options.
Like Immunex, Amgen prides itself as being one of the nation's best places to work.
"We are being very careful not to lose some of the enthusiasm that comes from a small biotech," Richardson said. "We want to keep that, to foster the creativity, but Amgen is an organization of 8,000 people. You need policies and standards. We are not a seat-of-the-pants organization."
The purchase of Immunex represents an important moment for Amgen Chief Executive Kevin Sharer, 53. Sharer has military experience, was a Jack Welch protégé at General Electric, and was an executive at MCI. He came to Amgen in 1992 as president, with no biotechnology experience. He became CEO in May 2000 and chairman seven months later.
Martin Simonetti, a former head of Amgen's Colorado operations who now works for Seattle biotech Dendreon, said Sharer immersed himself in biotechnology to prepare for the top job, was a quick study and recognized the need to surround himself with talented executives. Simonetti said he and Binder, the longtime chief executive, long emphasized the need to come up with another blockbuster.
"The big challenge was really trying to get that next product while efficiently managing growth," Simonetti said.
It's still the challenge, analysts say. With Immunex's Enbrel, Sharer says Amgen will have a drug with "enormous potential" that could reach $3 billion in sales by 2005. It adds to a deep lineup: Aranesp could bring in $5 billion in sales. Neupogen, together with its longer-lasting version, Neulasta, could generate $3 billion. Kineret, a new rheumatoid arthritis drug, could reach $500 million. Analysts say Amgen has a shot at hitting its goals, even with problems such as the Enbrel shortage. Fariba Ghodsian, a health-care analyst with Roth Capital Partners, said the real question is whether Amgen can continue to achieve what investors expect — 20 percent profit growth every year.
"They'll have three blockbuster products, and they'll be the largest biotech company by far," he said. "They will be different because they are among the major pharmaceutical companies in stability and size, but they will have the high growth potential of biotech."
Luke Timmerman can be reached at 206-515-5644 or ltimmerman@seattletimes.com.
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