Write a case summary and solutionTIM CALKINSForecasting Denosumab“Our job is quite simple,” explained Jennifer Fry, project manager at Oakdale StrategyGroup, a strategy consulting firm based in Chicago. It was a cold day in early February 2011, andFry was meeting with her team. “We’ve been asked to develop a forecast for denosumab for2015,” she continued. “Our client is one of the world’s largest pharmaceutical firms. The seniorexecutives there are taking a close look at acquiring Amgen and want an outside opinion aboutdenosumab.”Steven Meyers, a partner at the firm, quickly jumped in. “This is an incredibly high-profileassignment because the value of Amgen is closely tied to the revenue forecast for denosumab.We’ve got an important client and a very important project. Let’s nail this one.”AmgenAmgen was one of the world’s leading biotechnology companies, with more than 17,000employees and almost $15 billion in revenue. The company was founded in 1980 under the nameApplied Molecular Genetics and assumed the name Amgen in 1983.Amgen was highly profitable; in 2009 it had net income of $4.6 billion on revenues of $14.6billion (see Exhibit 1).In 2010 Amgen had ten drugs approved for sales in the United States. The most important ofthese were Aranesp and Epogen, for anemia; Enbrel, for arthritis; and Neulasta, for febrileneutropenia, a condition associated with chemotherapy (see Exhibit 2).Despite its considerable success, Amgen was in a difficult position in 2011; the company’score products were not growing and Aranesp was declining sharply. In addition, patent expirationissues loomed. As a result, Amgen’s stock was not performing well; it had peaked in 2005 atmore than $85 per share but had declined to about $55 per share five years later.Amgen’smost promising new product was denosumab, a fully human monoclonal antibodydesigned to treat osteoporosis. Amgen began working on the molecule in 1994 and finallylaunched it sixteen years later under the brand names Prolia and Xgeva. As CEO Kevin Sharerwrote in Amgen’s 2009 annual report, “Doctors and experts who have reviewed the data are©2011 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor Tim Calkins andNayna Aggarwal ’12. Cases are developed solely as the basis for class discussion. Although the product discussed in this case is real,the specific characters and scenario are fictional. Cases are not intended to serve as endorsements, sources of primary data, orillustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800-545-7685(or 617-783-7600 outside the United States or Canada) or e-mail custserv@hbsp.harvard.edu. No part of this publication may bereproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,photocopying, recording, or otherwise—without the permission of the Kellogg School of Management.This document is authorized for use only by Rudy Nunez in Cases in Operations Management-1 taught by Cheng Li, from January 2016 to July 2016.For the exclusive use of R. Nunez, 2016.FORECASTING DENOSUMAB KEL531excited and optimistic that this twice-a-year injection could bring new hope and benefit to largenumbers of patients.”1Amgen had patents on denosumab that were scheduled to expire between 2017 and 2023.OsteoporosisOsteoporosis, a bone disorder, was a common but serious condition. According to theNational Osteoporosis Foundation:Osteoporosis is a condition in which the bones become weak and can break more easily.In serious cases, something as simple as a sneeze can cause a bone to break. About 10million Americans already have the disease. About 34 million are at risk. Being at riskfor osteoporosis means you are more likely to get the disease. Estimates suggest thatabout half of all women older than 50 will break a bone because of osteoporosis. Up toone in four men will too.2Bones are constantly changing: cells called osteoblasts create new bone, while those knownas osteoclasts break down old bone. In young people, bone is created faster than it is brokendown, so bone mass increases and bones strengthen. In older people, however, this balance isreversed. Bone strength generally peaks at about the age of 30. As bones weaken with age, peopledevelop osteopenia, a reduction in bone mass. If the process continues, people developosteoporosis.Osteopenia and osteoporosis can occur at any age, but it is most common among people olderthan 50. Women are four times more likely than men to develop osteoporosis. As a woman’slevels of the hormone estrogen declines (such as during menopause), her risk of bone losssignificantly increases.With no obvious symptoms, osteopenia and osteoporosis often go undetected until adiagnosis from a healthcare professional. Untreated, a person can continue living withosteoporosis for many years. The risk of a fracture during this time, however, increasessignificantly.Fractures are a significant issue for older people. One study of postmenopausal women withosteoporosis reported that 10.9 percent had a vertebral fracture and 2.5 percent had a hip fractureduring a three-year period.3The main way to diagnose osteoporosis was with a bone mineral density (BMD) test. Theprimary BMD test was dual-energy X-ray absorptiometry (DXA). During a measurement processthat generally took between ten and twenty minutes, a DXA scanner produced two X-ray beamswith different levels of energy. The machine tracked the amount of energy that passed through thebone.Amgen 2009 Annual Report, p. 1.1National Osteoporosis Foundation, “Why Bone Health Is Important,” http://www.nof.org/node/150. 32Murray J. Favus, “Bisphosphonates for Osteoporosis,” New England Journal of Medicine 363 (2010): 2029.2 KELLOGG SCHOOL OF MANAGEMENTThis document is authorized for use only by Rudy Nunez in Cases in Operations Management-1 taught by Cheng Li, from January 2016 to July 2016.For the exclusive use of R. Nunez, 2016.KEL531 FORECASTING DENOSUMABThe DXA scanner produced a T-score, a statistic used to measure bone density that compareda patient’s BMD to that of a 30-year-old. The risk of fractures increased significantly with lowerT-scores. A normal T-score was -1.0 or higher; osteopenia was defined by a score of -1.0 to -2.5;and osteoporosis produced a score of -2.5 or lower.Osteoporosis Treatment OptionsSeveral treatment options were available for patients with osteopenia and osteoporosis (seeExhibits 3 and 4).EXERCISEStudies had shown that exercise strengthens bones. Young people who exercise achieve agreater peak bone mass, and older people who exercise slow the progress of bone erosion. Themost important exercises for bone strength were weight bearing, such as walking, jogging, stairclimbing, and weight lifting.DIETARY SUPPLEMENTSMany physicians recommended that people at risk for osteopenia take calcium and vitamin Dsupplements to maintain bone health.BISPHOSPHONATESThe main class of drugs for the treatment of osteopenia and osteoporosis in early 2011 wasbisphosphonates, made from two phosphonic groups. The drugs worked by slowing thebreakdown of bone by osteoclasts, resulting in an increase in BMD and a decrease in fractures.Studies on bisphosphonates had consistently shown that the products were effective atincreasing BMD and at reducing fractures. In clinical trials, most of the products demonstrated a40 to 50 percent reduction in vertebral fractures.Side effects generally were moderate. Some patients complained of an upset stomach whentaking an oral bisphosphonate; this was the most common side effect. Some studies showed thatabout 25 percent of patients experience at least mild gastrointestinal side effects. However, in astudy of the leading bisphosphonate, only 6.6 percent of patients complained of abdominal pain,compared to 4.1 percent of patients taking a placebo.4osteonecrosis (or decaying) of the jaw, a serious side effect. In addition, questions arose in thefield regarding the long-term use of the products, with an unusual number of fractures amongpatients who had used bisphosphonates for many years. Some scientists believed this class ofdrugs suppressed bone turnover, which led to fractures after years of use.Despite the strong efficacy of bisphosphonates, compliance was low; studies indicated thatabout 50 percent of patients discontinued oral bisphosphonate therapy within the first year. Thehigh discontinuance rate was likely due to the absence of readily visible benefits and to thepresence of gastrointestinal side effects in some patients. In addition, most bisphosphonates werepatient-administered, not physician-administered, which contributed to low compliance.

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