Yesterday, the U.S. Food and Drug Administration’s (FDA) advisory panel ruled in favor of Amgen’s (AMGN) osteoporosis drug denosumab (proposed trade name: Prolia), but with certain exceptions.

While the advisory panel unanimously gave its stamp of approval to the injectable drug for prevention of bone fractures in women with postmenopausal osteoporosis, it stated that the drug should only be used by patients facing the highest risk of fractures. The ruling was based on safety and efficacy data from 30 studies of the drug involving more than 12,000 patients.

However, the panel did not approve use of the drug in the prevention and treatment of bone loss in women with breast cancer undergoing hormone ablation. It demanded additional data to ensure that denosumab would not hasten tumor growth in such patients, but supported use of the drug for prostate cancer as it appeared safer for men.

The committee also did not approve Prolia as a preventive measure for women with low bone density. The panel asked Amgen to provide more detailed data on denosumab before recommending it to patients who do not suffer from bone disease. It advised Amgen to submit a Risk Evaluation and Mitigation Strategy for Prolia, which could include a medication guide and a healthcare provider communications plan.

Even though the panel’s advice is not binding on the FDA, it usually follows the ruling. The agency has set a Prescription Drug User Fee Act (PDUFA) action date of October 19. Prolia is also under review in the European Union, Australia and Switzerland, where GlaxoSmithKline (GSK) will market the potential multi-billion dollar blockbuster drug.

Despite only a partial nod from the panel, we feel that Amgen will be able to address safety concerns on Prolia and position it for blockbuster status. With all key products set to lose patent protection over the next few years (Enbrel – 2012, Epogen – 2013, Neupogen – 2013, Aranesp – 2014, and Neulasta – 2015), the company is depending on the approval and successful commercialization of denosumab.

We believe the candidate has potential to emerge as a leading cure for osteoporosis and will cater to a huge market, once launched. Osteoporosis affects about 10 million Americans, while nearly 45 million people are at risk. Global sales of osteoporosis medication hit $8.4 billion last year, including vitamin brands and drugs like Glaxo’s Boniva and Merck‘s (MRK) Fosamax.

We are bullish on denosumab, but any hiccup, either with respect to a delay at the FDA, a miss in any of the other ongoing late-stage programs, or safety concerns post-launch, will weigh heavily on the shares. We have a Neutral rating on Amgen.

Read the full analyst report on “AMGN”
Read the full analyst report on “MRK”
Read the full analyst report on “GSK”
Zacks Investment Research