Anti-anaemia drug restriction backtrack helps Amgen stock

US biotech Amgen's stock rose two per cent on morning trading of 5 September, after the US Senate asked the Centers for Medicaid and Medicare Services (CMS) to lift restrictions on coverage of anti-anaemia drugs.

Medicare and Medicaid had originally made coverage of the drugs more stringent, requiring that patients reach a specific red blood cell count during chemotherapy before they become eligible for reimbursement.

The CMS coverage has had a negative impact on Amgen's two top-selling drugs: Aranesp and Epogen, which account for nearly 50 per cent of the company's sales.

For H1 FY07, sales of Aranesp and Epogen sales were approximately USD 3.2bn, while analysts described the Senate resolution as a positive for Amgen.

Miller Tabak analysts were cautious in their positive view of the resolution saying that it was yet unclear how binding it was. RW Baird analysts were more upbeat, describing the Senate resolution as "unequivocally positive", but added they did not know how or when CMS would respond.

The positive news must come as a much needed break for Amgen. Due to the CMS restrictions Amgen announced it would reduce its staff numbers by between 12 and 14 per cent. It also reduced its FY07 earnings guidance to a range of USD 4.13 to USD 4.23 a share, down from the original USD 4.28.

On 4 September, EU regulators approved Novartis' generic version of Epogen. While this does not affect Amgen's US sales (the FDA does not yet have a system in place to approve generic versions of biotech drugs), the EU development may mean the biogenerics industry may soon invade the US.

Anaemia patent fight with Roche continues
Overshadowing the positive news is Amgen's current patent battle with Roche, which manufactures the anti-anaemia drug Mircera.

Amgen has accused Roche of infringing its patents for Aranesp and Epogen, but the Swiss-based firm has said it remained confident in its position that all of the Amgen patents for epoetin are invalid.

However, Amgen's defence of its patents may not be the most sensible course of action say analysts, as the CMS warning and restrictions pushed Aranesp's Q2 FY07 sales down 10 per cent on a global level and 19 per cent in US.

For example, Atlantic Equities analysts stated that the Epogen-Aranesp franchise was not worth defending, since the Medicare ruling and FDA warning had depressed the market.

While they believed Amgen would probably prevail in the court battle, Roche would definitely appeal. They added that the financial expense of the legal process was difficult to justify, while Aranesp sales were in decline.

Stifel Nicolaus & Co analysts disagreed and said the franchise was definitely worth defending and added that even if revenues continued to decline, the drugs would still be worth billions of dollars in annual sales. They were confident that the FDA advisors would spare Amgen in the upcoming 11 September panel meeting and dismissed the Medicaid/Medicare coverage restrictions as the government's way of cost-cutting.

Miller Tabak analysts also said the franchise was probably worth defending at the moment, especially since Amgen and Roche had invested heavily in both their anti-anaemia franchises.