Thursday, October 25, 2007

Amgen Feels the Effects of CMS’ Long Shadow

To no one’s surprise, sales of Amgen’s flagship anemia product darbepoetin (Aranesp) dropped sharply in the third quarter, 23% worldwide, and 36% in the US. Given the tough new restrictions put on coverage of Aranesp and J&J’s epoetin brand Procrit in the key Medicare market, a big hit was inevitable.

Still, it is worth looking at the full impact of the Centers for Medicare & Medicaid Services coverage decision on Amgen’s third quarter results. (If you haven’t been following this, you can catch up by clicking here.)

Given the tight coverage policy, it is no surprise that EPO use is way down in the Medicare market directly controlled by CMS.

But the coverage policy is casting a much bigger shadow than that.

First, there is a spillover effect into the private insurance market for chemotherapy patients. Amgen EVP-commercial operations George Morrow reported that use of EPO in chemotherapy induced anemia patients is down 30%-40%--even though no private payors have adopted payment policies that are as restrictive as CMS’.

“Clinics and hospitals are struggling with 2-tier medical practice,” Morrow explained. “They do not want to treat all of their patients to the lowest common denominator—and here I am talking about the NCD with a hemoglobin of 10. On the other hand, they find it ethically discomforting and administratively burdensome, to implement one treatment protocol for Medicare patients in another widely diverging protocol for all other patients.”

Morrow is optimistic that the picture will brighten over time. “We are also seeing a steady increase in the adoption of differential treatment protocols, by largely more sophisticated clinics and hospitals, as oncologists reluctantly adapt themselves to the new reimbursement environment.”

There is another possibility: that private payors will begin to move more in line with CMS’ restrictions. That is the usual pattern: CMS leads and private payors follow.

The spillover from the coverage policy doesn’t stop there. Amgen is also seeing an impact on use of EPO in myelodysplastic syndrome, even though the company successfully persuaded CMS not to put new restrictions on that indication. “Even though reimbursement remains in place, physicians have reduced utilization,” Morrow reported.

It doesn’t stop there. “We are seeing some modest spillover of the ESA reimbursement concerns for colony stimulating factors or CSF. In other words, there is a generalized fear of not getting reimbursed leading to more cautious utilization.” That was a factor in holding back growth of pegfilgrastim (Neulasta), Morrow said. Sales were up 8% for the quarter, but underlying demand was flat.

“We are actively investigating and addressing any clinical or reimbursement issues that are inappropriately impacting Neulasta utilization,” Morrow said.

That impact comes on top of the effect Amgen already acknowledged from a loss of promotional support for the brand while the sales force addressed the concerns about EPO.

Amgen is still hoping it can find a way to force CMS to reconsider its position on EPO, but it acknowledges that to be a long shot. “As physician groups continue their dialogue with CMS, we hope a compromise can be reached that gives doctors sufficient latitude to make the best decisions, consistent with their understanding of the available science and their own clinical experience, while also meeting important CMS objectives,” Amgen CEO Kevin Sharer said.

Asked what kind of “compromise” he envisions, Sharer replied. “Its hard to say. Our financial plan is to manage the company on the assumption that the NCD will stand.”

That seems like a safe assumption. A Reuters interview with CMS Chief Medical Officer Barry Straube suggests that the agency isn’t going to budge any time soon.

J&J sure seems to be moving on. Amgen acknowledged during the call that reimbursement wasn’t the only issue affecting Aranesp this quarter: the product also lost market share against Procrit—a development that would have dominated the discussion of Amgen’s prospects a year ago when Aranesp was relentlessly taking over the market Procrit used to own.

Amgen CFO Bob Bradway explained that the share loss came in Public Health Service hospitals, “where our competitor offers some very steep discounts, discounts that we felt that we weren't going to match.”

Amgen isn’t happy that J&J is recapturing share in the EPO market, but there may be some comfort to the company in being able to talk about those issues. After a year dominated by regulatory and reimbursement issues for its flagship franchise, a year where the company was forced to consider what else it might turn to besides EPO, Amgen surely longs for the days when it only had to worry about the competition.

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