Amgen stock rises on Senate move

NEW YORK (CNNMoney.com) -- Amgen's stock got a lift on Wednesday, after the U.S. Senate asked the Centers for Medicaid and Medicare Services (CMS) to lift restrictions on coverage of anti-anemia drugs, the biotech's top-sellers, analysts say.

Amgen's (up $1.00 to $52.34, Charts, Fortune 500) stock price was up about 2 percent Wednesday morning, after rising nearly 4 percent early in the day. The markets as a whole were trading down. This follows the Senate's passing of a non-binding resolution on Tuesday, expressing "significant concerns" about the CMS decision in May to limit coverage on anti-anemia drugs used in conjunction with chemotherapy.

Medicare and Medicaid 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 a direct impact on Amgen's two top-selling drugs: Aranesp and Epogen, which account for about half the company's sales.

Aranesp and Epogen sales exceeded $3.2 billion in the first six months of 2007, nearly half of the company's $7.4 billion total sales. (Johnson & Johnson (down $0.37 to $61.61, Charts, Fortune 500) sells Procrit, another anti-anemia drug that is made by Amgen, but doesn't break out sales on its website.)

Analysts described the Senate resolution as a positive for Amgen, the world's top-selling biotech, though it remains to be seen whether any tangible action will come of it.

"It's unclear to me how binding this resolution is," said Les Funtleyder, analyst for Miller Tabak. "Obviously, the spirit of the resolution is that they want CMS to do something."

Christopher Raymond, analyst for R.W. Baird, described the Senate resolution as "unequivocally positive" in a published note, though he said "it remains unclear how or when CMS will respond."

The resolution was issued as Amgen and Roche began a court battle Tuesday at U.S. District Court in Boston over patents on the anti-anemia drugs.

California-based Amgen Inc. has accused Roche, the Swiss drug giant and maker of the anti-anemia drug Mircera, of infringing its patents for Aranesp and Epogen, a class of drugs also known as epoetin.

But Roche doesn't see it that way, and released this statement to CNNMoney.com: "Roche remains confident in its position that all of the Amgen patents for epoetin being litigated are invalid and not infringed."

But is the anti-anemia franchise even worth these fights? The cutbacks on Medicaid and Medicare coverage came after the franchise already had been hit by warnings of dangerous side effects. The side-effects warning and restrictions on CMS coverage helped push Aranesp second-quarter sales down 10 percent worldwide and 19 percent in U.S. Meanwhile, Epogen sales were up 2 percent because an expanding patient pool and "favorable wholesale inventory charges" managed to offset the bad news, Amgen said.

Amgen's stock was down 25 percent this year through Sept. 4. Here are some of the company's recent troubles:

• The Food and Drug Administration warned in March that studies of the drugs Aranesp, Epogen and Procrit found a "higher chance of serious and life-threatening side effects and/or death." A severe "black-box" warning was added to drug labels as a result.

• Amgen said on Aug. 15 that because of lower Aranesp revenues it would reduce 12 percent to 14 percent of its staff, or 2,200 to 2,600 workers. Also, the biotech reduced its 2007 earnings guidance to a range of $4.13 to $4.23 a share, from $4.28.

• On Sept. 11, FDA advisors will hold a meeting to discuss the health risks of anti-anemia drugs. The advisors could make recommendations that would be considered by FDA regulators, who have the power to make final decisions regarding the drugs.

• On Tuesday, European regulators approved a generic version of Epogen from Swiss drugmaker Novartis (down $0.11 to $53.07, Charts). This does not present pressure to Amgen sales in the U.S., because the FDA doesn't yet have a system in place to approve generic versions of biotech drugs. But the European action may mean the biogenerics industry is one step closer to reality in America.

While the Senate action is moving Amgen stock today, some analysts think the court battle could affect Amgen and its top-selling products more over the long term.

"[The Epogen-Aranesp franchise] is not worth fighting for, especially given the recent Medicare ruling," said Vasavi Vittal, an analyst with Atlantic Equities. "Definitely, the market has shrunk significantly since that [FDA] warning."

Vittal said that Amgen will probably win the court fight, and that Roche will probably appeal, though the expense of the legal process is difficult to justify, given the decline in Aranesp sales.

But Ed Nash, analyst for Stifel Nicolaus & Co., said the franchise is "definitely worth fighting for." Nash said even if revenues continue to decline, the drugs would still be worth billions of dollars in annual sales and "we'll get to a point where it won't retract anymore."

Nash said he's confident the FDA advisors will spare Amgen any harsh action at their Sept. 11 panel meeting. The analyst dismissed the Medicaid/Medicare coverage restrictions as "the government's way of cost-cutting."

Funtleyder of Miller Tabak said the franchise is "probably worth fighting for at the moment," especially since Amgen and Roche have already invested heavily in their anti-anemia drugs. But considering that the safety issues "took the wind out of sails for the class," Amgen needs a new winner, said Funtleyder.

The pressure is on Amgen's late-stage experimental drug denosumab, a possible treatment for post-menopausal osteoporosis, cancer and other diseases.

"They've got denosumab, which could be a home run, or it could be a zero," said Funtleyder. "If d-nab succeeds, then [Amgen's] a buy. If it doesn't succeed, then Amgen's got significant problems, because their pipeline's got some holes in it."

The analysts interviewed here do not own shares of Amgen stock, but Stifel Nicolaus makes a market in the company and Robert W. Baird expects to seek or receive investment banking compensation from the company in the next three months.