Healthy Skepticism Library item: 1043

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Publication type: news

Gellene D.
Drug-Firm Rivalry Spills Into Congress
Los Angeles Times 2003 Apr 9
http://articles.latimes.com/2003/apr/09/business/fi-amgen9

Abstract:

Amgen is lobbying to increase Medicare payments on its anemia medication, blaming J&J for getting them slashed.

Full text:

Biotech giant Amgen Inc.‘s turf war with rival Johnson & Johnson in the
lucrative anemia drug business is spilling into Congress, where Amgen is
aggressively lobbying for higher Medicare payments on its new medication
Aranesp.
In January, Medicare slashed reimbursement fees on Aranesp, making it
more expensive for hospital outpatients than Procrit, a drug marketed by
J&J. Medicare said if it didn’t reduce payments on Aranesp, it would
have to deeply cut reimbursements on other necessary medical services.
“If we were to pay more, we would have had to make cuts in everything
else,” said Thomas Scully, Medicare’s top administrator. “We would have
had to cut mammograms.”
Amgen, based in Thousand Oaks, maintains that Medicare slashed Aranesp
payments only after being egged on by J&J. Facing a potential loss of
$100 million in drug sales, Amgen is lobbying some of Washington’s key
players, including Sen. Charles E. Grassley (R-Iowa), head of the Senate
Finance Committee, which sets Medicare’s budget.
“We were outmaneuvered by J&J,” said Kevin W. Sharer, Amgen chairman and
chief executive. “They got a step ahead of us. Shame on us if it happens
again.”
J&J spokeswoman Carol Goodrich disputed the notion that Amgen was
blindsided. “We believe the process was fair … and Amgen participated
fully.”
Medicare said the decision to reduce Aranesp fees came after discussions
with Amgen’s medical experts and that the agency isn’t taking sides in
one of the drug industry’s most heated rivalries. Scully said he and his
staff have held “an enormous number of meetings with Amgen,” including
one with Sharer that did not go well.
“It is not about not liking Amgen or J&J,” Scully said. “They are in
gigantic war. Both companies like to throw bombs around.”
Aranesp is a longer-acting version of EPO, the remarkably successful
anemia drug invented by Amgen that spurs the production of red blood
cells. In the United States, the market for EPO is split between Amgen
and estranged business partner J&J.
Medicare does not cover most prescription drugs. But the
government-funded health program for the elderly does pay for injectable
drugs such as Aranesp and Procrit that are used in hospitals or doctors’
offices.
The spat over Aranesp is the first to arise from the government’s
efforts to rein in drug spending. But the Biotechnology Industry
Organization, a Washington trade group, is preparing a lawsuit against
Medicare over payment cuts on Aranesp and other biotech drugs.
Meanwhile, Medicare is trying to lop $1 billion from its drug tab in
2004, or about 25% of what it currently pays for physician-administered
drugs. The proposed cuts, to be announced this summer, are expected to
bring Medicare payments in line with what private insurers pay.
Certainly, the anemia business has been lucrative for Amgen, and its
$2.3-billion annual monopoly in the kidney dialysis market helped make
it the world’s largest biotechnology company. But Procrit, with sales of
$4.2 billion worldwide, now is J&J’s bestselling drug.
The relationship between the rivals dates back to 1985, when Amgen was a
young firm and decided to retain the rights to sell its developmental
drug EPO to dialysis patients in the U.S., then considered the most
promising market. Amgen licensed the rest of the anemia business to J&J.
As it happened, the biggest market for red blood cell drugs turned out
to be for cancer patients, a business controlled by J&J’s EPO drug
Procrit.
The rivalry between the companies is intense. Last year Amgen lost a
court bid to void its licensing contract and take over J&J’s anemia
business. But a federal judge ordered J&J to pay Amgen $150 million for
poaching in its kidney dialysis market.
Aranesp is not identical to EPO, so it isn’t covered by the old
licensing pact. Amgen believes Aranesp, launched in 2001, could become
its biggest drug and is using it to reclaim the anemia business long ago
ceded to J&J. But Medicare’s price cut set back Amgen’s plans.
Amgen’s dispute with Medicare centers on an arcane pricing mechanism
that assigns a reimbursement rate for new drugs used by hospital
outpatients that is higher than that for older drugs.
Last summer, Medicare tentatively proposed covering Aranesp at the
higher rate, or about 95% of its list price, making it more economical
for physicians to use than Procrit, which would be reimbursed at a
significantly lower rate.
Medicare currently is paying about $370 for a weekly dose of the drugs,
but the list price of Aranesp is $748 while Procrit lists for $534.
Facing a potential loss of market share, J&J then argued that Procrit
and Aranesp are “functionally equivalent” drugs and that Medicare should
not reimburse Aranesp at a premium reserved for new drugs. After
reviewing 40 scientific studies, meeting with Amgen and J&J
representatives and hiring a consultant to assess the data, Medicare
sided with J&J.
Wall Street analysts said that the Medicare reimbursement cut hasn’t
hurt Amgen. Ronald C. Renaud of Bear, Stearns & Co. said Amgen has
retained hospital customers by offering discounts on Aranesp. As a
result, when Amgen reports its first-quarter results April 22, analysts
expect it to show strong gains in Aranesp sales.
Amgen sued Scully and Health and Human Services Secretary Tommy G.
Thompson to block the cuts, but the federal suit was tossed out in
December before it went to trial. Sharer said Amgen intends to appeal
the ruling.
Amgen spends $3 million annually to lobby Congress, where it expects to
fare better than in federal court. The company is regarded as among the
most aggressive in Washington. It has successfully defended
reimbursement for its EPO brand, Epogen, despite repeated efforts by
Medicare to cut it.
In 1998, Medicare rescinded a rule limiting the use of Epogen in
dialysis patients after Sen. Arlen Specter (R-Pa.), chairman of the
health and human services subcommittee, held a hearing on the matter.
And each year since 1997, Medicare has recommended a 10% cut in Epogen
payments, but Congress has not supported any price reductions.
The goal of Amgen’s lobbying effort, Sharer said, is “a political
discussion between the legislative and executive branches.”
Grassley, who counts Amgen as a top campaign contributor, and other
members of his committee have asked Medicare’s Scully to explain
“functional equivalence” of the two rival drugs and how he plans to
apply that to drug payments in 2004.
Two weeks ago, Rep. Nancy L. Johnson (R-Conn.), chairwoman of the House
subcommittee on health, asked the General Accounting Office, the
investigative arm of Congress, to examine functional equivalency. The
report is due next month.
On Tuesday, Amgen’s shares closed at $58.65, up 24 cents, in Nasdaq
trading. J&J was up 17 cents to $57.50 on the New York Stock Exchange.