Aranesp Growth Tied To Market Penetration, Not Share Gains, Amgen Says

Amgen expects future Aranesp growth to come from greater market penetration rather than market share gains as a result of the shift to average sales price-based reimbursement under Medicare Part B.

"In the new ASP environment," Aranesp "market growth will become more important versus market share gains in the past," Amgen CFO Richard Nanula said Nov. 10 at the CIBC World Markets health care conference in New York.

"Share gains will obviously still be something we're after," Nanula said. However, "I think they will be more difficult than in the past and market growth [will] become a very important focus for us."

In 2005, Medicare payment for Part B drugs will transition from average wholesale price-based reimbursement to an ASP plus 6% formula.

Under CMS' updated payment rate estimates for 2005, Aranesp (darbepoetin) will be reimbursed at $18.45, down 13% from its 2004 Part B reimbursement rate (¹ (Also see "CMS Updates 2005 Part B Payment Rates; Gemzar ASP Increases By 7.3%" - Pink Sheet, 8 Nov, 2004.), p. 20).

"Both we and our competitor...are investing heavily in the marketplace to continue to grow it while we are working at gaining share," Nanula said.

In addition to seeking a broader label for Aranesp, Amgen is counting on its TREAT trial - a 4,000-patient outcomes trial launched in October - to further penetrate the anemia market, Nanula said. The TREAT trial is evaluating "the impact of treating anemia on cardiovascular outcomes in patients with type 2 diabetes and chronic kidney disease."

Nanula's indication that Amgen will have to rely on greater market penetration to grow Aranesp going forward likely reflects the fact that heavy discounting will be less effective as a means of moving share in the ASP environment.

Amgen said in May that it would not implement further discounts unless Procrit -marketer Johnson & Johnson acted first (² (Also see "EPO Ceasefire? Amgen Aranesp Price To Remain Stable Unless J&J Acts First" - Pink Sheet, 3 May, 2004.), p. 10).

J&J reported in September that it had begun to see some stabilization in price competition, noting that it had increased the price of Procrit, which was followed by Amgen's increase in Aranesp's price.

In light of the move to ASP-based reimbursement, "we're budgeting ourselves sort of conservatively next year for expense," Nanula said.

"Certainly in the early part of the year, we'll be pretty thoughtful and careful about investment and headcount, as opposed to prior years where our expense growth has sort of mirrored our revenue growth sort of in the 20%-30% range," Nanula said.

Amgen expects the changes to Part B reimbursement to affect about 7%-10% of the company's overall business.

The changes mandated by the Medicare Modernization Act will affect "about 15% of our oncology business," which accounts for "a little bit less than half of our overall company," Nanula said. "So probably somewhere between 7% and 10% of our business is affected by MMA here."

Nanula underscored the importance of the impact of the changes to providers, noting that Amgen has been meeting with its customers to assess their outlook for next year.

"We've probably been with 90% of our sales volume from a customer standpoint in the last two months," Nanula said. "It's pretty difficult to assess their behavior, especially early in the year.

"Some of them are not thinking it's going to change very much. Some of them are sort of saying, 'I'm not going to treat any customers that don't have a copay, I'm going to send them to the hospital,'" he said.

"So we're staying very close to our customers, we're going to be very careful and thoughtful about contracting next year," Nanula said. Amgen is also "looking at doing everything we can in the copay assistance front."

Amgen views the Centers for Medicare & Medicaid Services' $300 mil. oncology quality of life demonstration project as "pretty positive" because it "will make oncologists' business model not quite so affected as they were otherwise going to be," he said. The project is also likely to increase use of palliative therapies (³ (Also see "Medicare Part B Demo, Coding Changes Will Stabilize Oncology Rx Market" - Pink Sheet, 8 Nov, 2004.), p. 18).