Shares of Amgen Inc., the world's largest biotechnology company, rose 6.5% as the government confirmed that Medicare will pay for the company's anemia treatment Epogen even if the drug boosts red blood cells over an earlier limit.
Amgen's stock rose $4.06 to close at $66.75 in Nasdaq trading. The shares earlier hit a 52-week high of $67.25.
Thousand Oaks-based Amgen could sell more Epogen because the federal government changed a 1997 rule on Medicare reimbursement for the drug. The Health Care Financing Administration, which runs the Medicare program, indicated in March it would change the limit on Epogen use. Earlier this week, the HCFA sent a letter to insurers about the change, Amgen said.
"We have a clear picture that the U.S. government is not dictating what's best for patients, and Amgen happens to be the specific beneficiary," said David Saks, an analyst with Gruntal & Co., who raised his rating on Amgen to "strong buy" from "buy."
Epogen made up almost half of Amgen's $2.4 billion in 1997 revenue. Many of the drug's sales are made through Medicare, the government health insurance program for the elderly and disabled.
In 1997, the government said it would reject payment for Epogen use in cases where red blood cells exceeded 36.5% of the total volume of a patient's blood, on average.
The limit has been raised to 37.5%, giving doctors a cushion in using Epogen to stimulate production of red blood cells, said an Amgen spokesman.
Amgen sells Epogen in the U.S. only for use in patients with kidney disease. Its marketing partner, Johnson & Johnson, sells the drug under the name Procrit for all other uses.
Analysts said speculation about a possible takeover of Amgen also helped boost the stock Wednesday.
Johnson & Johnson shares rose $1.38 to close at $77.75 on the New York Stock Exchange.