Drug-Firm Rivalry Spills Into Congress
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 a 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.
