New Law Would Widen Biotech Drug Rivalry

The sweeping Medicare legislation that President Bush is expected to sign today will open a new front in the battle among biotechnology companies for the lucrative rheumatoid arthritis market.

Remicade, an intravenous medication made by Johnson & Johnson Inc., is the only biotechnology drug for rheumatoid arthritis currently covered by Medicare, the federal insurance program for the elderly and disabled. But beginning next year, Medicare also will pay for Amgen Inc.’s Enbrel and Abbott Laboratories’ Humira on a limited basis. Both are delivered in shots that patients give themselves.

The three-way contest will get underway in earnest in 2006, when Enbrel and Humira will be covered for all Medicare beneficiaries under the new prescription drug benefit approved by Congress.

At stake are hundreds of millions of dollars in rheumatoid arthritis sales that now go to J&J.; Medicare payments for Remicade should exceed $300 million this year, accounting for 20% or more of the drug’s projected U.S. sales of $1.4 billion, said Craig West, analyst at A.G. Edwards & Sons Inc.

West estimated that at least $100 million in Remicade sales would be up for grabs when the drug benefit kicks in.

“There will be a shift,” he said. “There no doubt are patients who take Remicade because Enbrel and Humira aren’t covered.”

The total Medicare windfall could be much higher, and may be particularly important to Thousand Oaks-based Amgen, which faces possible cutbacks from the federal agency on some of its other drugs.

Kevin Brennan, a vice president with the Arthritis Foundation, noted that the Congressional Budget Office estimated that 90,000 elderly and disabled people were eligible for the rheumatoid arthritis biotech drugs. But some of them are forgoing the medications because they aren’t covered by Medicare. Others are paying out of pocket.

Medicare patient Linda Walsh of Andover, Mass., started taking Enbrel two years ago on the advice of her physician. Before that, she had used two dozen other medications and had 40 operations to replace or fuse damaged joints.

Walsh, 41, says her 63-year-old parents pick up the cost of her Enbrel, which will total $18,000 this year. She says her health has improved on the twice-weekly medication.

“For the first time in my adult life, I can touch my hands behind my head,” Walsh said. “But it makes me crazy that my parents are my insurance plan.”

Aside from rheumatoid arthritis medications, the Medicare bill won’t have a dramatic effect on sales of existing biotechnology drugs, according to many analysts. Most biotechnology drugs already are covered by Medicare because they are administered in hospitals or doctors’ offices.

The overhaul of Medicare extends coverage to all prescription drugs, including an emerging wave of biotechnology shots and pills that patients can take at home. And that change is important to young biotech companies working on new forms of drugs.

“These companies hope to be successful, and at the end of the research and development process are issues of reimbursement and coverage,” said Sharon Cohen, a lobbyist with the Biotechnology Industry Organization.

The rheumatoid arthritis drug business is among the most competitive in biotechnology. Amgen expects sales of Enbrel to reach $1.2 billion this year, up from $800 million in 2002, when sales were hurt by manufacturing problems. Abbott’s Humira, the newest biotech drug for the incurable joint disease, should end its first year on the market with more than $200 million in sales. More pills and shots to treat the disease are in development.

The two companies have bet heavily on the success of their rheumatoid arthritis drugs. Analysts say Enbrel sales must reach $2 billion for Amgen to profit from last year’s $9.6-billion acquisition of Immunex Corp., which developed Enbrel. Abbott froze salaries this year to devote resources to marketing Humira.

Amgen and Abbott lobbied to extend Medicare coverage to their drugs, and Abbott has been providing Humira free to 5,000 elderly patients in an effort to build a customer base before the Medicare prescription drug benefit becomes available. Representatives of Amgen and Abbott said they were pleased that the legislation would provide Medicare patients access to their drugs but declined to speculate on how the marketing battle might unfold. Many of the details of the new Medicare reimbursement plan aren’t yet known.

As it stands, Enbrel and Humira would be covered by programs that have higher patient deductibles and co-payments than the Medicare plan that covers Remicade. But Remicade can be more expensive for patients, depending on the dose they need.

A J&J; spokesman said the competition for Medicare patients would “reinforce the strength of our market leadership” and demonstrate “the unique advantages of Remicade.”

Ron Schmid, a spokesman for Centocor, the J&J; unit that markets Remicade, says patients benefit from the frequent visits they make to doctors to get the intravenous drug. “It fosters ongoing dialogue between patients and physicians,” he said.

Medicare is slated to offer reimbursement on Enbrel and Humira in April as part of a small demonstration project that would allow the agency to assess the benefits and costs of the drugs. Only a few patients will be accepted into the two-year program; the exact number isn’t known.

Analysts say the program probably isn’t big enough to immediately affect Enbrel or Humira sales. The $500-million project includes medications for multiple sclerosis and other diseases, and at least 40% of the funding must be allocated to orally administered cancer drugs not currently covered by Medicare, such as Novartis’ leukemia pill Gleevec. The program is capped at 50,000 patients.

Still, Abbott said it hoped to move some of the patients who now receive free Humira into the program, converting them into paying customers.

Outside its rheumatoid arthritis business, Amgen faces challenges on the Medicare front. The federal agency is reviewing its reimbursement for Amgen’s flagship anemia drug, Epogen, and analysts believe Medicare will pay less for the product beginning in 2005, causing sales to fall below the $2.5 billion expected for this year.

Despite intense lobbying, Amgen lost a battle this year to restore cuts in Medicare reimbursement for its second-generation anemia drug Aranesp. Medicare lowered payments on Aranesp used in hospital clinics this year after finding it was the “functional equivalent” of J&J;’s less expensive anemia drug Procrit. The Medicare bill prevents the agency from applying the functional equivalence standard to other medications, but it did not reverse Medicare’s action on Aranesp.

At a medical meeting over the weekend in San Diego, Amgen and J&J; presented data from separate clinical trials that pitted Aranesp against Procrit. The studies, aimed in part at influencing Medicare reimbursement of Aranesp, drew opposing conclusions on how the drugs compared. Medicare has asked the National Cancer Institute to conduct a head-to-head clinical trial.

Commenting generally on pending reimbursement changes, Amgen spokesman Michael Beckerich said: “We are a long-term growth story, and the innovative nature of our products will make them stand out.”