What the government gives, it also can take away.

That time-worn lesson was a big reason behind a slip in Amgen Inc.'s share price last week as the company cut its 2005 earnings and revenue guidance.

Worldwide sales of Aranesp, a drug that treats anemia in dialysis and cancer patients, grew 60 percent in 2004, grossing the biotech giant $2.5 billion. But a new Medicare payment system for that and other oncology drugs has company executives unsure whether that kind of sales growth can continue.

"I would be disingenuous if I said we had it all figured out," said George Morrow, executive vice president of global commercial operations during a presentation in New York to analysts. "There is some uncertainty."

Thousand Oaks-based Amgen lowered its 2005 revenue-growth guidance to the "high single digits to low teens" after a year in which sales rose 27 percent, to $10 billion. It also forecast earnings of $2.70 to $2.85 per share, where analysts' previous estimates had averaged $2.85, according to Thomson First Call.

Amgen shares closed at $61.58 on Jan. 27, falling 3.1 percent on the news, as the company also failed to meet analysts' fourth quarter earnings projections.

A big reason behind the unimpressive forecast is a new Medicare drug payment system the Centers for Medicare & Medicaid Services implemented on Jan. 1 as required by the Medicare Modernization Act of 2003.

Unlike other physicians, oncologists actually buy the drugs they dispense to their patients, providing them a substantial source of income if there is a significant margin between their acquisition costs and their reimbursement from Medicare and other payers, such as private health insurers.

Selling the drugs

The new Medicare system pays oncologists a 6 percent margin for cancer drugs above a drug's average sales price, a figure that the agency spent months calculating last year using data from drug companies.

Previously, oncologists were reimbursed from Medicare based on the "average wholesale price," which was supposed to reflect prices paid by physicians, pharmacists and other large buyers, but which was largely arrived at by drug companies themselves and is widely believed to be inflated.

The biggest concern is whether the reduced payments will prompt oncologists to prescribe Aranesp, used to ward off anemia in cancer and dialysis patients, less frequently. There are also concerns it could cut sales of Epogen, another anemia drug, and Neulasta, a drug that helps fight off infection in chemotherapy patients.


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