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Amgen Hikes Cost of Epogen by 3.9%

Pharmaceuticals: The increase draws accusations of abusing monopoly power and accelerating drug prices.


Amgen Inc. raised the wholesale price of its blockbuster drug Epogen by 3.9% on Thursday, drawing accusations of monopoly tactics from some of its major customers.

The move, on the heels of an identical price increase last year, thrust the Thousand Oaks-based biotechnology company into the growing controversy over accelerating drug prices.

Kent Thiry, chairman and chief executive of DaVita Inc., which operates 486 outpatient dialysis centers, accused Amgen of "abuse of monopoly power."

The chief financial officer of a rival chain, Renal Care Group, also expressed dismay. "We don't believe this is necessary," said CFO Dirk Allison. "Amgen has a monopoly on this product. . . . We are very disappointed in Amgen."

Amgen defended the price increase, saying it was only the second in 11 years. In that time, said company spokesman Jeff Richardson, the consumer price index, a measure of inflation, has risen 42%, while the increase in Epogen pricing amounts to 8%.

The medication, with $1.76 billion in 2000 sales, is used to treat chronic anemia in kidney dialysis patients. Amgen has had a monopoly in the United States kidney dialysis market since it launched the drug in 1989.

The price increase comes amid slower growth for Epogen. In a conference call with analysts last week, Amgen lowered its growth projections to a 5%-6% range from 6%-7%, prompting an immediate hit to its stock price.

Amgen meanwhile is awaiting government approval for a successor to Epogen called Aranesp, which relieves anemia at lower doses. Analysts expect Amgen to charge 20% to 25% more for Aranesp than Epogen.

Dennis Harp, a biotechnology analyst with Deutsche Bank Alex. Brown in New York, said the price increase benefits Amgen on two levels. It sustains Epogen revenue growth in a slower market. And it narrows the expected price gap between Epogen and Aranesp.

That may help Amgen negotiate a higher reimbursement rate with the federal Health Care Finance Administration, which sets Medicare pricing, Harp said. The reimbursement rate is important in the dialysis market, in which 75% to 80% of patients are covered by Medicare.

It will also have an effect in the oncology market, a much larger business, where Aranesp may be used to relieve anemia that results from chemotherapy.

"By having the price of the first- generation product higher, it gives Amgen a better basis to go in and obtain higher reimbursement on the second," Harp said.

In each of the last two years, the Department of Health and Human Services has recommended slashing the reimbursement on Epogen to $9 to $10 per 1,000 units. But the reduction was never incorporated into the federal budget approved by Congress.

Epogen treatment costs $7,000 to $8,000 a year per patient.

Renal Care Group's Allison said he plans to lodge a complaint over the Epogen price hike with Amgen and with federal Medicare administrators. He said last year's price increase, which was not covered by Medicare, will reduce his company's profit by 5 cents to 7 cents a share. He said the latest hike would eat further into earnings.

Amgen's Richardson said the company needs the money to fund drug research and development, and it recently completed construction of a new Epogen plant. The price increase is unrelated to the expected introduction of Aranesp later this year, he said.

On Nasdaq, Amgen shares closed at $60.18, down 78 cents, and Renal Care Group closed at $25.57, down $2.93. DaVita, based in Torrance, closed at $19.40, down 72 cents on the New York Stock Exchange.

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