Washington Editor

WASHINGTON – Tuesday's trading reflected investors' relief for Amgen Inc., ambiguity about Genzyme Corp. and anxiety over AMAG Pharmaceuticals Inc. on Medicare's release of the final rules governing payments for dialysis services for beneficiaries with end-stage renal disease (ESRD).

Baird & Co. analyst Christopher Raymond noted that there had been much investor hand-wringing since last September when the Centers for Medicare & Medicaid Services (CMS) issued its proposed fully bundled prospective payment system rule, which caught even Wall Street off guard by including into the mix oral calcimimetics, such as Amgen's Sensipar (cinacalcet), and phosphate binders, including Genzyme's Renagel (sevelamer) and Renvela (sevelamer), and its vitamin D drug Hectorol (doxercalciferol). (See BioWorld Today, July 17, 2009, and Sept. 17, 2009.)

Also on the downside last fall was the proposed base bundled payment rate of $198.64 for all of the services related to a dialysis session.

But the final rule, issued after the market closed Monday, increased that base rate to $229.63 and excluded until Jan. 1, 2014, the ESRD-related oral drugs from the bundled payment system.

Cambridge, Mass.-based Genzyme, whose shares (NASDAQ:GENZ) had fluctuated throughout Tuesday's trading, closing at $67.51, a gain of 13 cents, said it "welcomed" Medicare's decision not to include oral medications without IV equivalents in the ESRD patient benefit.

"Genzyme is encouraged by CMS' final decision, as we believe it will put the needs of the patients first by providing the time needed to collect data to document the current standard of care, enabling assessment in the future of any unintended negative consequences that the new bundled payment system may have on the management and outcomes of dialysis patients," Dan Regan, senior vice president and general manager of the company's renal business, said in a statement.

Also good news for Thousand Oaks, Calif.-based Amgen's erythropoiesis-stimulating agents (ESAs) Epogen (epoetin alfa) and Aranesp (darbepoetin alfa) was the fact that CMS in its quality incentive program (QIP) measures for anemia management, which take effect January 2012, left alone the target hemoglobin levels in the 10 g/dL to 12 g/dL range, with up to 2 percent payment penalties kicking in at levels above and below that range.

Shares of Amgen (NASDAQ:AMGN) closed at $54.51 Tuesday, a gain of 84 cents.

Under the new bundled payment system, which will be phased in over four years beginning Jan. 1, 2011, dialysis providers will go from being paid on an a la carte basis to a fixed basis for goods and services rendered during a patient's treatment.

Medicare's current system makes a composite rate payment to ESRD facilities for furnishing outpatient maintenance dialysis in the facility or in the beneficiary's home. The composite rate payment covers dialysis treatment costs and certain routinely furnished ESRD-related drugs, laboratory tests and supplies, but does not include certain other items and services, particularly injectable drugs, such as ESAs, iron deficiency treatments and vitamin D.

Payments for those separately billed items and services have "dramatically" increased over time, accounting for $3.5 billion, or 38 percent, of the $9.2 billion the government paid in 2007 for dialysis and related services, CMS said.

"The new payment system and quality incentive program for dialysis services have significant potential to improve patient outcomes and promote efficient delivery of health care services," Donald Berwick, CMS' new chief, said in a statement. The agency noted that it had received nearly 1,500 comments from the public on its proposed rule since last fall, with some commenters expressing concern that bundling drugs, such as oral calcimimetics and phosphate binders, would restrict nephrologists' ability to prescribe the medications.

Others opposed to including ESAs in the bundled payments asserted that doing so would result in dialysis facilities decreasing the amounts of the anemia products given to patients, leading to a rise in risky blood transfusions and adding stress to the nation's already overburdened blood supply.

Although the inclusion of any item or dialysis service in the bundled payments might provide an "incentive" for dialysis facilities to "maximize profits by skimping on the provision of that item or service," CMS argued that the monitoring of hemoglobin levels among dialysis patients as part of its quality incentive program would "ensure target levels are met and that anemia management does not deteriorate."

While Amgen and Genzyme may have dodged a bullet, the new CMS rule had AMAG investors concerned Tuesday, with analysts predicting that the rule would create significant pricing pressure on the Lexington, Mass.-based biotech's I.V. iron deficiency anemia treatment, Feraheme (ferumoxytol).

AMAG shares (NASDAQ:AMAG) tumbled $1 .75, to close at $38.02.

While current I.V. iron use among Medicare patients is high – with about 87 percent dialysis and 55 percent of nondialysis beneficiaries using the products – use of Feraheme, which is priced at a more than 40 percent premium over other I.V. irons, is likely to be phased out in that setting due to switching to oral drugs or cheaper I.V. iron, said Jefferies & Co. analyst Eun Yang.

Those switches also could carry into the predialysis settings, Yang predicted.

But Leerink Swann analyst Joseph Schwartz contended that the bundling weakness for AMAG's shares was "overdone," arguing that Feraheme already is much less of a dialysis story, with expectations that it would "make greater inroads in nondialysis settings.

"Despite angst on the Street regarding the impact on all companies in the nephrology space, we believe AMAG is relatively well positioned," Schwartz said. While Feraheme is a premium-priced I.V. iron supplement, it is nonetheless cheaper than ESAs, with the Street already having minimal expectations for use in dialysis.

"We believe AMAG is well prepared and has concentrated marketing efforts appropriately," as evidenced by 60 percent of Feraheme sales already being in nondialysis, where the product has "distinct advantages" over other I.V. irons, he said.

Schwartz noted that AMAG also is developing Feraheme in other indications beyond chronic kidney disease, which he expected to contribute to the drug's longer-term growth.

Published  July 28, 2010