By Lisa Seachrist

Washington Editor

WASHINGTON — Amgen Inc.'s stock leveled off Friday after surging 6 percent the day before when the Health Care Financing Administration (HCFA) relaxed Medicare reimbursement terms for the company's red blood cell booster, Epogen.

Amgen's stock (NASDAQ:AMGN) closed Friday up $0.062 to $58.437. The stock gained $3.30 Thursday.

In a memo to dialysis centers and Medicare payment contractors, HCFA announced it was "explicitly changing" the policy limiting the patients who could be reimbursed for Epogen, and that it now would allow reimbursements based on a physician's determination of medical need. HCFA is the federal agency that administers Medicare.

While the Thousand Oaks, Calif., company's stock climbed on the news, analysts vary on the importance of the policy change, and the company itself Friday was unsure how it will affect the bottom line.

"We haven't seen anything in writing about the change, so it would be premature for Amgen to comment at this time," said David Kaye, company spokesman.

Epogen, a recombinant form of erythropoetin, is reimbursed at dialysis centers via a special program administered by the Baltimore-based HCFA. As a result, Epogen sales, which topped $1 billion last year, are highly vulnerable to changes in reimbursement policy.

In August 1997, Amgen's stock took a dive when the HCFA announced it was limiting the reimbursement criteria for Epogen to patients whose hematocrits (measure of red blood cells) were in the FDA-approved range of under 36. Whereas dialysis centers had been receiving reimbursement for patients with hematocrits over 36 with medical justification, the August decision eliminated that provision.

As a result of the policy shift, Epogen sales growth dropped from the double digits to single digits.

Thursday's changes will allow 80 percent reimbursement for patients whose hematocrits exceed 36.5 and will return to a 100 percent reimbursement for those patients whose physicians document the drug as a medical necessity.

"[These changes] will have the effect of raising Epogen's sales growth rate from single digits to double digits," said Meirav Chovav, an analyst with Salomon Smith Barney, in New York. "The previous system created a strong incentive for dialysis centers to low ball the use of Epogen, because if the hematocrit went above 36, they would lose money. This system fundamentally changes the incentives to the dialysis centers."

Chovav said the news indicates Amgen's stock is undervalued by $5 to $10. Eric Schmidt, an analyst with UBS Securities, in New York, doesn't share such a rosy outlook for Amgen and maintains a hold for Amgen stock.

"I don't believe the Amgen story has changed in the long run," Schmidt said. "The key is whether Amgen has a pipeline sufficiently advanced enough to take over for two aging products. We are not in general enamored of their pipeline."

Schmidt said that with the recent spike in share price, Amgen's stock was at the high end of its valuation. Any changes — such as a 10 percent cut in reimbursement for Epogen or a competitor's launch of Phase III clinical trials for a similar product — will lead to drops in the stock price, he observed.

Transkaryotic Therapies Inc., of Cambridge, Mass., and Hoechst Marion Roussel AG, of Frankfurt, Germany, are expected to begin clinical trials on a gene-activated form of erythropoetin shortly and to launch the product on the market in 2000.

"It is true that Amgen needs to advance on its pipeline," Chovav said. "However, the company also needed good news on their baseline business. The HCFA announcement was just that. You can look at the glass as either half empty or half full." *