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FDA Panel Tightens Anemia-Drug Standards

Adam Feuerstein

A panel of experts on Thursday recommended to further limit the use of anemia drugs sold by Amgen (AMGN Quote - Cramer on AMGN - Stock Picks) and Johnson & Johnson (JNJ Quote - Cramer on JNJ - Stock Picks) to treat cancer patients.

The panel did, however, decide against completely restricting the drugs' use in cancer patients, sending shares of Amgen up nearly 5%. The company had the most risk from the panel meeting, since its drug under review, Aranesp, is its biggest seller.

The U.S. Food and Drug Administration convened the advisory panel to review new clinical data linking anemia drugs such as Aranesp and Johnson & Johnson's Procrit to worsening cancer or increased risk of death.

The advisory panel recommended that anemia drugs should not be used in patients with metastatic breast cancer or cancer of the head and neck.

The experts also voted to bar the use of anemia drugs in cancer patients with "curative" disease. The definition of "curative" was left somewhat ambiguous, but it could restrict anemia drugs from being used in early-stage patients undergoing adjuvant chemotherapy that could result in the complete elimination of their disease, for example.

Amgen and Johnson & Johnson did escape without the worst outcomes being forced upon them. Aside from voting against entirely restricting the use of anemia drugs in cancer, the panel also voted down a suggestion that the drug only be used in patients with small cell lung cancer.

Amgen shares closed higher by $2.19, or 4.9%, to $47.18. The fact that the stock jumped despite the recommendations calling for more restrictions on Aranesp use reflects the fact that the stock was pricing in a doomsday scenario. So, call this a relief rally.

Sales Hits

Amgen has yet to discuss the financial impact of Thursday's advisory panel meeting to its anemia drug franchise. Bear Stearns biotech analyst Mark Schoenebaum estimates that Aranesp sales could fall about 40% from its fourth-quarter 2007 run rate.

Aranesp cancer sales in the U.S. totaled $267 million in the fourth quarter, down 53% year over year. Aranesp sales in cancer totaled $1.6 billion in 2007. The drug's total sales for the year fell 12% to $3.6 billion.

While even lower Aranesp sales will hurt Amgen's top line, investors, generally, have braced themselves for further cuts, with a drop in Aranesp revenue baked into the company's stock price.

And Amgen has said it would be able to deal with some further restrictions on Aranesp use, in part, by continuing to reduce expenses.

By Schoenebaum's estimation, a 40% drop in the Aranesp run rate implies Aranesp U.S. cancer sales of $1.43 billion in 2008 and $1.27 billion in 2009.

Still, he believes this justifies a higher Amgen stock price since 2008 earnings should remain comfortably above $4 a share. Amgen currently trades at a forward P/E multiple of between 10-11; if that goes even slightly higher, the stock could reach the high $40s or low $50s.

Schoenebaum has an outperform rating on Amgen; his firm doesn't have a banking relationship with the company.

Other analysts aren't as bullish. Morgan Stanley's Steve Harr advised clients Thursday to sell the Amgen rally. He believes greater-than-expected cuts to Aranesp sales are looming, which could jeopardize Amgen's ability to earn at least $4 a share this year.

Harr has an equal rate, or neutral, rating on Amgen and his firm doesn't have a banking relatonship with the company.

Troubling Data

Drugs like Aranesp, formally known as erythropoiesis stimulating agents, or ESAs, stimulate the production of hemoglobin in patients undergoing cancer treatments, which can often cause severe anemia. For years, it was believed that aggressive use of anemia drugs was better for cancer patients and potentially helped them live longer.

But over time, that dogma has come under attack as clinical trials produced data showing that higher doses of anemia drugs led to worse outcomes for cancer patients.

In some of these studies, cancer patients treated with Aranesp had a higher risk of death compared to those who weren't treated with the drug. Some scientists believe that ESAs might actually encourage tumor growth.

These issues led the FDA to convene its first advisory panel meeting last May, which was followed by the agency's decision to revamp the Aranesp and Procrit labels to recommend the lowest dose of the drugs. It also recommended that patients' hemoglobin levels not rise above 12 grams per deciliter.

The Centers for Medicare and Medicaid Services, the agency in charge of government-run health insurance, has instituted even more restrictive policies. It refuses to reimburse doctors and hospitals for use of anemia drugs above a threshold of 10 g/dl.

Since these actions by the FDA and Medicare, additional clinical studies -- notably in lung, breast and head-and-neck cancer -- have been published linking anemia drugs to poor outcomes for cancer patients.

Granted, all of these studies used higher doses of the drugs than currently recommended, but it nonetheless spurred the FDA to call together cancer experts again on Thursday to determine whether further restrictions need to be put in place.

Company Concessions

Even before the meeting began, Amgen officials conceded that there needed to be more safeguards against overuse of Aranesp in cancer patients.

During its presentation to the advisory panel, the company said it would agree to labeling changes that would instruct doctors to delay the use of Aranesp until patients had a hemoglobin level of 10 g/dl -- lower than the current recommendations.

The company also agreed that Aranesp should not be used continuously in patients that don't respond to the drug. It also will voluntarily halt all broadcast advertising of the drug.

But at the same time, Amgen officials, joined by colleagues from Johnson & Johnson, strenuously argued that the benefit of anemia drugs outweigh the risks. The companies pointed to data from 59 studies of various types of cancer patients in which no clear or consistent signal of harm could be found to definitively link the drugs to increased death or tumor growth.

The FDA argued otherwise, citing eight studies in which patients treated with Aranesp or Procrit either died sooner or had their tumors grow faster.

Further studies are underway, designed specifically to address the question of whether anemia drugs are safe for use in cancer patients. Definitive answers, however, likely won't come for years.

Know What You Own: Amgen operates in the biotechnology and healthcare sector, and some of the other stocks in its field include Genentech (DNA Quote - Cramer on DNA - Stock Picks), Biogen (BIIB Quote - Cramer on BIIB - Stock Picks), Genzyme (GENZ Quote - Cramer on GENZ - Stock Picks), Bristol-Myers Squibb (BMY Quote - Cramer on BMY - Stock Picks) and Glaxosmithkline (GSK Quote - Cramer on GSK - Stock Picks). These stocks were recently trading at ($81.33, +1.47%), ($60.65, +2.14%), ($74.02, -0.32%), ($21.39, +0.14%) and ($41.51, -1.45%) respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.