FDA Panel Tightens Anemia-Drug Standards

Updated from 4:51 p.m. EDT

A panel of experts on Thursday recommended to further limit the use of anemia drugs sold by Amgen (AMGN) and Johnson & Johnson (JNJ) 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.