Analysts Issuing Positive Comments on Amgen (AMGN)

CONTRIBUTOR http://notablecalls.blogspot.com

We have some firms issuing positive comments on Amgen (NASDAQ: AMGN) after The House Ways and Means Committee met yesterday to discuss the possibility of a composite rate for Epogen, i.e., bundling it with other dialysis payments:

- FBR notes they think the likelihood of any near-term cuts or reimbursement changes is unlikely. The GAO and the Committee were inclined to issue a mandate now but, ultimately, decided to allow CMS to finish its data collection and present a report to the committee next summer. This removes this near- term overhang for Amgen. After yesterday, though, it does appear more likely that bundled payments could ultimately occur.

CMS's Leslie Norwalk suggested that CMS is in favor of including Epogen in the composite payment for dialysis. On the other hand, CMS is sensitive to the "case-mix" issue, i.e., it wants to avoid the possibility, for example, that small dialysis centers could be disincentivized from giving full EPO doses. CMS presents bundling data to Congress next summer. New NKF (National Kidney Foundation) guidelines may be incorporated into CMS's report. Spending on anemia drugs--being a big line item in Part B--will remain a "hot button" issue; policies that incrementally reduce EPO use would not surprise the firm. However, the push-out of the issue until 2007 is a reprieve from this sentiment overhang for investors.

- Goldman Sachs notes they continue to believe that CMS will probably not implement a bundling system unless there are sufficient data to develop a sound case-mix adjuster and quality safeguards. Assuming these elements are in place in 2007, Congress needs to review the CMS proposal and possibly pass legislation for the change. CMS estimates that it would take at least 18 months to fully implement the system once legislation is enacted. Therefore, bundling of payments is unlikely before 2010.

- Citigroup notes they attended today's House Ways and Means Committee hearing addressing issues on CMS' Medicare reimbursement policy for Amgen's Epogen. As they expected, CMS defended its current EPO Medicare reimbursement policy and therefore the firm is not anticipating any near-term changes to reimbursement for Epogen that would negatively impact sales. CMS highlighted that its policy does not conflict with FDA recommended treatment guidelines and that recent payment revisions have actually led to reductions in average hematocrit/hemoglobin levels and Epogen dose levels among Medicare dialysis patients in contrast to data presented by other hearing witnesses.

Reiterates Buy rating and $100 tgt on Amgen as they continue to believe investor concerns
related to potential changes in Epogen reimbursement are overstated. In firm's opinion, Amgen's stock is highly attractive trading at only 16x FY07 EPS estimate of $4.35.

Notablecalls: I would not be surprised to see further buy interest in AMGN today and in the coming days as I'm hearing that large short positions were put out ahead of the meeting in anticipation of bad news. These need to be unwind now creating buy interest. Also, AMGN looks cheap and has a healthy pipeline. (See archives for further color on the EPO bundling).

http://notablecalls.blogspot.com

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