July 7, 2005 - In a unexpected move on June 30th that shocked many long-term dialysis professionals, Amgen announced a change in its contracts with freestanding dialysis centers that effectively raised the Wholesaler Acquisition Price (WAP) for its anemia-treating drug EPOGEN�. The wording in Amgen's notifications to dialysis centers describing this increase has been less than clear cut. However, after several discussions with administrators around the country, RenalWEB believes the increase is 4.9 percent.

Coming just before the long Fourth of July weekend, not a single news service has reported on this story to date. Amgen's stock has jumped up approximately 10% since the price increase last week.

With approximately 300,000 hemodialysis patients in the U.S. receiving 150 treatments per year and 90% of those receiving an average dose of 5800 units at a price of $9.50 per 1000 units, Amgen increased their revenues with this price hike by over $100 million per year. (These numbers, while conservative and not precise, are close enough to explain the impact of this price increase on the dialysis industry.)

Doing a quick calculation with these figures, it appears that every dialysis center will have to pay Amgen approximately $2.75 more per hemodialysis treatment.

Dialysis facilities do not have the option of raising their charges to all their payors to offset their increased costs of doing business. Many dialysis centers will likely have to make cuts in staffing, treatment options, and patient services.

The news has been extremely distressing for managers in dialysis centers. Medicare, the biggest payor for dialysis services and EPOGEN, had barely covered these costs. Many clinics were already losing money on Medicare patients. Many experienced dialysis nurses and administrators, expected to do even more with less and not being able to give and/or receive expected pay raises, may simply decide to end their careers in dialysis.

Amgen has an effective monopoly on epoetins in the U.S. dialysis marketplace since 1989. In 2004, Amgen won as many as 12 extra years of protection beyond that first patent, which will keep the price high until 2016. Simply put, this is a monopoly within Medicare that is now working against the patients it was intended to help and is costing U.S. taxpayers billions of dollars.

Amgen already earns the biggest share of profits compared to any other company in the dialysis industry. Amgen's margin on EPOGEN are believed to exceed 85%. This means that $100 of EPOGEN sold to a dialysis center costs Amgen less than $15 to produce. If a generic EPO was available in the U.S. marketplace and was priced at half of what Amgen charges, it could still earn a 70% margin. By comparison, a well-run dialysis center might hope to earn a margin of 20% on its operations.

Amgen has justified the increase by stating that the compound annual growth rate price increase for EPOGEN is 1 percent, compared to a 2.9% increase in the Consumer Price Index. There is some speculation within the dialysis community, however, that another possible motive for the increase may be to provide an additional incentive for dialysis centers to switch to Amgen's other epoetin, Aranesp�.

The enormous profits that Amgen earns ($8.8 billion in gross profits on $10.5 billion in revenue in 2004) allows it to have tremendous lobbying power in Washington (July 7 Report from Center for Public Integrity).


See this article from Motley Fool in 1999. At that time, Amgen had only two products (the biggest seller being EPOGEN) and had a gross profit margin of 88%. (Drugs that sold for $100 cost $12 to produce). Amgen then raised Epogen prices in 2000, 2001, and 2002.) According to the article:

"As for profit margins, Amgen is one of the most profitable companies in any industry. Amgen's gross margin on 1999 sales rings in at 88%, and net margin exceeded 35% in the third quarter and 33% for the current fiscal year to date."

If anyone wishes to provide further information, clarifications, or corrections to this news story, please contact renalweb@renalweb.com.

After Amgen announced a 3.9% price for EPOGEN in February 2000, National Renal Administrators Association President Terry Bahr wrote a public letter to then Amgen CEO Gordon Binder. Many of the points raised in that letter remain pertinent today. It is reproduced below:

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"Dear Mr. Binder:

NRAA received notice of Amgen's 3.9% increase in the wholesale acquisition price of Epogen on February 24 (2000), just as we were convening for a Board of Directors meeting. The Board discussed the matter at length.

"NRAA is deeply disappointed in the way Amgen chose to handle this price increase. Throughout the country, dialysis providers were pushed by Amgen's sales force to sign their new contracts before the end of February. There was no disclosure from Amgen about the upcoming price increase when discussing the new contracts.

"Furthermore, while Amgen had plenty of time to plan in advance for this change, providers were given none. The announcement was dated February 24th and the price increase was effective February 24th. Even a 30-day notice before implementation would have allowed providers to offset some of the adverse financial impact they will experience; additional stock [could have been purchased] at the old price. It would also have allowed providers to consider this significant operating cost increase when signing or renewing global fee contracts with managed care payors.

"Amgen is well aware that dialysis providers are heavily dependent on Medicare and Medicaid, and that most facilities operate on narrow margins. You are also aware that due to its cost and the volume of its use, Epogen is a very significant operating expense for providers. It is particularly disheartening, then, to see Amgen raise Epogen's price 3.9% after we have only just achieved a hard-won 1.2% increase in the composite rate; the first in nine years.

"The Epogen price increase will consume more than the small revenue gain we achieved with the Medicare rate increase. Based on the fact that approximately 90% of dialysis patients receive Epogen, at an average dose of 5,000 units per treatment, collectively facilities' net revenues will be less than they were before the Medicare rate increase.

"Because of Amgen's action, providers have lost ground instead of gaining it. As you know, dialysis facilities do not have the option -as you do - of raising their charges to all their payors to offset their increased costs of doing business.

"The price increase and its timing will have numerous adverse effects on dialysis facilities. Most importantly, facilities will lose net income due to the increased supply cost of Epogen. This will hurt all dialysis facilities, including those which are publicly traded in the marketplace like Amgen. Most facilities have already put in place their year 2000 budgets. Because of the lack of advance notice, their budgets are now understated and they will have negative budget variances all year.

"We believe that there will be adverse effects for Amgen as well. Facilities will have to respond to reduced income by cutting operating costs in other areas. This will include discretionary activities such as sending staff to meetings, like the anemia management workshops. Facilities will also have fewer staff resources to spend time on detailed anemia management.

"NRAA understands that Amgen is a business. We also know that Amgen has been one of the most successful biotech companies in the world and a favorite of the stock market. Amgen's stock price has increased more than 50% in the last three months and more than doubled in the last 12 months. Why, then, with such a phenomenal financial and investment history, does Amgen need to raise the price of Epogen at this time? It appears to us that dialysis providers -funded largely by the Medicare and Medicaid programs - are being forced to absorb Amgen's research and development costs for four failed non-dialysis products. This does not sit well.

"More than any other organization in the renal community, NRAA has responded in the past to Amgen's requests for assistance in the legislative and regulatory arenas when product usage has been threatened. We see no evidence of Amgen making an effort to help providers minimize the devastating effects of this price increase. Amgen has a virtual monopoly on this product; as your primary customer for it in the U.S., and as a "partner," we believe we deserved more consideration in your decision-making process.

"Since Epogen came to market in 1989, Amgen and NRAA have worked in partnership together for the good of dialysis patients and the dialysis industry. The way Amgen chose to handle the price increase is not what we would expect from a trusted partner. Furthermore, Amgen chose not to renew its membership in NRAA when it came due for renewal in June 1999. These two actions, taken together, leave us with a strong impression that Amgen does not value the partnership between our two organizations as strongly as it has in the past.

"NRAA has been told verbally by an Amgen representative that, in light of the announced price increase, providers who have already signed their new contracts will be allowed to renegotiate them if they wish to. We are requesting written confirmation of that Amgen policy.

"On behalf of dialysis administrators and the facilities they represent throughout the United States, NRAA requests that Amgen roll back this price increase in its entirety. We await your response."

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[Page reviewed on 08/23/05.]