Pricing constraints created by changes in Medicare Part B reimbursement may mean that segment growth will be the key driver for erythropoietin products going forward.

During Amgen's recent annual business review, Exec VP-Commercial Operations George Morrow presented ¹ a slide showing increased segment growth in the EPO market since the move to average sales price plus 6% reimbursement in January 2005.

In 2005, segment growth - a reflection of price change and unit growth - was driven by price stabilization.

Prior to the introduction of ASP, "basically what you have is net pricing change, which has been a net negative, with unit growth and it sums out at net segment growth," Morrow explained.

Since the implementation of ASP, "if you look at pricing, that is now stabilizing with zero [change], so it didn't hurt or help in the second half of '05," he said.

Amgen, which markets Aranesp , and Procrit marketer Johnson & Johnson had been involved in a pricing war in the anemia marketplace prior to the implementation of ASP.

While the EPO market saw 16% and 18% price cuts in the first and second half of 2004 before the new policy went into effect, by the second half of 2005, the pricing change had reached zero.

The impact of ASP on the EPO competitive landscape captures an effect that could be seen in other markets.

The price stabilization seen in the market is the first piece of evidence confirming former CMS Administrator Tom Scully's projection that ASP would put inflationary pressure on pricing by creating an incentive for sponsors to set prices as high as possible (² Also see "Average Sales Price Creates Inflationary Pressure, Former CMS Head Says" - Pink Sheet, 27 June, 2005., p. 25).

The stabilization occurred because Amgen and J&J are deterred from cutting prices under the ASP system because doing so would mean that the firms would have to take years of small, steady increases to regain previous pricing levels.

The two-quarter lag in data used to calculate ASP forces sponsors to take small, more frequent increases instead of large price jumps (³ Also see "Specialty Drug Price Increases Start To Resemble The Tortoise, Not The Hare" - Pink Sheet, 12 December, 2005., p. 23).

For this reason, Morrow has previously said that Amgen expects J&J to be a "rational" competitor and not continue to make significant price cuts in the face of continued Aranesp share growth.

Morrow indicated that ASP might have been a factor in declining growth across the market. Since the implementation of ASP, unit growth in the EPO market has slowed, Morrow reported. "Is the move from pretty high growth rates in '04 to modest growth rates in '05 an ASP effect? We'll never know. Maybe."

Physicians may be less inclined to prescribe EPO products under the ASP system because the spread they receive is often smaller than they received under the former average wholesale price-based system.

However, the price benefit accompanying the introduction of ASP more than made up for a slowdown in EPO unit growth during 2005, Morrow said.

If the unit growth continues to hold in the low teens and "if we can start adding a little bit of price growth to this marketplace - inflation-related price increases - that's going to add to the overall net growth of the marketplace," Morrow said.

"Hopefully that will happen," he added. "It's not only up to us, obviously we have a competitor, but it would be nice if that happened."

While Amgen expects continued EPO segment growth, the firm anticipates Aranesp's market share expansion to slow in 2006, Morrow said. "We expect to continue to grow some share, but we are not going to gobble up the kind of share gains we've had in the past."

With the loss of pricing as a way to compete for market share, J&J and Amgen will have to rely on other factors to drive share within the market.

U.S. share gains will be helped by Aranesp's every-three-week dosing regimen in the chemotherapy-induced anemia market, which "is in synchrony with the way most chemo that causes anemia is given," he noted.

Another strategy Amgen has been using to drive Aranesp market share - linking rebates for its febrile neutropenia agents Neupogen and Neulasta to purchases of Aranesp - may allow the firm to circumvent the constraints on share growth resulting from ASP pricing pressure (⁴ Also see "Amgen Expects Stable Aranesp Pricing Despite J&J Lawsuit Over Rebates" - Pink Sheet, 24 October, 2005., p. 22).

End Of Aranesp, Procrit Pricing War Illustrates Inflationary Impact Of ASP

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