Calls of Note Part 3

Morgan Stanley believes Amgen's (NASDAQ:AMGN) yesterday's publication of the full data sets from CHOIR and CREATE are creating a surprising (at least to them, as they have long thought less is more in this market and these data were released in preliminary form last spring) amount of discussion amongst physicians and now legislators about the appropriate use of erythropoietin stimulating agents like Aranesp and Epogen. Given the potential for a changing commercial, political, and regulatory landscape, the Epogen franchise could be at risk for either perceived or real erosion as the discrepancy between CMS's (higher) and product label (lower) erythropoietin dose guidelines draw increased scrutiny.

The publication of two studies (CHOIR and CREATE) suggesting that higher doses of erythropoietins in predialysis chronic kidney disease patients leads to higher mortality engendered significant debate at the American Society Nephrology (ASN) meeting, and firm highlights growing evidence that higher erythropoietin doses are harmful. In addition, the House Ways and Mean Committee sent a letter to CMS asking for an explanation of the discrepancy between erythropoietin labeled dose recommendations and CMS policies, which encourage higher and now likely unsafe dosing.

Firm's previous bias has been that this stock had an upside bias into year-end, with potential problems in 2007, but they now believe this news accelerates negative sentiment and potentially fundamentals. Firm sees more risk to the downside than up over both the short and medium term (every $100M in Aranesp or Epogen sales is $0.06 in EPS). Additionally, the high target hemoglobin levels in Amgen's TREAT study may need lowering, damaging
enrollment, physician perception of the drug, and interpretation of the trial.

Notablecalls: The news were out yesterday, so we have already seen the initial reaction. However, now we have Morgan Stanley turning negative on the stock and usually they move stocks. Expecting to see more downside today.