Tuesday, January 23, 2007

Calls of Note Part 3

- FBR notes negative headlines surrounding Amgen (NASDAQ:AMGN) may come sooner than expected. Firm contacts tell them that cuts to Medicare Part B may be proposed by the Democrats in a proposal to expand the State Children's Health Insurance Program (SCHIP). The expansion may need $50B in offsets over 10 years. Firm expects to hear that two AMGN- relevant areas may be discussed as places for Medicare savings: follow- on biologics and ASP+6%. They are maintaining Market Perform rating and $77 price target.

FBR's Washington contacts tell them that the Democrats - in response to the State of the Union address - may propose an expansion of the State Children's Health Insurance Program (SCHIP) totaling $50B over ten years. To offset the cost of this expansion, Democrats are expected to propose cuts to other CMS programs. With respect to biotech drug reimbursement, they hear that Medicare Part B may be a target of cuts.

A proposal to accelerate follow-on biologics may be part of the proposal, and ASP+6% reimbursement seems to also be a target. Both of these proposals may weigh on Amgen, since its blockbusters Epogen and Aranesp could get hit both on follow-on biologics (following Epo's patent expiration in 2013), and on a reduction in ASP+6% in the nearer term (since these are somewhat discretionary drugs for doctors, who may end up losing money on these drugs if ASP+6% is reduced too much).

Notablecalls: I don't think these comments will hurt AMGN today. Just wanted to let you know the call is out there.

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