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Amgen: Getting a Second Chance From Medicare?

AP

After being down about half-a-dollar in early trading, volatile shares of Amgen are trimming their loses and heading back into positive territory at this writing.

That turnaround could be from the dissemination of a research note from Wachovia biotech analyst George Farmer. He writes that Medicare could soon announce that it may reconsider its recent decision to curtail how much it will pay for Amgen's anemia drugs in cancer patients (also known as reimbursement levels).

Aranesp and Epogen make up about half of Amgen's revenue and nearly as much of its bottom line. The anemia drugs from AMGN and Johnson & Johnson represent the largest single drug-class spend by Medicare. And the budget-conscious program is looking for areas to save money, especially in the wake of reports that overuse of the drugs could be putting patients' lives at risk.

You may recall, Congress recently passed an unprecedented resolution urging Medicare to revisit its decision. While Amgen and JNJ certainly lobbied for it, analysts say it was cancer doctors, specifically the American Society of Clinical Oncology (ASCO) that wielded the most influence on this on Capitol Hill. A spokesman for Medicare told CNBC a couple of weeks ago that the agency would take the resolution under consideration, but many analysts did not think the bill would ultimately change anything.

Well, this morning Farmer is telling clients that Medicare "is heavily considering the possibility of reconsidering the…reimbursement in oncology settings. An announcement regarding such could occur within the next couple of weeks, which we believe should be a short-term positive for the stock." But he also cautions that the "process could take months to complete" because Medicare will probably send the issue to an advisory committee and that a reversal by Medicare is still not a certainty because it's never done it before. Nonetheless, he's raising his 12-month "valuation range" to between $56-$60 from $54-$58. Wachovia maintains a market in AMGN.

Besides Medicare, we are also waiting for the FDA to weigh in on potentially placing new limits on the use of the anemia drugs in cancer patients.

Questions? Comments? Pharma@cnbc.com

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