Medicare dialysis rules to re-shape ESA market

New US government rules bundling reimbursement for all kidney dialysis drugs and services into a single payment sends a message to manufacturers of erythropoietin-stimulating agents (ESAs): reduce costs or lose market share. With ESAs and injectable drugs just part of the costs that have to be offset by Medicare’s single unadjusted visit rate of $251.60, cost savings will surely be paramount when dialysis centres hear from pharmaceutical sales representatives.

The new “prospective” payment programme has already taken one casualty in the guise of AMAG Pharmaceuticals, which saw its stock dip 4% Tuesday as investors saw the threat to its expensive IV iron replacement therapy Feraheme, approved only last year to treat anaemia in chronic kidney disease (AMAG poised to shoot from the blocks following Feraheme approval, July 1, 2009). By contrast, the very exposed Amgen, with a projected $3.4bn in Epogen and Aranesp sales in the dialysis setting worldwide in 2011, the first year of the new scheme, saw a modest share price gain of 1.5%; analysts from RBC Capital Markets said the release of the new payment rule removed some uncertainty hanging over the company.

The shape of things to come

As end-stage renal disease (ESRD) is one of the few disabling conditions for which Medicare will treat non-elderly patients, most Americans with chronic kidney disease end up being covered by the programme. As such, the new prospective payment system will dictate the shape of the market and determine the economic behaviour of providers and suppliers.

The incentive for the ESRD centres will be to cut costs either through extracting better price deals from suppliers or improving the efficiency of service delivery and thus reduce their labour costs. A drug that, for example, requires less attention from nurses either by making it oral or injectable rather than an intravenous infusion would have the potential to save money for an ESRD centre, although presumably those savings would be short-lived as such drugs become the standard of care and Medicare’s cost data catches up.

Thus, developers working on competitors to Epogen must keep their combination of cost and convenience in mind if they want to differentiate themselves after January 1, 2011. Improved efficacy may result in greater efficiency at the dialysis centre, but might be offset by a higher price, something developers such as Lipoxen with its ErepoXen or ProMetic Life Sciences with PBI-1402 will need to bear in mind.

The payment rule excludes oral drugs often given to dialysis patients to control symptoms, such as Amgen’s Sensipar and Genzyme’s Renagel, until 2014. However, oral ESAs such as PBI-1402, should they come to the market, will be subject to the rules.

Dodging bullets

For now, Amgen holds a dominant place in the market. Johnson & Johnson’s Procrit is forecast to sell $419m in dialysis settings in the first year of the payment programme. Both Epogen and Procrit are expected to see declines through 2016 after the expiry of the epoetin alfa patent, and Aranesp will fall as well. Procrit will fall to $470m. Aranesp dialysis sales also will slide from $980m in 2011 to $600m in 2016 and Epogen from $2.41bn to $1.85bn, according to indication specific sales data from EvaluatePharma.

Amgen so far has been particularly lucky when it comes to the threats from its core business – Epogen is projected to be the company’s third biggest seller this year after Neulasta and Enbrel. Merck has given up on a competitor to Aranesp, (Merck's ditching of Aranesp biosimilar highlights FOB pitfalls, May 14, 2010) while Affymax’s once-monthly Hematide fell dramatically on cardiovascular safety signals (Affymax reeling from Hematide safety scare, June 21, 2010).

Still, luck may not have much to do with the future of the ESA franchise. Analysts appear to have already anticipated the effects of bundled payments and patent expiries on Amgen. The future of the market is likely to be defined by cheaper biosimilars or much more convenient ESAs.

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