[Congressional Record (Bound Edition), Volume 146 (2000), Part 2]
[Extensions of Remarks]
[Pages 2694-2695]
[From the U.S. Government Publishing Office, www.gpo.gov]



        DRUG COMPANY PROFITEERING: HOW MUCH IS ENOUGH FOR AMGEN?

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                        Thursday, March 9, 2000

  Mr. STARK. Mr. Speaker, submitted are portions of a letter which I 
have sent to the Federal Trade Commission and others.
  When one looks at Amgen's SEC filings, it is clear that this price 
increase was not necessary. It is pure profiteering, largely at 
taxpayer expense. It is another example of how Flo and her allies 
cannot be believed in the debate of a Medicare pharmaceutical benefit.
  The ancient Greeks knew the wisdom of moderation, and called it the 
Golden Mean. All these guys know is Golden Greed.

                                      Committee on Ways and Means,


                                       Subcommittee on Health,

                                    Washington, DC, March 8, 2000.
     Hon. Robert Pitofsky,
     Chairman, Federal Trade Commission,
     Washington, DC.
       Dear Mr. Chairman: I urge the Commission to conduct an 
     immediate investigation of the recent price increase in 
     recombinant human erythropoietin (rHuEPO) announced by the 
     Amgen Corporation. Such an investigation would be very 
     important in the developing debate on the rapid rise in 
     pharmaceutical expenses (15.4% last yar) and Medicare payment 
     policy.
       Briefly put, Amgen makes about $1 billion dollars a year in 
     profit on the sale of its sole source, monopoly product 
     EPOGEN to Medicare providers. Medicare pays $10 for a unit 
     that, the last we know, cost about 50 cents to make. The 
     company recovered its entire R&D costs for this product--
     about $170 million--in roughly the first year of its sales to 
     Medicare (1990).

[[Page 2695]]

       While the price/unit has been stable since 1991, the cost 
     to Medicare has soared while the improvement in patients' 
     hematocrits has been disappointingly flat. Part of the reason 
     for the increase in dosage is that we have set a higher 
     quality standard for the desired hematocrits. But I believe 
     another, big part of the reason that the dosage has increased 
     so dramatically is that while Medicare reimburses providers 
     $10 per 1000 units, the company provides a volume discount, 
     which encourages providers to use more EPO, because the more 
     they use, the more I believe this ``volume discount'' has 
     caused many American dialysis centers to administer the 
     product in an inefficient and even wasteful manner.
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     \1\ One physician has indicated to me that Amgen discounts 
     EPO linked to the potential growth in use per year. ``Rumor 
     has it that the target growth is greater than the incident 
     growth in the ESRD program. In other words, if the ESRD 
     program grows by 7%, the Amgen target for discount is some 
     larger number, like 10%.'' Another expert tells me that the 
     volume incentive is based on 5% growth per quarter. (If the 
     FTC could determine the exact nature of the discount, it 
     would be very helpful to understanding prescribing patterns.)
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       The national Dialysis Outcomes Quality Initiative (DOQI), 
     and most foreign nations recommend the administration of EPO 
     subcutaneously--in an injection rather than through the 
     dialysis process. When administered this way, there is data 
     that, at least for a period of time, about 60-70% of patients 
     would need about 30% less EPO. The company's volume discount, 
     therefore, has probably caused Medicare and the taxpayer to 
     spend $100 to $200 million more per year than would be needed 
     if we administered the drug the way the quality experts 
     recommend and most foreign countries practice.
       In addition to the waste and extra expenditure, too much 
     EPO can be dangerous. It has side effects.\2\
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     \2\ One analyst notes that between 1989 and 1995, fifteen 
     month survival has decreased by 20% for hemodialysis 
     patients. This analyst asks if it is possible that 
     inappropriate dispensing of EPO may play a contributing role? 
     See attached. This is a question I believe needs to be 
     investigated by public health authorities.
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       The Amgen price increase takes advantage of the first 
     increase in Medicare payment for dialysis in a decade. In the 
     Balanced
       With all this as a background, Amgen's price hike is 
     important to understand and can help shape the Congressional 
     debate on drug reimbursement policy and Medicare payment 
     policy to dialysis centers.
       First, I find Amgen's explanation to providers (copy 
     attached) interesting: ``This change in price, the first 
     since EPOGEN was launched eleven years ago, is being 
     implemented as a result of continually increasing costs 
     associated with Amgen's business.''
       As I indicated there is data from a decade ago that the 
     cost of production was about 5 percent and that all R&D costs 
     were recovered in a year. In many industries, productivity is 
     able to actually lower the cost of various high tech 
     products. Can the FTC tell us what the cost of production is 
     today, and how that compares to other increased costs of 
     Amgen in marketing, litigation against potential competitors, 
     overhead, and political contributions, etc.? Can the FTC give 
     us an estimate of the current yearly profit to Amgen from 
     sales of EPO and how much this price increase will add to 
     those profits? The latest 10-Q for Amgen for the three months 
     ended September 30, 1999 shows net income of $300 million, 
     compared to $221 million in the same period, 1998. That same 
     SEC filing shows product sales of $769.2 million and cost of 
     sales, $98.9 million. The cost of sales as a percent of total 
     sales actually declined between 1998 and 1999. All of this 
     calls into question Amgen's justification for the price 
     increase. As one security analyst is quoted as saying 
     (attached) ``They promised Wall Street a certain level of 
     earnings this year. . . . Maybe this is the only way they can 
     achieve that.''
       So did costs of production really go up that much, or did 
     Amgen's other expenses go up, and this is just a way to tap 
     the Medicare cash cow? The answer to this type of question is 
     important for how we structure a Medicare prescription drug 
     benefit.
       The coincidence of Amgen's price increase absorbing most of 
     the Congressional dialysis payment increase should inspire us 
     to consider ways to prevent that from happening again. If we 
     don't, it would be easy to see Amgen doing another 3.9% 
     increase next spring to absorb the second 1.2% dialysis 
     payment increase scheduled for 2001.
       Thank you for your early review of this entire situation.
           Sincerely,
                                                       Pete Stark,
                                               Member of Congress.

     

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