Mar. 17, 2008 (Investor's Business Daily delivered by Newstex) --

Shares of Amgen (NASDAQ:AMGN) retreated early Friday, a day after a regulatory panel advised restricting use of the biotech's drugs used for chemotherapy-induced anemia.

The panel, known as the Oncology Drug Advisory Committee (ODAC), on Thursday recommended to the Food and Drug Administration that anemia drugs sold by Amgen AMGN and Johnson & Johnson (NYSE:JNJ) JNJ be used only for a limited number of chemotherapy patients.

The drugs in question -- Aranesp, Epogen and Procrit -- are known as erythropoiesis stimulating agents, or ESAs. A major concern is that they can increase the risk of death and tumor growth.

Regulators have bolstered warning labels on each of the drugs over the past year, but last week's panel recommendation goes much further in limiting their use.

Though Amgen makes all three of the medicines, J&J is licensed to sell Procrit. Both firms stand to lose millions of dollars in sales, analysts say.

Shares of Amgen ended down nearly 6% in Friday trading. A day earlier the stock closed up nearly 5%, mainly because Amgen avoided a worst-case scenario.

"Overall, the panel supported the continued use of ESAs in chemotherapy-induced anemia (CIA) as long as patients and physicians sign an informed consent to understanding the benefits vs. the risks of ESAs," Cowen & Co. analyst Eric Schmidt wrote in a report.

He added that the panel recommended that ESA labels "warn against but not contraindicate use in patients receiving curative chemotherapy and patients who have metastatic breast and head-and-neck cancer."

The ODAC voted to keep the drugs on the market, but said use should be limited to patients with untreatable forms of cancer. It also voted to withdraw the drug's use in patients with breast or head-and-neck cancers.

The FDA usually follows its panelists' advice.

In testimony Thursday, Amgen and J&J outlined a study that will address the question of whether anemia drugs hasten death and tumor growth when used according to the current label. Results won't be available for at least five years.

Until then, the companies suggested limiting distribution of the drugs and educating doctors on how to properly prescribe them.

In an e-mailed statement following the ODAC recommendation, Amgen said it "takes very seriously the safety signals seen in recent trials where ESAs were used outside of the labeled indication. The role of the ODAC is to advise the FDA. We are committed to working with the FDA to consider the input from the Committee and to implement future label changes."

The worst-case scenario for Amgen would have been a recommendation by the panel to discontinue use of the drugs in all chemotherapy patients. Such a move would have cost Amgen as much as $1 billion in sales, experts say.

The company's anemia drug franchise accounted for more than $6 billion in revenue last year, or roughly 42% of the total. Procrit delivered nearly $3 billion of J&J's $61 billion in 2007 sales.

Another worry among industry watchers was that the panel would recommend limiting ESA use to a single condition, such as small-cell lung cancer (SCLC).

That didn't happen last week. Still, some analysts suggested it remains a possibility.

"Amgen avoided the worst case, but the FDA could still implement a label more restrictive than our expectation," Lazard Capital Markets analyst Joel Sendek wrote in a Friday report. "We note there was a split vote on restricting ESA use to SCLC alone, which if implemented would be far more restrictive than our projections contemplate."

As it stands, last week's recommendation might still cost Amgen millions of dollars in sales.

That's hardly an inviting prospect for the Thousand Oaks, Calif.-based company, which is already fighting a losing battle to keep its top line on the rise.

Last quarter Amgen reported a 2% year-over-year sales dip. It had been years since that happened. Much of the decline was due to plunging sales of Aranesp and Epogen.

Thomson Financial analysts expect Amgen to post sales declines in three of the next four quarters.

The ODAC's recommendation prompted Sendek to lower his forecast for Aranesp. He sees the drug delivering sales of $2.72 billion this year, $2.31 billion in 2009 and $2.24 billion in 2010. That's down from his previous estimate of $2.81 billion, $2.59 billion and $2.53 billion.

With expectations so low, Cowen's Schmidt figures Amgen is poised for upside surprises. "We view 2008 guidance as conservative in that it appears to have incorporated a worst-case scenario for Aranesp," he wrote. "With Amgen retaining some portion of CIA sales, we expect Amgen to exceed the upper end of revenue guidance."

Originally published in the March 17, 2008 version of Investor's Business Daily.

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