A bad week for Amgen is just getting worse after the US government’s health insurers announced plans to restrict coverage on the anaemia drugs made by the company.

Days after a US Food and Drug Association advisory committee recommended a further strengthening of the warning labels on Amgen's erythropoiesis-stimulating agents (ESAs) Aranesp (darbepoetin alfa) and Epogen (epoetin alfa), as well as Johnson & Johnson’s Procrit (also epoetin alfa), the Centers for Medicare & Medicaid Services (CMS) has proposed limiting payments for the drugs in response to the safety concerns. Medicare is the government provider of health care to 43 million elderly or disabled Americans.

Leslie Norwalk, the CMS's acting administrator, said the agency has “carefully examined the evidence surrounding these labelling changes and have issued this proposed decision to protect our beneficiaries.” Therefore, under the proposal, patients with certain types of diseases, such as leukaemia, haemolytic and deficiency anaemias, and those using the drugs for preventative use and post-chemotherapy, would no longer be eligible for reimbursements. These indications constituted some 15%-18% of total Aranesp and Procrit cancer use in 2006.

Geoffrey Porges, an analyst at Sanford C Bernstein, issued a research note saying that "while we were aware that this national coverage decision was in development, we would not have expected the proposal this soon or with the proposed restrictions in reimbursement." If implemented, it "could be the straw that breaks the camel’s back” that “ultimately forces Amgen into serious and extensive restructuring," he added.

Mr Porges noted that under Medicare, reimbursements for patients with cancer cover 35% to 40% of Procrit cases, and 40%-50% of Aranesp cases, “but private policy makers often follow suit," so that in total, “the cutback could slash the market by 50%." Robert W Baird analyst Christopher Raymond downgraded the stock to neutral from outperform and cut the target price to $57 from $80, saying that “we see the extent and nature of the coverage cuts as nothing less than stunning”. Amgen’s shares fell almost 4% to just over $54, hitting a two-and-a-half year low in the process.

Before the proposals can pass, the CMS will provide 30 days for public comments, then submit a final decision 60 days after that. Observers are waiting with great interest to see what Amgen and J&J will make of them.