Amgen Moves From Biotech to Big Pharma, With More Baggage

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Amgen Inc. (NASDAQ:AMGN) did what Wall Street thought it would in its after-the-bell conference call.  The biotech giant announced layoffs to the tune 12% to 14% of its workforce, which translates to about 2,200 to 2,600 positions.  Medical, drug, and biotechs used to be the one area immune from the economy and immune from job cuts.  No longer.  The company claims this will save $1.0 to $1.3 Billion pre-tax in 2008, but it will have charges of $600 to $700 million this year and next and that includes $289 million for asset impairment and related costs reported in the second quarter. 

Amgen is also adjusting its targets: earnings per share guidance for 2007 has been changed from $4.28 to a range of $4.13 to $4.23, excluding restructuring charges, due to lower Aranesp revenues.  The new guidance is before restructuring charges.  Shares have been sliding and it just can’t the gorilla off its neck.   

It is also slowing its capital expenditures by $1.9 Billion in the 2007-2008 period and closing certain prodiuction operations.  Lastly, here is the wildcard: It says it is making choices about the highest priorities in research and development and operations that build the framework for future growth.  In other words, it is trying to focus on which drug development programs it wants to keep and which it wants to not renew or walk away from entirely.

Amgen needs to make more acquisitions, but it needs to make acquisitions in new territories that the company can ramp into. Iliypsa was a start, but that needs to go to different areas.  We have noted before how Amgen is being treated just like another Big Pharma drug stock in trouble, and Wall Street seems to agree.

Once again, this is what happens when your entire product line has a shot of becoming a Congressional target.  The good news is that it can buy back more stock in that new expanded program.  Most recently, Amgen had over $5 Billion in net cash and short-term equivalents.  This is becoming the antithesis of Fantasy Island, because right now Amgen turned its employees into a bunch of Tattoo’s all yelling "The Pain! The Pain!"……

Jon C. Ogg
August 15, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.