October 22, 2014
By Mark Terry, BioSpace.com Breaking News Staff
Activist hedge fund Third Point called on biotech Amgen to split into two companies in a letter yesterday to company shareholders, as the fund continued to press Amgen, in which it has a significant stake, to increase its value.
Third Point, founded by Dan Loeb, holds 450,000 shares of Amgen, according to the hedge fund’s last SEC filing. At a recent Robin Hood Investors Conference Loeb indicated he thought Amgen shares could be worth $249, which is 80 percent higher than they are now.
“Amgen has all the hallmarks of a hidden value situation,” said New York-based Third Point letter. “The company does not receive proper credit from investors for either the cash-generative potential of its mature products or the coming financial impact of its growth assets.”
Thousand Oaks, Calif.-based Amgen, founded in 1980, focuses on developing therapies for anemia, arthritis, kidney disease and bone disease. In 2013 the company reported $18.7 billion in revenue and a market capitalization of almost $110 billion. In 2013 Amgen acquired Onyx Pharmaceuticals Inc. for more than $10 billion, which markets the blood cancer compound Kyprolis. Amgen has several brand name drugs including Aranesp, Enbrel, EPOGEN and Neulasta.
The Third Point letter offers a complete analysis of what the hedge fund’s analysts feel are undervaluing the company’s stock. It cites: “1) its historical lack of R&D productivity; 2) more than a decade of flat operating margins; and 3) the suspension of its share repurchase program in 2013 following its $9 billion acquisition of Onyx Pharmaceuticals.”
The letter then goes on to say, “We believe that Amgen management can directly address all three sources of legitimate investor frustration and, based on our discussions to date with management, we believe that they will. While we applauded Amgen’s first steps in July to target the company’s inflated cost structure by rationalizing its US facilities footprint and creating centers of R&D excellence in San Francisco and Boston, we believe much more can and should be done.”
After providing suggesting such as focusing its R&D efforts, the letter then goes on to drop its more radical option of splitting into two separate companies and/or business units. One of the companies would focus on Amgen’s mature products and the other company would focus on its research-and-development-intensive growth products. “Internally,” the letter stated, “each business would have different priorities: MatureCo would focus on efficiency and cash flow, while GrowthCo would emphasize product development and innovation.”
The biotech company responded with an open mind. “Amgen maintains an active, engaged dialogue with all shareholders,” Amgen indicated in a press release. “Amgen has always appreciated the perspectives of all of its shareholders, including Third Point, and welcomes constructive input toward our common goal of enhancing shareholder value. Amgen’s Board of Directors frequently receives input from shareholders, including ideas like those offered by Third Point.”
