Amgen Tells Analysts It Will Improve Margins 15% By Axing 4,000 Jobs

Published: Oct 28, 2014

Amgen Tells Analysts It Will Improve Margins 15% By Axing 4,000 Jobs

October 28, 2014

By Riley McDermid, Breaking News Sr. Editor

The world’s third largest biotech, Amgen , is unlikely to split into two companies and could improve its operating margins from 38 percent to 53 percent in 2015 by cutting an additional 1,100 jobs, the company told analysts Tuesday.

“They’ve analyzed the possibility [of splitting] with consultants/finance firms,” wrote ISI Group’s Mark Schoenebaum in a note to investors. “They see more value in a single supply chain going forward [and] do not plan to split up.”

Amgen said Tuesday that it will cut an additional 5 percent of its workforce, or 1,100 jobs, in addition to the 2,900 it had already projected it will lose as it restructures. Analysts saw a lot of upside to the company axing employment costs and the company underscored that during its Business Review Day Tuesday.

“[Amgen executives] expect 15 point operating margin guidance improving from 38 percent in 2013 to 53 percent in 2018 (Amgen consensus operating margin is 50.4 percent, note that Amgen uses product sales in revenue calculation, not total revenue),” wrote Schoenebaum.

Amgen saw record high third quarter earnings and revenue and had a blockbuster period for its flagship drugs, despite having to take $375 million haircut related to massive restructuring moves announced last summer.

“[They] announced about $800 million in operating expense savings by 2018 [which] includes $1.5 billion in savings due to restructuring and future increased Enbrel profitability, and partially offset by Onyx acquisition costs and growing business costs,” he said. “Due to a new model which includes more variable costs, Amgen has high confidence they can achieve operating margin target going forward.”

Amgen earned $2.30 per share, exceeding analysts' average expectations by 19 cents, and said it now expects 2014 adjusted earnings of $8.45 to $8.55 per share, an even steeper climb than the enhanced estimate it provided in July of $8.20 to $8.40 per share.

The company told analysts it will be creating new manufacturing technologies at a new unnamed facility in a process that they expect could reduce the cost per gram of proteins by 60 percent or more over time. They will also be upping their production of biosimilars.

“[Amgen will be] adding three new biosimilars to the six already in development [with a] first launch in 2017,” said Schoenebaum, who estimated those six drugs could bring in around $3 billion in additonal revenue to Amgen.

“On average Amgen biosimilars cost about $200 million to bring to market,” he wrote. “[But] Amgen’s target biosimilar market is much larger than the one in which Amgen has existing assets [which means] larger opportunity.”

The company said it is prepared for Epogen, Neupogen and Neulasta biosimilar competition in the U.S. in 2018 after patents expire.

Much of the strength of Amgen’s third quarter earning rested on the success of its blockbuster drug pipeline. It saw sales of osteoporosis treatment Prolia skyrocket 43 percent to $255 million, while multiple myeloma cancer therapy Kyprolis brought in $94 million, a significant jump from the Street’s consensus estimate of $87 million. Its treatment for raising the white blood cell count, Neulasta, gained 5 percent to $1.19 billion.

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