Cowen: Amgen’s Plans Are “Music To Our Ears"

Published: Oct 30, 2014

Cowen: Amgen’s Plans Are “Music To Our Ears”

October 29, 2014

By Riley McDermid, Breaking News Sr. Editor

Wall Street analysts are loving the new cost-cutting measures introduced by the world’s third largest biotech Amgen this week and said Wednesday they think it is making all the right moves to succeed.

Eric Schmidt, a biotech analyst with Cowen and Co., wrote in a note to investors that Amgen is “pulling all the right strings to succeed” and reiterated that “there was really only one take home message that mattered: Amgen has the ability and desire to post much upside to earnings estimates for the next four years.”

Amgen said Tuesday it will use the money it saves from cutting 20 percent of its workforce, or 4,000 jobs, to double down on research, new products and the rollout of its existing blockbuster drug pipeline.

“The company guided to average annual double digit earnings per share growth through 2018 (consensus had been for EPS CAGR of 8 to 9 percent) driven by improved operating margins of 52 to 54 percent in 2018 (consensus had been 50.4 percent),” wrote Schmidt.

“Meanwhile, Amgen will continue to return cash to shareholders in the form of share repurchases ($2 billion by year end 2015, $4 billion by 2018) and dividends (another 30 percent increase in 2015), while pursuing mainly smaller, earlier-stage mergers and acquisitions,” he said.

“Management's renewed focus on improving operating performance is music to our ears, though we continue to believe guidance (especially 2015 targets) holds substantial upside. Our new price target of $168 (up from $166) is based on an 18-times multiple to our new 2015 EPS estimate of $9.35.”

Amgen said it will improve margin costs by 15 percent by cutting an additional 1,100 jobs to the 2,900 it announced it would axe last summer, the company told analysts Tuesday. The new corporate model will see a total enterprise annual savings of up to $1.5 billion by 2018, said Amgen in a statement.

As part of that push, it will add three new biosimilars to its six existing drugs, adilimumab, trastuzumab, bevacizumab, infliximab, rituximab and cetuximab. Amgen said two of its current biosimilars, infliximab and rituximab, have advanced to the "clinical ready" phase. Amgen's first biosimilar is expected to launch in 2017, followed by four others through 2019.

All of that is good news for shareholders, said Schmidt, who said that for much of the past five years the “biggest overhang” on Amgen’s shares has been the threat of biosimilars on older franchises like Neupogen/Neulasta, Enbrel and ESAs.

“On the defensive side, Amgen unveiled a new body injection device for Neulasta (approval anticipated in 2015) that could expand and differentiate the product's appeal,” he wrote. “Offensively, Amgen added three new (undisclosed) biosimilars to its portfolio, which now addresses markets worth $47 billion globally.

“Most importantly, Amgen commented that it believes its biosimilar sales (targeted at $3 billion plus) will more than offset lost revenue on older franchises that are likely to encounter biosimilar competition,” he concluded. “Hence, Amgen believes biosimilars represent a net gain business opportunity. This is a strong non-consensus statement, which if true, means the Street has things backward.”

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