M&A Chatter Swirls Over Amgen's $70B Cashpile

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Amgen reported its fourth-quarter financials yesterday, but in anticipation of this year’s hot merger-and-acquisition market, a lot of focus has been on the company’s considerable available cash.

Total revenues for the quarter decreased 3 percent compared to the fourth quarter of 2016, hitting $5.8 billion. The revenue for 2017 was down from 2016 about 1 percent to $22.8 billion. Free cash flow for the full year grew 9 percent to $105 billion, affected positively by higher operating income and changes in working capital. Year-end totals for cash and investments was $41.7 billion.

John Carroll, with Endpoints Newswrites, “With tax reform bolstering its 2018 projections and $27 billion burning a hole in its pocket, at least one prominent analyst says Amgen looks to have a war chest for deals that could provide up to $70 billion in ‘deal capacity.’”

The total number is based on several things, including currently available cash, another $27 billion potentially available due to tax changes allowing for funds to be repatriated from overseas accounts at a lower tax rate, another $3 billion in free cash flow projected for the year, and $40 billion in quick debt capacity.

At last night’s financials conference call, Amgen’s chief executive officer, Robert Bradway, said, “So we have been consistent for some time in saying that we have the financial capacity and we are interested in looking for deals that we think we can add value to in our areas of focus, so we are going to continue to do that. And as the other question implied, we have felt for some time that there are pockets of excess capacity in the industry and we will look to see whether we can help create some value by being part of the consolidation around those.”

Geoffrey Porges, an analyst with Leerink, wrote in a note to investors, “Conspicuously, Amgen did not reiterate its cautious language about asset prices and risk on this call, and it appears to be focused on taking advantage of its balance sheet and cash flow to build scale in one or more of its core therapeutic areas (hematology-oncology, neuroscience, inflammation, bone diseases, and cardiovascular). The company’s favorable comments about its primary care drugs such as Repatha and Prolia suggest that its interests are more likely to be in companies and products addressing widely distributed diseases rather than the niche markets that are more commonly favored by other companies.”

Amgen indicated it expects to invest $3.5 billion in capital expenditures over the next five years. About 75 percent that will be in the U.S., an increase from approximately 50 percent in recent years. Part of that investment is $300 million for a new drug factory in the U.S. This is expected to add 220 jobs to the local economy, and will employ up to 300 skilled full-time employees.

Another $300 million will be put into Amgen Ventures, its venture capital fund, which focuses on investments in early-stage biotechnology companies in the U.S.

In a statement, Bradway said, “With strong volume-driven growth for our recently launched products and a promising new product pipeline, we are well positioned for future growth. We expect several developments to provide an additional boost for these products, most notably the recent inclusion of cardiovascular outcomes data in the Repatha (evolocumab) prescribing information.”

In short, investors clearly expect Amgen to be a major player in this year’s M&A market.

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