As concerns grow, Amgen to add debt
Amgen Inc., the biotech giant known for betting big on potential blockbuster drugs, is rolling the dice again.
The Thousand Oaks-based company said Wednesday that it planned to borrow $4 billion to buy back some of its faltering shares.
Although some analysts depicted the move as a smart bet, the two major debt-rating firms reacted negatively, with one saying the move was aggressive, as it comes amid mounting safety and revenue concerns involving the company’s bestselling products and the need for new medications to fuel growth.
“The question is if they can weather the storm and keep their revenues in line to handle the debt,” WBB Securities biotech analyst Steve Brozak said. But “it’s anyone’s guess what’s going to happen.”
Companies often buy back shares when they believe their stock is undervalued. If the company’s stock rises, both it and investors can benefit handsomely.
The move makes sense in part because Amgen’s stock “already has the worst-case scenarios priced in,” Cowen & Co. analyst Eric Schmidt said. He said he was bullish on the shares.
The biotech giant may also use some of the new debt-financed capital -- which is relatively cheap these days because of low interest rates -- to acquire small biotech companies that can help bolster its relatively thin drug pipeline, analysts said.
The company said it would use about three-quarters of its new debt to buy back shares, leaving it about $1 billion in new capital to possibly use for acquisitions.
“They need a new quantifiable blockbuster right now and it’s not clear they have one,” Brozak said. “I can’t see how they don’t use some of the cash for naked acquisition.”
But the bond sale will also saddle the company with a roughly 40% increase in debt. After the new borrowing, the company will have $11.2 billion in debt versus almost $5 billion in cash and marketable securities. That isn’t out of line for similar drug companies but is worrisome for Amgen considering it has so many questions hanging over its head, analysts said.
Amgen’s market capitalization -- the total value of its outstanding shares -- is $63.5 billion.
The company did not respond to an interview request from The Times.
After Wednesday’s announcement, Moody’s Investors Service downgraded its outlook on Amgen to “negative” and Standard & Poor’s said it might follow.
“Amgen’s financial policies are aggressive at a time when its operating risk profile has increased and its cash flows face new uncertainties,” Moody’s analyst Michael Levesque said in a statement.
Although the company and its anemia drugs, Aranesp and Epogen, have been under intense scrutiny for the last year, the news in recent weeks has turned from bad to worse.
This month, amid safety questions, a Food and Drug Administration advisory panel recommended that the agency change the drugs’ labels and lower recommended dosages for some patients. The federal Medicare agency followed days later with an announcement that it might scale back reimbursements for the drugs soon, which analysts say could cut sales as much as 25%.
Last week, the FDA issued an “approvable letter” to Roche Inc. for a potential anti-anemia competitor, Mircera, which means it could be approved if certain conditions were met in the next few months. And Tuesday, Amgen announced that it received a subpoena from the New York attorney general seeking documents related to its promotional, sales and marketing activities.
Beyond its anemia product line, much of the company’s future rests on a small number of potential blockbusters. Its most high-profile drug under development, an osteoporosis treatment called denosumab, has had impressive results in early clinical trials but isn’t expected on the market for a few years if follow-up trials are successful.
Amgen shares rose 78 cents, or 1.5%, to $54.74 on Wednesday, but the stock is down 19.9% this year after falling 13% in 2006.
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