Is Amgen a Different Company?

Amgen Inc. hit a rough patch last week. The company’s stock fell 3.4 percent on Monday. On Tuesday, Amgen reported earnings that were perfectly fine, but its stock slipped 3.8 percent on Wednesday when the overall market was enjoying a big day. Those are notable drops for such a big and established company. This is a bit of a concern because Amgen is a very important company hereabouts. With a market capitalization of nearly $120 billion, the Thousand Oaks company’s value is second only to the Walt Disney Co. throughout Los Angeles and Ventura counties. Amgen also is a big employer with more than 5,000 local workers. And, as America’s biggest biotechnology firm, it is the primary reason that an important cluster of biotech firms has sprung up mainly in Conejo Valley. So what’s the matter with Amgen? The main issue is that its stable of established drugs is slipping as its next generation of pharmaceuticals, while growing nicely, may not be robust enough to replace them. At least, that is the concern. The troubled week began early Monday when Umer Raffat, considered perhaps the most influential biotech analyst, downgraded the company from “outperform” to “in line.” He said Amgen’s strong performance in recent years has been due largely to a delay in competition from copycat drugs, or what the industry calls biosimilars. But that’s no longer the case, he said in a note to investors. That set the investment world to talking, and the stock to dropping. It went down $6.82 to $191.95. By Tuesday, the company reported financial results that were quite good, at least for 2018. Earnings and revenue were not only well above the same period in the previous year, but they beat analysts’ expectations. However, it was the company’s guidance for 2019 that disappointed. Wall Street expected to hear that Amgen projected full-year earnings equal to $14.61 a share, according to one estimate. Instead, company executives said that number likely would fall between $13.10 and $14.30. Such earnings also would be below last year’s number of $14.40. Revenue would take a similar downward path, Amgen executives disclosed. That is, it’d not only sink below expectations but even under 2018’s number. One big challenge gets back to what Raffat, the analyst, said on Monday. Amgen’s mature drugs such as Neupogen, Neulasta and Epogen are facing both branded and generic competition. Sandoz and Teva are marketing biosimilar versions of Neupogen, eating into Neupogen’s sales. Mylan’s version of Neulasta, called Fulphila, launched in the summer and is priced one-third less than Neulasta. Meanwhile. Pfizer’s Retacrit, the first copycat version of Epogen, was launched in November. Amgen’s newer products, with names such as Prolia, Kyprolis and Blincyto, are growing nicely and expected to perform well in the future. But it is an open question whether sales of all the new and smaller drugs can grow fast enough to offset the losses of the big, older ones. In a broader sense, all this is not unexpected. Amgen and those who follow it have known for years that this day was coming, that the big, fast growing stars in the company’s lineup would fade and that a steady stream of lesser-selling products would replace them. That calls for a different kind of company, one that can reliably crank out new products and market them efficiently. Indeed, Amgen in recent years has been transitioning from a fast-growing company to a slower paced and more mature one. It has acted more like an older, well-established company by focusing on cutting costs and operating more efficiently, buying back its shares and creating an attractive dividend policy. Maybe what happened last week is not so much of a concern. Yeah, there may be a down year or two but we may look back and say that this was the moment we realized Amgen has switched from a fast-growing business to a mature one. • • • It sure seemed reassuring to hear that California expects to have a huge budget surplus this year – $21.5 billion – and even better that the new governor, Gavin Newsom, said he wants to put $3 billion extra into the California Public Employees Retirement System and almost that much into the state pension fund for teachers. But what’s not so reassuring is that those amounts are piddling compared to what the state taxpayers may be on the hook for when it comes to the state’s unfunded pension liabilities. California’s unfunded retirement liabilities are $257 billion, according to the state’s finance department. That’s alarming enough. But some think that applying a more businesslike standard to the shortfall yields a much steeper number. The California Policy Center recently did an analysis of California’s debt. If you use Moody’s standards, the think tank said, you end up with total unfunded pension obligations of $846 billion. Assuming a state population of 40 million, that means the total unfunded pension burden for every person in the state is more than $21,000. Got a family of four? That means your family’s share is equal to $84,000. Remember, that’s only for pensions for state public-sector workers, and just the unfunded portion at that – in other words, the part that may fall to taxpayers. So why is a business publication writing about the state’s unfunded pension obligations? Because you – businesses and businesspeople of California – are the ones most likely to be targeted to pay that debt. Charles Crumpley is editor and publisher of the Business Journal. He can be reached at [email protected].