Amgen, bowing to hedge fund pressure, to cut up to 1,100 more jobs
Inc. said Tuesday it will eliminate up to 1,100 additional jobs
next year as the firm faces pressure to split into two. (Al Seib
/ Los Angeles Times)
contact the reporters
Amgen's job cuts were part of maneuvers intended as a way to funnel
money back to Wall Street investors
Who should be driving strategic decisions — Amgen managers or owners?
2014, 7:51 PM
Inc., the Southern California biotech giant that has struggled to
match the torrid growth of its pharmaceutical peers, finds itself in
the crosshairs of a New York hedge fund manager, one of the new breed
of activist investors, who is loudly calling for the company to split
resisting a split, though by promising to shed thousands of jobs as
part of a bid to boost its share price, it has been steadily giving in
to Wall Street criticism of being bloated and inefficient.
On Tuesday, it
In a surprise
statement at an investment conference in New York, the Thousand Oaks
firm said it would eliminate up to 1,100 jobs, boosting the total
announced cuts this year to as many as 4,000, about 20% of its global
workforce. Wall Street cheered, sending shares up 6% on the day to
$157.19, a gain of $8.99.
The job cuts
were part of a sweeping set of financial maneuvers the company
intended as a way to funnel money back to Wall Street investors. The
company also said it would buy back $2 billion in stock and increase
its dividend 30%. It also made an ambitious promise of double-digit
earnings growth for the next three years.
between management and activist investor Daniel Loeb is part of a
broader argument over whether such high-stakes face-offs result in
short-term benefits to shareholders at the expense of a company's
ability to invest in its operations and thrive long term.
question: Who should be driving strategic decisions — managers or
Bradway, Amgen’s chairman and chief executive, insisted that the
company still had plenty of capital to invest in new products,
including cutting-edge "biosimilars," which are less expensive
versions of pricey biological drugs.
potential product launches in 2015 and a strong pipeline of innovative
and biosimilar molecules, we are well positioned to deliver
breakthrough medicines for patients and drive long-term growth,"
a former investment banker, told investors and analysts Tuesday that a
spinoff didn't make sense financially.
"As we've looked
at this, we've not seen a way through that we think unlocks
significant value for our shareholders," Bradway said. "So what I'm
not saying is, 'No, never,' but what I am saying is that right now,
[we're] not convinced there's a way through that adds value for all of
In a letter to
its investors last week, Loeb's hedge fund, Third Point, suggested
that Amgen could benefit by splitting into two companies: a mature
brand that focuses on established drugs and a growth company that
targets drugs in development.
Amgen is one of
a wave of public companies under pressure from activist investors,
usually hedge funds, that buy large blocks of shares and use their
clout to force financial or operational changes such as spinoffs,
mergers, stock buybacks and new slates of directors.
which face fewer restrictions than other money managers on how and
where they can invest, have thrived in the low-interest-rate
environment. Investors scrambling for bigger yields have turned to
such higher-risk, higher-reward operators.
funds have seen their money under management balloon to $2.8 trillion,
including a 7% rise through the first nine months of this year,
according to Hedge Fund Research Inc. Of that amount, activist hedge
funds have grown the fastest, rising 20% to $113 billion this year.
funds have grown so quickly mainly by outperforming the rest of the
Over the last
three years, the group has posted annualized returns of 12.9% while
hedge funds as a whole have generated returns of 6.5%. A mutual fund
indexed to the Standard & Poor's 500 index would have garnered a 15.2%
return, and at much lower risk.
Once known as
corporate raiders and pilloried by Hollywood in movies such as "Wall
Street," these engaged, charismatic investors rebranded themselves as
activists, arguing that they force efficiencies and other changes that
complacent managements won't make.
higher-profile campaigns recently were Bill Ackman's successful push
for changes at Canadian Pacific Railway and a less successful push at
retailer Target Corp. He also is part of a Canadian firm's effort to
acquire Allergan Inc., the Irvine eye- and skin-care company.
Nelson Peltz at
Trian Fund Management has pushed for splits and spinoffs at Pepsico
Inc. and DuPont. Old-guard activist Carl Icahn campaigned for Ebay
Inc. to split off its PayPal unit and for Apple Inc. to use a portion
of its cash horde to buy back some of its shares.
Point, meanwhile, has been among the most active in the business,
notably with a successful and noisy campaign for management and
strategic changes at Yahoo Inc. last year.
Now, he's turned
In a recent
letter to investors, Loeb cited the company as an underperformer and
argued that it has failed to realize its potential value despite
producing both longtime, high-margin products such as
anti-inflammatory Enbrel, and recently launched blockbusters such as
Prolia and Xgeva, both for bone-related disorders.
"Amgen has all
the hallmarks of a hidden value situation, one of our favorite
investment themes," Loeb wrote. "The company does not receive proper
credit from investors for either the cash generative potential of its
mature products or the coming financial impact of its growth assets."
Founded in 1980,
Amgen became the world's largest independent biotech company by
developing drugs to treat anemia, arthritis, kidney disease and bone
disease. It is one of the largest publicly traded companies in
Southern California, with $18.7 billion in revenue last year and a
market capitalization of nearly $110 billion. It reported $5 billion
in profit last year.
In recent years,
the company has looked to expand into new sectors, including a wider
variety of treatments for cancer.
Last year, as
Amgen struggled with slower sales growth, the company bought Onyx
Pharmaceuticals Inc. for more than $10 billion. The deal gave Amgen
control of a blood cancer drug, Kyprolis, which is expected to become
highly popular in the next few years.
With the latest
round of layoffs disclosed, an Amgen employee described the mood in
Thousand Oaks as "very dark" while workers wait to see who will be
affected. Some left last week in the initial round of layoffs, the
employee said, and it's grown difficult to work under the threat of
whether the consolidations are motivated by the desire to develop
life-changing drugs, said the employee, who asked to remain anonymous
given the sensitivity of the situation.
"A lot of people
are wondering if Bob [Bradway] appeased investors and Wall Street or
appeased our patients and improving their lives."
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