The Disconnect Continues: Amgen Rethinks R&D

The Disconnect Continues: Amgen Rethinks R&D

October 14th, 2011 // 3:05 pm @

Taking a page from the big pharma playbook, Amgen is planning to reorganize its R&D operations. And sources says the biotech plans to cut a chunk of the budget and may place less emphasis on discovery. Such a move would mimic what many big drugmakers have been doing in recent years as they attempt to lower their costs and seek the next big-selling molecule elsewhere.

To what extent layoffs will occur remains unclear, but one source described the process as a significant streamlining of R&D and another indicated a 10 percent cut. An Amgen spokesman did acknowledge to Reuters that changes in the R&D program are being evaluated. A public announcement is expected when earnings are released on October 24. Amgen, by the way, employs a total of 17,000 people worldwide.

The move comes as Amgen struggles to overcome disappointing sales with its new Prolia osteoporosis med, one of two new drugs the biotech is counting on for future growth. Through the first six months of its fiscal year, Prolia sales were just $71 million (see page 26 here). And one analyst, Chris Raymond of RW Baird, recently lowered his sales estimates for a pair of warhorses – Epogen and Aranesp – due to lower-than-expected utilization.

Cutting R&D would make Wall Street happy. Amgen notched $15.1 billion in revenue during its last fiscal year and spent $2.9 billion, or about 19 percent, on R&D. “The $3 billion R&D line item annually is high and investors see room to start to trim this,” RBC Capital Markets analyst Michael Yee tells Reuters. He estimates that for every $100 million of R&D cuts, Amgen earnings per share could increase by between 8 cents and 10 cents.

Ironically, the R&D changes come after the Amgen board has been widely criticized for being too generous with ceo Kevin Sharer. Earlier this year, the board appeased investors by finally offering a dividend, but also hiked his overall compensation from $15 million to $21 million (see page 59). Although as The Washiington Post recently noted, the board used a benchmarking technique that was out of whack with similar companies (read here and more here). Sharer, though, is fond of downplaying any talk of a crisis And so far, the board agrees.

Source: Pharmalot

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