Amgen on notice

How splitting up doesn't address Amgen's struggles creating value-driving assets

Amgen Inc. left itself open to the shot fired by activist investor Third Point LLC by failing to apply the ruthless discipline to pipeline pruning that other large companies have undertaken under new management regimes.

In an Oct. 21 letter to the hedge fund's investors, Third Point assailed Amgen's R&D output and proposed splitting the big biotech into two companies. The investor said new product launches haven't kept pace with Amgen's R&D spending, and the few drugs that have been launched have been unable to match sales of the legacy drugs that continue to account for the lion's share of Amgen's top line.

Third Point also took Amgen to task for its 2013 acquisition of Onyx Pharmaceuticals Inc. and its "bloated" cost structure (see "Other Gripes," page 3).

Third Point thinks the solution is to split Amgen into a Mature Products Co. and a Growth Products Co. whose combined share prices the firm said could rise to $249 in the next two years, an 80% increase over Amgen's close of $137.50 on Oct. 20.

Growth Co. would house Amgen's novel pipeline and the four drugs approved in the last decade. Mature Co. would have Amgen's legacy products along with its biosimilars business.

The smaller Growth Co. would focus on its pipeline and get more programs to market faster, Third Point argued, while Mature Co. would focus on efficiency and cash flow.

Third Point wouldn't disclose its specific stake in Amgen, but has been increasing its position and claims to be one of the biotech's largest shareholders. The fund confirmed reports that it holds over $1 billion of the stock, which would translate into over 6.9 million shares using Amgen's Oct. 21 close. According to SEC filings, Third Point held no position as of March 31; it reported owning 450,000 shares on Aug. 14.

Third Point and Amgen both declined to be interviewed for this story.

But four of five buysiders who spoke to BioCentury don't think the assets of Growth Co. and Mature Co. would be distinct enough to attract different investors. Moreover, several warned the duplication of manufacturing and commercial resources to support the separate companies could destroy value and wouldn't address what they said is the core problem: a pipeline that contains too many moribund

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