Amgen Inc , whose cash balance has soared even as its core anemia drug franchise erodes, will outline its strategy -- and likely announce its first dividend -- at a meeting on Thursday with Wall Street.
The world's largest biotechnology company is expected to detail its experimental products in development, including drugs for pancreatic cancer and a bone-building antibody in its first such meeting since 2008.
Investors will also learn if initial sales are going well for Amgen's latest bone drug -- its most important near-term driver of profits -- when the company reports first-quarter earnings the day before the meeting.
Amgen, which has said it wants to expand internationally, is under the gun from investors to explain how it will deploy its capital, including more than $17 billion in cash.
Shares of the Thousand Oaks, California-based company have lost about a third of their value since early 2006, when safety concerns emerged about anemia drugs Epogen and Aranesp.
I don't believe the market has properly valued the company lately, said Michael Cuggino, a portfolio manager at the Permanent Portfolio Family of Funds, which own Amgen shares. By the same token, there are a lot of pressures on that industry right now -- regulatory pressures, cost pressures, patent pressures.
He said Amgen has been earning a lot of cash over the last several years and if it doesn't deem business development opportunities to be sufficient ... it is prudent to return the cash to shareholders.
INVESTORS CALL FOR DIVIDEND
Investors surveyed by ISI Group and Sanford Bernstein suggest that Amgen should pay a yearly dividend yield of around 2.5 percent. Traditional drugmakers like Pfizer Inc and Eli Lilly pay dividends of 4 percent to 5 percent.
They will put in place a dividend, said Sanford Bernstein analyst Geoffrey Porges. Particularly now that all the medtech (medical technology) companies have a dividend, it makes it easy for them.
Dividend payments have traditionally signaled acknowledgment that a company is no longer considered high growth.
There has been a fundamental shift in healthcare industries, said Tim van Biesen, head of Bain & Co's healthcare practice. Investors no longer place any meaningful value on the pipeline ... The stocks are now mostly owned by the likes of people who would own utilities.
Porges said he is prepared to be underwhelmed by Amgen's expected breakdown of its research and development pipeline.
They have been talking about Phase 2s for the better part of five years and nothing has come of it, he said, referring to the second stage of testing typically needed for regulatory approval of a new drug. They need to deliver some of those drugs in major indications or shut them down.
J.P. Morgan analyst Geoff Meacham believes that a drug known as AMG479, which is currently in Phase 3 testing as a treatment for pancreatic cancer, has the potential for annual sales of more than $1 billion.
We think that greater pipeline visibility should improve sentiment on Amgen shares, he said in a research note.
But in the near-term, Amgen's biggest growth driver will be new bone drug denosumab -- sold under the brand names Prolia for osteoporosis and Xgeva for cancer patients.
Next Wednesday, the day before the strategy meeting in New York, Amgen will report its first-quarter earnings as well as progress on sales of Prolia and Xgeva.
Xgeva could be one bright spot, Porges said. The consensus numbers are pretty low.
Some analysts are also looking for insight into how Amgen plans to square its research and other spending with an uncertain regulatory environment.
The company now spends about 20 percent of its sales revenue on research and development.
Amgen significantly outspends its peers on an absolute basis when it comes to R&D -- in fact no other biotech comes close, Baird analyst Christopher Raymond said in a research note. We think streamlining R&D could give Amgen's P&L a nice face-lift.
Others have said that Amgen's spending on sales and general expenses has been growing as a percentage of revenue at the same time its core drug sales have waned.
Amgen officials said last year that the company was interested in expanding its geographical reach -- particularly into emerging nations. The biotech company said April 8 it had acquired Brazil's Bergamo for $215 million.
(Reporting by Deena Beasley; Editing by Tim Dobbyn)