Amgen: Stock Buyback vs. Debt Repayment (AMGN)

Do you have to worry when biotech giants decide to spend their hard-earned cash repurchasing their own stock rather than using the cash to go purchase new pipelines?  That is what we’d like to ask Amgen Inc. (NASDAQ: AMGN) this morning.  Amgen is no stranger to buybacks of shares.  The company still had about $1.2 billion left under the current buyback plan.  Then this morning we have the company announcement that its board of directors has authorized additional share buybacks of up to $5 billion in the company’s common stock.

Amgen noted, “This new authorization reflects Amgen’s confidence in its long-term prospects.”  So far it seems as though Wall Street is agreeing with it because shares are up almost 1% at $57.36.  What is interesting here is that despite a prior buyback plan already being in place, Amgen has been dead money.  It is a biotech that traded much like a drug stock as its franchise had matured.  Its anemia franchise has also come under fire in Washington D.C. because of a lack of generics (and likely because of the major price tag associated with it).

The good news is that Amgen did not get killed when the market crashed.  The bad news is that it has still failed to recover from when its side effects and reimbursement risks became coincidental risks.

Amgen was sitting on about $14 billion in cash and short-term investments at the end of September.  The company also has over $10 billion in direct long-term debt.  Share buybacks can offer stability, or they can increase a share price.  With a market cap of about $58 billion, maybe paying down some of the long-term debt might have cleaned up the books a bit more.

Jon C. Ogg