Investors could be facing a new future in biotech. After years and years of growth and after massive gains in recent years, is it possible that biotech giants are simply becoming the next Big Pharma entrants? This week’s layoff announcement by Amgen Inc. (NASDAQ: AMGN) may have investors and the public starting to rethink what “being a biotech company” really means.
Amgen was the largest biotech by market cap not that long ago, but that is now not the case, even with close to a $97 billion market value. Amgen shares have recovered handily from when its stock was stuck for years over reimbursement rate concerns. Still, we used to address Amgen as a just another pharmaceutical player masquerading as a biotech giant. Now it turns out that Amgen is joining the ranks of Big Pharma stocks by laying off a large portion of its workforce.
Wednesday turned out to be National Employee Morale Day at all Amgen offices. Shares rallied on the news that Amgen was going to give pink slips to some 2,400 to 2,900 workers. This is roughly 12% to 15% of the biotech’s entire workforce. Amgen is also closing its facilities in the states of Washington and Colorado. The company claims that the restructuring is aimed at reallocating resources ahead of the commercialization of many promising new molecules.
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Amgen even said in a press release:
The talented staff members at these locations have made enormous contributions to advancing biotechnology over the years and the surrounding communities have been very supportive, so it is with great reluctance that we acknowledge the need to exit. At each site, we are actively engaging in discussions with third-parties about potential future use of the facilities.
What was so interesting here is that Amgen raised its earnings guidance to $8.20 to $8.40 per share on revenue of $19.5 to $19.7 billion. Amgen’s prior forecast was $7.90 to $8.20 in earnings per share on revenue of $19.2 billion to $19.6 billion.
Amgen further said that the restructuring will result in pretax accounting charges of $775 million to $950 million in 2014 and 2015. The end result will reduce operating expenses by approximately $700 million in 2016 compared to 2013, but Amgen said that the savings will mostly be reinvested to support global launches of new products.
Again, does it seem right to jettison 12% to 15% of your staff after they made it possible to raise guidance? Wall Street thought so. The Amgen workers probably felt stabbed. The memo might have been expected to read:
Amgen has had such a great time and sees increased guidance ahead, but now we need to fire the 12% to 15% of you that are geographies we no longer want. Thanks, but you are fired!
Does this feel like a company full of massive growth, even if guidance was raised?
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