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Friday, Mar 29, 2024

Conejo Valley Bracing for Amgen Layoffs

Last week’s decision by Amgen Inc. to further restructure and layoff more workers amid calls for its breakup went over well with Wall Street. But Main Street may be another matter. The company announced it would increase its layoffs to as many as 4,000, or 20 percent of its global workforce, compared to earlier estimates of 2,900 workers. The company also plans to reduce its facilities footprint by as much as 23 percent, which will include some additional consolidation at its 120-acre campus in Thousand Oaks. Financial analysts couldn’t be happier. Following announcement of the plan on Oct. 28, shares jumped 6 percent. They closed Oct. 29 at $158.88. However, reaction in the Conejo Valley isn’t quite the same, as layoffs and real estate downsizing could have a significant negative impact. “If they have a good year and hand out good bonuses, it can swing the whole County average salary. You can see their good years in the data,” said Bill Watkins, executive director of the Center for Economic Research and Forecasting at California Lutheran University in Thousand Oaks. “We see them as a potential threat to the continued prosperity in Ventura County.” The local biotech community isn’t quite as sour on Amgen’s new direction. The company has gone through extensive restructuring in the past, most notably in the time leading up to the recession. Out of those layoffs have come some of the Conejo Valley’s sexiest startups. They include Kythera Biopharmaceuticals Inc., which is awaiting an FDA decision on its new drug to eliminate chin fat and recently doubled its office space; and Cynvenio Biosystems Inc., a Westlake Village company specializing in the development of cell isolation systems for biomedical research. Both companies, and several others in the area, have leadership with an Amgen resume. “There is a silver lining here. When there is this kind of intellectual talent in the area, it does present an opportunity for those things to happen,” said Brent Reinke, partner at Westlake Village law firm Musick, Peeler & Garrett LLP and founder of the BioScience Alliance, a group that promotes the industry in the Conejo Valley. “It’s not doom and gloom.” Hedge fund pressure Much of the talk on Wall Street has centered on calls for Amgen’s splitting into two companies. Analysts had been pushing for the breakup for months, but the idea got a boost when billionaire hedge fund manager Daniel Loeb called for a split late last month. Loeb said at an investor conference that his Third Point LLC in New York was one of Amgen’s “largest shareholders,” though he was not specific. Loeb said a split of the company would produce the largest shareholder value, predicting share price could reach as high as $249 for the combined companies within two years. But on the heels of better-than-expected earnings, Amgen Chief Executive Robert Bradway rejected the call at a business conference last week. “As we’ve looked at this, we’ve not seen a way through that we think unlocks significant value for our shareholders,” he told analysts, adding that he is not saying “No, never.” Excluding pre-tax charges of $376 million for the first phase of the company’s restructuring plan announced earlier in the third quarter, the company’s earnings per share would have been $2.30, exceeding analyst estimates of $2.11. The company also upped its preliminary guidance for next year, including revenue between $20.8 billion and $21.3 billion and earnings per share between $9.05 and $9.40. The logic behind the breakup is that one company could generate high profits by selling established Amgen products such as anemia drug Epogen and autoimmune treatment Enbrel. A second company would focus on the high-risk, high-reward drugs in development at Amgen or acquired in deals with startups. While 80 percent of the company’s revenue last year came from those legacy drugs, pressure from biosimilars, which mimic established biotech drugs already on the market, will likely deteriorate that share in the coming years. In the third quarter, the company reported a 36 percent decline in sales of Neupogen, a drug used to treat those with a lack of white blood cells caused by cancer, and a 3 percent drop in Enbrel. But Amgen is pushing forward with its own biosimilar effort. The company recently reported positive top-line results from a Phase 3 study of its biosimilar of Humira, a drug that treats psoriasis, rheumatoid arthritis and other autoimmune diseases. AbbVie Inc. in North Chicago made more than $10.5 billion from Humira last year. Bradway is bullish on the company’s pipeline. Its most notable growth drug is Kyprolis, a multiple myeloma treatment that motivated Amgen’s $10.4 billion acquisition of South San Francisco drug maker Onyx Pharmaceuticals last year. Amgen also could have up to four product launches next year. Analysts at New York investment bank Goldman Sachs rate Amgen a “buy,” with a price target of $175, a $10 bump from its target prior to the earnings release and business meeting. The bank estimates that every $100 million in savings Amgen can generate each year would represent an about 11 cent jump in earnings per share. And Karen Andersen, an equity analyst that covers Amgen for Morningstar Inc. in Chicago, said in an email that her firm intends to raise its fair value estimate after the strong earnings and business review. “The positive business review appears to address most of the issues that some Amgen investors have highlighted recently regarding capital allocation, pipeline productivity and operating leverage,” the email stated, adding that the odds of Amgen splitting are now “even poorer.” In Ventura County, economists are less focused on the company’s bottom line. Watkins from CLU said the layoffs could lead to significant changes in the local economy, including big hits to residential real estate and retail spending, which could impact tax revenue in the individual cities of the Conejo Valley. In addition, he thinks the value of startups stemming from the layoffs is greatly overvalued. “Some people will claim there’s a silver lining because a few startups could happen,” he said. “But, you know, that’s not nearly big enough to offset the impact. Even if they are fabulously successful, those startups won’t replace the losses.” Still, Reinke from the BioScience Alliance remains optimistic that layoffs will create potential for more biotech in the Conejo Valley, though he concedes the impact is impossible to predict. “Amgen is extremely supportive of what we do here and will want to do things to help the people that are going through this restructuring,” he said. “But how many of those companies will ultimately be successful and produce jobs? No one knows.”

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