Thursday, April 12, 2007

Amgen's CFO: Escaping a Sinking Ship?

It may have been a coincidence. But Amgen CFO Richard Nanula's timing in announcing his departure this week to "pursue other opportunities" raised some eyebrows. The Amgen ship is under attack as it has never been before, and the list of invaders is long: clinical setbacks (think Vectibix), safety concerns over key drugs (think black box warnings on Aranesp and Epogen), SEC scrutiny (into whether the firm divulged Aranesp data on time), competition (generic and otherwise) to its multi-billion dollar anemia franchise, and lawsuits (Johnson & Johnson on marketing contracts, Roche on Micera).

No wonder Nanula is fleeing. The numbers have turned bad: annual profits fell 20% last year. More than $20 billion has been wiped off the group's market capitalization in the last six months. Investors are abandoning a once-favorite stock, prompting some analysts to speculate on whether Amgen is a takeoever target.

It's not all doom and gloom (certainly not for Nanula, anyway, who after six years as CFO doubtless would like more time to spend whatever's left of his $8 million 2006 compensation package). Amgen is still, valued at $60 billion or so, larger than many Big Pharma firms. Vectibix, although wounded, isn't dead. The Aranesp scare--a higher risk of death among cancer patients no longer on chemo--applies mostly to a small segment of patients, for which the drug is not officially approved anyway (and now won't be).

Still, the invadors are real, and Amgen is starting to look mightily dependent on one particular asset in its late-stage pipeline: denosumab, a potential blockbuster drug to treat osteoporosis (and, Amgen hopes, a tonne of other diseases, including cancer). As one analyst puts it: "God forbid anything should happen to denosumab".

Indeed. But God didn't help Vectibix much: this was the star drug, touted as a potential $2 billion product, that drove Amgen's $2.2 billion acquisition of Abgenix in December 2005. Vectibix is approved for third-line colorectal cancer, but 2007 sales were less than $200 million, and aren't forecast to get much higher.

For now, Amgen is busy defending its marketed portfolio. But senior management should consider taking Nanula's departure as a cue to start more visibly putting energy into Amgen's post-EPO future rather than its shaky present. Perhaps Nanula's successor, former investment banker Robert Bradway, will have less trouble dealing with a period of less than stellar growth. He's only been with Amgen a year.

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