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Amgen's Tough Pill to Swallow

The biotech takes measures to protect against harsh new realities.


(AMGN) - Get Amgen Inc. Report

is girding itself for some potentially harsh scenarios ahead.

"We have a new reality to face today compared to when we planned this year," Kevin Sharer, the biotech company's CEO, said on a conference call Wednesday after market close.

Sales of Amgen's chemotherapy-induced-anemia drug Aranesp will be clipped in September when new Centers for Medicare and Medicaid Systems reimbursement guidelines go into effect.

Faced with a potential 50% decline in U.S. sales in Aranesp -- by some analysts' estimations -- Amgen announced a

restructuring effort

and lowered earnings expectations.

The restructuring includes a layoff that will affect 2,200 to 2,600 people -- roughly 12% to 14% of the company's workforce. "We have added 13,000 people to Amgen since 2001, and returning to 2006 levels is not easy," Sharer said.

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Amgen said the restructuring should reduce planned capital expenditures by $1.9 billion between 2007 and 2008, a relief that should result in improved cash flow. The company estimates it will yield pretax savings from prior plan between $1 billion and $1.3 billion in 2008.

But despite significant expense savings from downsizing, Amgen's revenue growth is still pained and the company lowered earnings guidance for the year to a range of $4.13 to $4.23 a share from its previous estimate of $4.28.

Looking forward, more fortune may hinge on a Sept. 11 Food and Drug Administration panel to discuss Epogen/Aranesp in patients with kidney disease as well as a patent trial, the outcome of which could determine if


competing anemia drug will enter the U.S.

"We are a reality based organization here, and if circumstances change, we will change," said Sharer in response to an analyst who inquired if the company would announce more cuts or restructuring in a negative outcome scenario for the Roche trial and the FDA Cardio Renal Panel this fall. "...If we've got to do more, we will. And we can, but we sure hope we don't have to," he said.

In light of the number of dependent factors, Sharer couldn't give a granular outlook for 2008, but said Amgen would give updates with quarterly results in the fall and that in January or February of 2008 it would be able to share its 2008 view in a more thorough manner.

"Keep in mind that the full-year impact to Aranesp revenues from the label change, NCD and other key events will be realized in 2008," Sharer said. "In other words, 2007 will be a transition year, and in 2008 we will see the full year effects."

Shares were down $1.65, or 3.3%, to $48.94 in recent trading Thursday.