NEW YORK (TheStreet) -- Amgen, (AMGN) - Get Amgen Inc. Report the sprawling biotechnology company, pleased investors with higher profits and big layoffs yesterday, but its moves will not quiet those who want a more basic restructuring.
The maker of the osteoporosis drug Prolia said it will cut employment by 2,400, moving much of its research to Cambridge, Mass., and South San Francisco, Calif., from its headquarters offices in Thousand Oaks, Calif., and boosting production in Ireland at the expense of plants in Colorado and Seattle, Wash.
Amgen shares were up $5.69 per share in overnight trading. As of 10:45 a.m., shares rose 4.8% over Tuesday's close to $129.20.
Amgen chose to announce the layoffs after delivering quarterly earnings of $1.55 billion, or $2.01 per share, on $5.2 billion in revenue, up from last year's earnings of $1.26 billion, or $1.65 per share, and revenue of $4.89 billion.
All these figures beat consensus estimates. Plus, TheStreet Ratings considers Amgen a "buy."
Amgen acquired its Ireland plant in 2011 from Pfizer (PFE) - Get Pfizer Inc. Report, and acquired its Washington state facilities with the purchase of Immunex in 2002. The South San Francisco research facilities came with last year's purchase of Onyx Pharmaceuticals.
Amgen will now focus more of its research effort on the Onyx pipeline of cancer drugs.
But analysts like Geoffrey Poydras of AllianceBernstein have been calling for a larger restructuring, pointing to Amgen's high research costs, scattered pipeline of new drugs and aging product line.
Poydras' reaction to the layoff news was to call it "less of a restructuring and more of a re-allocation! Unlikely that this will appease dissatisfied investors who are looking for real savings, not just moving things around." Poydras in the past has suggested that Amgen split itself into two companies, one focused on exploiting existing drugs for dividends and the other focused on research.
The moves are unlikely to quiet the chatter surrounding Amgen, which have in the past included rumors it would merge with AstraZeneca (AZN) - Get Astrazeneca PLC Sponsored ADR Report or make some other moves aimed at lowering its tax exposure.
While the current numbers look good, competitors have also been circling Amgen's major revenue streams.
The FDA recently approved a biosimilar competitor to Amgen's Neopogen, a $1.4 billion treatment for low white cell counts. Novartis (NVS) - Get Novartis AG Report, which won that approval, is also working on biosimilars for Amgen's Enbrel and Epogen. Amgen itself is also in the biosimilar market.
The biosimilar market is causing the whole industry to reflect on how long it has to profit from new drugs -- and where the border stands between big pharmaceutical companies and bioengineering firms like Amgen.
"It does reflect the price of admission for Amgen to go toe-to-toe with the big boys of pharma in the cardiovascular category, and suggests that things could be messy here for the next 18 months or so," said Poydras.
Chances are we haven't heard the last announcement from the Amgen boardroom.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates AMGEN INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMGEN INC (AMGN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- AMGN's revenue growth trails the industry average of 36.6%. Since the same quarter one year prior, revenues slightly increased by 6.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has slightly increased to $1,142.00 million or 8.86% when compared to the same quarter last year. In addition, AMGEN INC has also vastly surpassed the industry average cash flow growth rate of -71.74%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- AMGEN INC's earnings per share declined by 25.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AMGEN INC increased its bottom line by earning $6.65 versus $5.51 in the prior year. This year, the market expects an improvement in earnings ($8.10 versus $6.65).
- You can view the full analysis from the report here: AMGN Ratings Report