Amgen has a bloated cost structure and would benefit from being broken up into two business units, according one of the biotech’s investors.
Hedge fund manager Daniel Loeb – who is credited with pushing Sony into selling PC operations and spinning out some entertainment units – has sent a letter to the biotech’s investors urging a split.
Loeb’s Third Point fund wants Amgen to separate its slow-growing, mature product portfolio into one business (MatureCo) that could generate high dividends for investors, and create a separate and nimble unit (GrowthCo) that would focus on developing Amgen’s R&D pipeline.
Third Point is now one Amgen’s largest investors, according to Loeb, who suggests in the letter that the biotech company has reached an “inflection point” and that it is currently suffering from “obscured fundamental value and investor scepticism”.
“It is well established that disparate business units generally benefit from operating separately,” says Loeb, who notes the idea of splitting up Amgen has previously been proposed by Sanford Bernstein analyst Geoffrey Porges.
Loeb applauds Amgen’s recent efforts to reduce costs and improve the efficiency of R&D, but suggests with a more radical approach the company’s share value could be much improved by a split. Instead of share prices reaching a predicted $218 by the end of 2017 it could be around $249, he writes.
Break-ups of this kind are becoming increasingly fashionable in pharma, with companies increasingly trying to specialise in a smaller core of product categories and create leaner operating structures.
Baxter is in the process of separating its biopharma and medical technology businesses, while Abbott Labs spun off its research-based pharmaceuticals business as AbbVie last year, with Pfizer, Novartis, GlaxoSmithKline (GSK) and Fresenius all selling non-core units.
Amgen issued a non-committal statement in response to the letter, saying that it “has always appreciated the perspectives of all of its shareholders, including Third Point, and welcomes constructive input toward our common goal of enhancing shareholder value”.
The company will have an opportunity to share its strategy and prospects with shareholders at its business review meeting on October 28.