$780M legal charge crimps Amgen 3Q profit

AP News
Posted: Oct 24, 2011 7:27 PM
$780M legal charge crimps Amgen 3Q profit

Amgen Inc. said Monday that its third-quarter profit plunged by more than 60 percent, mainly because of a $780 million charge for a planned settlement of multiple federal and state investigations of marketing and other practices.

The world's largest biotech drugmaker also had higher costs for administration and production, but it still beat Wall Street estimates excluding one-time charges and raised its full-year profit and revenue forecast.

The $780 million charge, equal to 77 cents per share after taxes, is for a proposed settlement of government and whistleblower investigations into marketing practices, including alleged kickbacks. Amgen, based in Thousand Oaks, Calif., said it has an agreement in principle for the settlement, but it is still in discussions with the U.S. Attorney's Offices for Eastern New York and Western Washington.

Amgen said net income was $454 million, or 50 cents per share, down from $1.24 billion, or $1.28 per share, a year earlier.

Excluding one-time items including the settlement charge, net income was $1.28 billion, or $1.40 per share. Analysts polled by FactSet expected $1.29. Analysts typically exclude one-time items from their estimates.

The maker of arthritis drug Enbrel said revenue increased 3 percent to $3.94 billion, from $3.82 billion a year earlier.

"It's a lackluster report," said Les Funtleyder, an analyst and portfolio manager for the Miller Tabak Health Care Transformation Fund. "Amgen's looking more and more like big pharma, and growth in their core business is slowing."

Funtleyder said the company mainly beat expectations because of a lower tax rate and share buybacks, which increase earnings per share. He also noted Amgen is laying off 380 research and development workers, "not an indication of strength."

Revenue included $3.88 billion in product sales and $67 million in other revenue. Drug sales were led by Neulasta for preventing infections in cancer patients undergoing chemotherapy, up almost 10 percent to $1 billion, followed by Enbrel at $925 million. New injected osteoporosis drug Prolia had only $51 million in sales, and anemia drug Epogen fell 27 percent to $476 million amid an updated safety warning and restrictions on Medicare reimbursement.

Amgen raised its profit forecast for the year to $5.15 to $5.30 per share, from a prior forecast of $5 to $5.20 per share. It said it now expects revenue of $15.4 billion to $15.6 billion, up from $15.1 billion to $15.5 billion.

Analyst Matthew Roden of UBS AG said the key disappointment is that Prolia, one of Amgen's two new growth drivers, didn't show a big increase in sales. He noted it costs about $825 per course of treatment.

"It's not a 'Wow' quarter, but the base business was solid," Roden said. "Ultimately, we think the (drug) pipeline has to come through for the stock to work longer term."

According to earlier company filings with the Securities and Exchange Commission, the federal and state investigations involve many aspects of Amgen's business and have resulted in grand jury subpoenas of numerous current and former employees, including executive vice presidents and other officers.

In a filing made public in 2009, the company said the federal government maintains that 10 whistleblowers claim "Amgen engaged in a wide variety of illegal marketing practices," including allegedly paying doctors and a group purchasing organization kickbacks so they would use its anemia drug Aranesp.

New York's attorney general in 2007 subpoenaed the company for "documents related to Amgen's promotional activities, sales and marketing activities, medical education, clinical studies, pricing and contracting, license and distribution agreements and corporate communications." In another case dating to 2007, Amgen was subpoenaed for documents relating to its products and patient testing, in reference to the federal health privacy law.

Amgen said that if the settlement discussions end successfully, the agreement will end the federal probes, related state Medicaid claims and multiple whistleblower lawsuits.

The other charges inclued stock option expenses, acquisition-related expenses and restructuring costs.

Meanwhile, Amgen authorized an increase in its stock repurchase program, to a total of $10 billion, saying move reflects attractive interest rates and confidence in its "long-term value."

That was the big positive in the quarter, Roden said.

Amgen had $6.4 billion remaining for buybacks at the end of the second quarter, then bought $2.4 billion worth of shares at the end of the third quarter.

Amgen shares rose 4 cents at $58.99 in after-hours trading.