Amgen (AMGN) said on Monday its board of directors had authorized repurchases of up to $5 billion in company common stock. That's on top of the approximately
Amgen has been hit with several problems recently, not the least of which are the declining sales of its blockbuster anemia drugs Aranesp and Epogen due to safety concerns. Meanwhile, two investigational drugs Amgen has pinned its hope on have met with study results and / or regulatory setbacks. To top it all off, Amgen is the subject of a lawsuit from 15 states regarding kickback schemes.
While a share buyback is a valid instrument to increase shareholder value, one always has to wonder whether it is the best one to achieve that purpose and whether it is indeed the best use of the company's cash. So many companies have entered such grand programs the year before the market's spectacular collapse, literally throwing that money away -- money that was so needed during a recession.
While the Thousand Oaks, Calif.-based biotech may be more resilient to recessionary forces, it is not more resilient to the forces affecting the industry, not to mention discussions about biosimilars breathing down its neck as the next possible threat. Perhaps Amgen should use that money for research and development or to buy promising prospects to boost its pipeline.
Amgen shares are down about 2.25% year-to-date, lagging behind those of other biotechnology companies -- the Biotech index ($BTK.X) is up 40% on the year. Shares of have traded between $44.95 and $64.76 over the last year and closed at $56.85 on Friday. Amgen stock trades at 11 times forward earnings, estimates at nearly $5 per share. While this is a considerable discount to the current S&P 500 ($INX) P/E, Amgen's growth rate also is below the average for the index.
Meanwhile, however, analysts' average price target stands at $69.88 -- a possible 23% return, according to Thomson Reuters. The consensus recommendation is outperform, showing that at least several believe in the company's ability to bounce back from its recent troubles. The stock buyback plan can give a further support if not a boost to the shares -- but only if Amgen can demonstrate improved growth prospects for its future.