With $39B in cash and biosim threats looming, could Amgen use a deal? Executives say not yet

Amgen beat Street revenue estimates in the second quarter thanks to a strong performance from Enbrel.

Riding a strong performance from Enbrel and a few other meds, Amgen beat Street revenue expectations in second-quarter results released late Tuesday. But with “nothing significantly positive happening,” as one analyst put it, and $39 billion in cash, post-earnings talk turned to M&A.

Amgen, for its part, seems to be holding off on dealmaking until the U.S. government cuts taxes, particularly on cash brought back to the U.S. from foreign countries. On a Tuesday conference call, CFO David Meline said the “vast majority” of the drugmaker’s cash is overseas, according to a Seeking Alpha transcript.

“[W]e don't see right now that it would be appropriate to repatriate it under the current U.S. tax system,” he told analysts on the call.

If the U.S. government can agree on tax reform and makes it “more reasonable to consider repatriation, we would then take a look and start providing some commentary on how we might deploy” the cash, Meline said.

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In quarterly results released after market close Tuesday, Amgen reported $5.8 billion in revenue, which came in $147 million ahead of consensus estimates, according to a note from Bernstein analyst Ronny Gal. And it looks as if the California biotech can stay on track the rest of the year, Gal said. Amgen's management is confident it can meet 2018’s financial guidance due to the “continued delay of Neulasta biosimilars,” he wrote.

Amgen has benefited from the FDA woes of potential Neulasta competitiors. The agency rejected Cohereus' biosim for Neulasta last month, a year after Novartis' Sandoz unit suffered the same setback. Neulasta is used to stimulate white cell production in patients undergoing chemo.

Even still, Amgen continues to be “exposed to biosimilar risk” and an eventual sales slide for its blockbuster Enbrel, which will soon face biosim competition, according to Gal. The company’s outlook is “incrementally more positive” after Tuesday, but Gal wrote that he wonders how the company will use its $39 billion in cash to continue growth ambitions.

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Leerink Partners analyst Geoffrey Porges wondered the same. Writing after the results, he said “niche products such as Blincyto, Parsabiv and Imlygic just don’t move the needle for a company of Amgen’s size.”

“Perhaps instead of Gilead leading significant M&A, the ball might be in Amgen’s court?” Porges questioned, referring to Gilead Sciences and ongoing pressure it faces to beef up via M&A.

For now, at least, Amgen has enough cash coming in to pay dividends, keeping shareholders happy. Consider Enbrel, which held strong in the second quarter at $1.47 billion in sales, beating consensus by $129 million; the drug benefited from strong purchasing during the period. Gal noted that trend was likely because Amgen traditionally increases prices in the first and third quarters, so “it is not surprising to see increased purchasing toward the end” of the second quarter ahead of that second round of hikes, he wrote.

Meline’s statement that Amgen is holding out for tax reform in Washington, D.C., echoes sentiment shared by other players in the industry as pharma dealmaking has slowed to a crawl in 2017. Shire CEO Flemming Ornskov recently told Business Insider there’s a “lot of unknowns” at the moment and that execs would like to get some answers before signing off new deals, “particularly big M&A.”

According to recent research from EP Vantage, biopharma’s deals totaled $49.3 billion in 2017’s first half, lower than the same period for any year dating back to 2013. Johnson & Johnson’s Actelion buy, inked back in January and worth $30 billion, makes up the bulk of the total.

Market watchers aren’t expecting many large deals before the end of 2017, according to the publication.