Sitting on a treasure trove of cash, Amgen (NASDAQ:AMGN) appears poised to join its Big Pharma brethren by rewarding shareholders with a quarterly dividend. Industry followers expect the Thousand Oaks, Calif.-based biotech giant to announce the move at an April 21 investor meeting.
The dividend is projected to yield 2.3%, with a quarterly payment of 30 cents a share. If Amgen follows through as anticipated, it will become the first member of the S&P Biotech Index ever to pay a dividend.
Is sharing some of its cash hoard of more than $17 billion with shareholders a good move for Amgen? Or does it signal that the former high-flier is throwing in the towel, acknowledging that its days of rapid growth are behind? Opinions vary.
Some large shareholders says it’s about time to share the wealth, pointing to the fact that Amgen has more short- and long-term cash on hand than any other U.S. drug maker except for Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ). The investor push for a dividend appears to have been triggered by rumors of Amgen’s interest in acquiring Swiss drug maker Actelion, a move that would have drained the Amgen coffers of some $10 billion.
Investors weren’t keen on the deal and made it clear that they’d rather have the money in their own pockets. They also said talk of the acquisition offset an expected jump in the company’s share price that was hoped for when Amgen’s new bone drug denosumab gained FDA approval.
Critics of the expected dividend say it amounts to Amgen waving the white flag of surrender. They say the company is admitting that its R&D efforts can no longer be counted on to yield innovative drug candidates that have blockbuster potential. They add that joining the ranks of dividend-payers signals to investors that Amgen is becoming a value rather than a growth stock.
For most investors, this transition isn’t news. The company’s share price is down some 23% from where it was five years ago, closing recently at $53.10. During the same period, the SPDR S&P Biotech (NYSE:XBI) exchange-traded fund has risen more than 25%.
Some lay the blame for the company’s poor performance at the feet of management. In fact, one posting on a web site for pharmaceutical sales professionals said while many attribute Amgen’s dismal performance to the economy or the Aranesp debacle (the company’s anemia drug that was slapped with a heightened side-effects warning, as well as allegation of kickback payments to physicians), the real reason is the lack of effectiveness of CEO Kevin Sharer’s management team, calling the group “stodgy, good ol’ boys from McKinsey and the US Navy .”
That evaluation isn’t borne out by at least one important measure of performance — return on invested capital. Amgen has consistently produced returns above 12% and has shown growth that suggests its competitive position is improving. Moreover, its operating margins have been outstanding.
Say what you want about Shearer, but it’s clear he knows how to negotiate an excellent management contract. Were Amgen to be acquired — certainly a long shot given its nearly $50 billion market cap — Shearer would walk away with a cool $37 million in change of control compensation, the highest payout in the industry.
