Amgen Investors: ‘We Want A Dividend Already’
7 CommentsBy Ed Silverman // March 14th, 2011 // 8:59 am
One of the big gripes among biotech investors is that Amgen has refused to pay a dividend. No matter how many times the issue has been raised, execs have refused to consider the prospect. Never mind that the stock has been battered amid a raft of struggles, notably FDA warnings over health risks associated with the Aranesp and Epogen anemia meds, concerns about reduced Medicare reimbursement and uncertainty about its pipeline and acquisition strategy (see this).
At one point, the combination of setbacks and miscues resulted in Kevin Sharer being named one of the worst chief executives a few years ago (see this). Now, though, attention is focused on the possibility of a dividend since Wall Street anticipates the issue will be addressed at the upcoming annual shareholder meeting. Investors, however, will not accept just any old dividend.
A survey of 60 investors by Deutsche Bank analyst Barbara Ryan found that a dividend would make Amgen more attractive to only 32 percent of current investors and 58 percent of everyone else. On average, though, no one will pony up unless they get a 4.5 percent; but current shareholders would settle for 4.2 percent. However, a “token dividend” of 1 percent to 2 percent would not satisfy anyone - just 3.8 percent of those not holding Amgen shares would go for a 2 percent yield.
Meanwhile, ISI biotech analyst Mark Schoenebaum conducted his own informal investor survey and found most of those asked, or 39 percent, believe the odds are only 15 percent that Amgen can deliver another billion-dollar-seller in the next five years. And a clear majority - 62 percent - want Amgen to start paying a dividend now, although ISI’s 161 respondents, on average, believe the biotech will start with a 2.05 percent yield.
Schoenebaum also asked who should succeed the 6266-year-old Sharer and guess what? One of three names mentioned most often was Fred Hassan, who steered Pharmacia into the arms of Pfizer and later sold Schering-Plough to Merck. “His track record speaks for itself,” wrote one fan. “Need a visionary to see what needs to be done and also a executioner who can execute on that strategy.” Of course, there may be some who will say Hassan would be the wrong choice, given shareholder litigation that still simmers over the Vytorin scandal (see this).
Other popular choices: Art Levinson, who built Genentech into a widely admired biotech behemoth, but left the ceo chair after Roche gobbled up the entire company, and Susan Desmond-Hellmann, who headed product development at Genentech and is now chancellor at the University of California, San Francisco. One respondent with a sense of humor suggested Johnson & Johnson ceo Bill Weldon.
“I’ve been asking for a dividend for years, and it’s long overdue,” says Steve Silverman*, a retired insurance exec who holds an undisclosed amount of Amgen stock in a family trust and has been a vocal critic of Amgen management. He did not participate in the survey. “I can’t wait for Kevin to leave.”
* - He is not a relation
Steve Knows
Ed, I very much enjoyed your article.
I spoke with Amgen today and they say there have been a lot of phone calls about a dividend program.
The pressure has really intensified and is coming from different areas, from the big institutions and funds, down to the individual Amgen shareholder. Since the shares have stagnated for about ten years, a dividend is a good gesture for those that have been loyal holders and, would also attract new investments for those that like an income they can depend upon.
If a dividend is announced, it probably will be at the upcoming annual shareholder meeting.
AnnePME
Maybe Amgen will hedge their bets pending FDA budget cuts, HCR and new FDA framework for the approval of biosimilars, but then again, given how acrimonious the tone is in congress these days, that would be long-term thinking.
Salient point
The whole reason a company goes public is to gain capital for growth. A period where the stock is not doing well, as with AMGN now, is the worst time for a dividend outlay. This company should be shoring up its marketing & R&D & preparing to grow out of the doldrums. Investors have numerous other options–inside & outside pharma–for dividend-paying stocks.
Steve Knows
Salient,
Read my post,again. Amgen is now a company that is slow growth, with little to be excited about in their pipeline. Being that Kevin Sharer, in my opinion, has been a poor leader, all these years, and nothing to write home about. His unwise purchase of Immunex (Enbrel) has turned out to be a drag on the bottom line. Read the 10qs and 10Ks which show a declining operation, overall. This is treading water. The profits you see are due to overhead cutting. If you think that denosumab will make up for the Aranesp melt down, along with EPO, it hasn’t, and won’t. Ten years is enough of Mr. Sharer. We have fallen behind.
They have plenty of money and I would have thought ten years is enough of this doldrums, to give us a much earned dividend as at least, an apology for the embarrassing performance.
Salient point
SK: Re-read your post. Still says nothing about where the money is coming from to help this company get back on track. If senior management needs to be changed, so be it, but a company that’s losing revenue & dropping in share price doesn’t seem like a great candidate for paying out dividends, even to reward the rather quaint notion of shareholder “loyalty.”
Steve Knows
Salient,
“Quaint notion of shareholder “loyalty”?
I have been a shareholder since 1986 and the shares I have invested are quite sizable.
Yes, I am “loyal” and yes, there are a lot of others, as well. I stay very close to the company and have been very active in its progress.
I won’t go into further discourse as to why the company can pay out a regular dividend but the company sure as heck can, and without a lot of apprehension. When you don’t have growth for ten years, one needs some commitment of good faith. Especially when they have the money. Buybacks have proven futile.
Salient point
SK-I’m afraid my comment was pretty obnoxious. Sorry. I just feel like if I had substantial holdings in a stock & was unhappy with its management, dividend policy, etc, I would just sell it, or at least a portion of it. In general, nothing motivates changes at the top than a share price that’s sinking because you have more motivated sellers than buyers. But you know much more about this specific stock & what’s best for your portfolio more than I do.