Party may be over at Amgen

UP CLOSE

Rich biotech weighs job cuts where pay averages $162,000

August 15, 2007|By Daniel Costello | Daniel Costello,LOS ANGELES TIMES

THOUSAND OAKS, Calif. -- In this town, Amgen Inc. rules.

It's the biggest private employer here. Its 8,300 local employees, known as "Amgenites," make an estimated average annual salary of $162,000. Its sleek corporate headquarters with sweeping views of the Santa Monica Mountains looks more like a college campus, and frequent late afternoon "fermentation parties" offer free beer for all.

In this city of nearly 127,000, the biotech giant and its well-heeled work force have kept the area's economy humming. A new Four Seasons hotel, gourmet restaurants and hip boutiques sit among rolling hills and 4,000 oak trees, some more than 300 years old.

But is the party ending?

This summer, things are looking increasingly glum at the once go-go Amgen.

After studies raised safety concerns about two of Amgen's best-selling drugs, U.S. sales of its most profitable product fell almost 20 percent last quarter.

Regulators are issuing new warnings and investors are pummeling the stock, which has lost nearly a quarter of its value since the start of the year and fallen to its lowest level in nearly four years.

Last week, the federal Medicare agency dealt an unexpected and serious blow to the company when the government announced plans to limit what dosages of anemia drugs it would pay for. Included were Amgen's Epogen and Aranesp - medications that accounted for 60 percent of the company's profit last year.

Worse yet, layoffs loom. Although plans are not final, the company is expected to announce a work force reduction of as much as 15 percent in the next several weeks, according to three people familiar with the matter. The company, however, says layoff talk is premature.

Amgen has delayed plans for a new $1 billion plant in Ireland and has slowed manufacturing operations elsewhere. Many contractors and temporary workers have left the company in recent months and employee overtime has been curtailed, say those familiar with the matter.

Last week, chief executive Kevin W. Sharer sent a general message to employees on the company's voice-mail system indicating coming changes. Some workers considered the message ominous.

In recent months, Amgen officials have said the company can weather the current pressure on its top-selling products.

Executives point out that several promising products are under development, including a late-stage osteoporosis drug and others to treat cancer, that could be on pharmacy shelves in the next few years.

Acting more like a large pharmaceutical company than a nimble homegrown biotech, Amgen recently has acquired smaller companies it hopes hold promising technologies.

Until recently, Amgen has enjoyed a charmed life in the often treacherous biotech industry.

Founded in 1980 as AMGen (Applied Molecular Genetics), the company pioneered products based on advances in molecular biology that enabled scientists to use living organisms manufactured inside living cells to create novel medicines.

Almost two decades ago, Amgen introduced Epogen, one of the biotech industry's first blockbuster drugs and, more recently, its longer-acting cousin, Aranesp. These anemia drugs treat nearly 1 million U.S. patients with chronic kidney disease and cancer each year.

The drugs, which are the single biggest medication expense in Medicare, accounted for half of Amgen's $14.3 billion in revenue and 60 percent of its $2.95 billion profit in 2007.

Despite the recent drop in sales of its anemia product line, Amgen reported in July that its revenue increased 3 percent to $3.7 billion in the second quarter, versus $3.6 billion in the quarter last year. Profit rose 2 percent to $1.3 billion, compared with $1.2 billion for the second quarter last year.

As recently as last year, Amgen, the world's largest biotech company by sales, enjoyed a market capitalization higher than many top-shelf pharmaceutical companies. It has more than 20,000 employees worldwide, with nearly half of them outside California in offices as far away as Australia and Latvia.

The company has more than doubled the size of its local staff since the start of the decade, hiring an average of two employees a day. Parking is so scarce on campus that valets double- and triple-park cars on employee lots.

Amgen's recent trouble began when research studies by the company and others raised questions about Epogen and Aranesp in some doses and patients. Fallout from the studies rankled the company, patients and regulators, who appear to be taking an increasingly critical look at these drugs.

In April came the first blow. The Food and Drug Administration issued its severest warning, a "black box" label, on the drugs, and doctors began cutting down on their prescriptions. Medicare was quick to follow with its restrictions.

Amgen officials appear confident they can reverse, or at least blunt, some of the company's recent misfortunes.

Last week, the company released a statement saying the recent Medicare decision has "no scientific basis and ... is incompatible with good clinical practice." Amgen is appealing the decision.

Daniel Costello writes for the Los Angeles Times.

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