Amgen Announces Plans To Lay Off up to 14% of Its Work Force

Biotechnology company Amgen on Wednesday announced that it will cut 2,200 to 2,600 jobs -- 12% to 14% of its work force -- among other cost-reduction plans to save more than $1 billion in 2008, Bloomberg/Boston Globe reports (Bloomberg/Boston Globe, 8/16).

According to the Wall Street Journal, the reduction will bring Amgen to its 2006 employment level (Chase, Wall Street Journal, 8/16).

The move is being made largely as a result of declining sales of Amgen's top-selling anemia drugs, Aranesp and Epogen, which account for nearly half of the company's revenue, according to Bloomberg/Globe (Bloomberg/Boston Globe, 8/16).

CMS in July issued recommendations that will limit Medicare coverage for anemia drugs, synthetic forms of the protein erythropoietin, in cancer patients (California Healthline, 8/2). Studies have shown that the medications can raise the risk of death when administered in high doses (Bloomberg/Boston Globe, 8/16).

Aranesp, Amgen's best seller, had sales of $4.1 billion in 2006 (Costello/Chang, Los Angeles Times, 8/16). Analysts predict that this year, Amgen will lose $1.3 billion in revenue due to new safety warnings, restrictions and falling reimbursement levels for EPO drugs, Bloomberg/Globe reports (Bloomberg/Boston Globe, 8/16).

Amgen already has seen a 19% decline in second-quarter U.S. sales of Aranesp, with the drug bringing in $578 million, compared with $713 million in the same quarter last year, the Journal reports (Wall Street Journal, 8/16). The AP/Philadelphia Inquirer reports that worldwide sales of Aranesp fell 10% in the second quarter to $949 million (Gentile, AP/Philadelphia Inquirer, 8/16).

In addition to job eliminations, Amgen is undergoing restructuring and other cutbacks. The company will decrease capital spending by $1.9 billion in 2007 and 2008. It also will take a pretax charge in 2007 and 2008 of $600 million to $700 million related to the restructuring, Bloomberg/Globe reports.

It also will close some production plants and reduce others to increase efficiency (Bloomberg/Boston Globe, 8/16). Amgen will reduce research and development spending to 20% of sales, compared with past rates of 22% to 23%.

In addition to the cutbacks, Amgen is going to attempt to forge more partnerships to boost its drug sales worldwide. Amgen CEO Kevin Sharer says the company has the "right team" to implement the restructuring plan.

The company still faces several challenges ahead, the Journal reports. FDA in September is slated to consider safety issues surrounding EPO drugs when they are administered to treat anemia in kidney disease and dialysis patients. In addition, Amgen in September is set to meet Roche Holding AG in patent court to argue against the release of Roche's new anemia drug Cera.

Sharer said, "It's the first time in our 27-year history we've had to restructure," adding, "Virtually any company with any scale has gone through this kind of event. It's our turn." He said, "This is a major test for the company and its leadership. There's no denying that" (Wall Street Journal, 8/16).

Sharer in a conference call with investors and analysts said, "The initiatives announced today respond to (our) new reality by taking account of reduced revenues and appropriately lowering costs across the company," adding, "We will continue to strongly support our research efforts directed at development of new medicines for grievously ill patients."

However, Sharer said the company could see more cuts in the future. "If we've got to do more, we will and we can," he said.

Biotech analyst Mark Schoenebaum of Bear Stearns said the cuts will be difficult for employees but are "undoubtedly the right thing for the company to do." He added, "Job cuts like this have traditionally been the domain of larger pharmaceutical companies and not younger biotechs, but that's obviously changed" (Los Angeles Times, 8/16).