Amgen is keeping its own counsel after one major investors, hedge fund Third Point, urged the biotech to consider splitting into two separate businesses.
High-profile activist investor and Third Point founder Daniel Loeb sent out a letter to backers about Amgen, claiming that the fund is now “one of the company’s largest shareholders”. He wrote that “the obscured fundamental value and investor scepticism that have led to Amgen’s valuation discount can be easily unlocked, saying the biotech needs to focus its R&D efforts and reduce “a bloated cost structure”.
Aside from this, however, Mr Loeb is in favour of “a more radical” approach, namely splitting the company in two, one being Amgen’s “assets–cash‐generative mature products and the other an “R&D‐intensive growth products” unit.
The letter says Amgen stock could get to $189 a share by the end of 2016 and $218 by the end of 2017 if the company cuts costs and makes R&D more efficient. However, with a split, Third Point believes it could be worth $249 a share in two years; Amgen ended the day up 4.8% after the hedge fund report at $144.09.
Board described as ‘open-minded’ by Loeb
Mr Loeb was not making an aggressive attack and praised Amgen for taking some steps to cut costs, describing the board as being “open‐minded and receptive to our ideas”. Still, “we firmly believe that the company is at an inflection point,” he wrote, and “we hope to maintain our constructive dialogue with management as the company moves towards closing its valuation gap”.
Amgen quickly released a statement “with respect to media inquiries concerning Third Point equity position in Amgen”, saying it has “always appreciated the perspectives of all of its shareholders, including Third Point, and welcomes constructive input toward our common goal of enhancing shareholder value”.
The firm added that the board “frequently receives input from shareholders, including ideas like those offered by Third Point” and “continually assess Amgen’s strategic priorities – and, when appropriate, take action”. More on Amgen’s “strategic priorities and update on our restructuring plans” will be laid out “at our business review on October 28”.
By Kevin Grogan