M&A, Pharma

Amgen’s $70B in ‘deal capacity’ post-tax reform puts the spotlight on ‘big things’ in M&A — analyst

Bob Bradway

With tax reform bolstering its 2018 projections and $27 billion burning a hole in its pocket, at least one prominent analyst says Amgen $AMGN looks to have a war chest for deals that could provide up to $70 billion in “deal capacity.”

That gives the company lots of ammunition for the M&A battle to come, and right now the focus is on parsing CEO Bob Bradway’s remarks about acquisitions in his call with analysts Thursday evening.

One key passage in his remarks:

So we have been consistent for some time in saying that that we have the financial capacity and we are interested in looking for deals that we think we can add value to in our areas of focus, so we are going to continue to do that. And as the other question implied we have felt for some time that there are pockets of excess capacity in the industry and we will look to see whether we can help create some value by being part of the consolidation around those.

Geoffrey Porges, Leerink

Amgen’s shares also took a hit Thursday evening as investors reacted to some unexpected misses in sales and revenue, a fact that will also drive Bradway to the deal table, where he could revive some lost passion for the company.

Leerink’s Geoffrey Porges sees it like this.

With $27 billion in cash available now that the repatriation route opened up, $40 billion in quick debt capacity and $3 billion in free cash flow a year, he comes up with $70 billion in dry powder. So what does Bradway buy now?

Something that weighs in big on the consumer side, rather then a niche approach, and likely something in a core field.

The analyst notes:

Conspicuously, Amgen did not reiterate its cautious language about asset prices and risk on this call, and it appears to be focused on taking advantage of its balance sheet and cash flow to build scale in one or more of its core therapeutic areas (hematology-oncology, neuroscience, inflammation, bone diseases, and cardiovascular). The company’s favorable comments about its primary care drugs such as Repatha and Prolia suggest that its interests are more likely to be in companies and products addressing widely distributed diseases rather than the niche markets that are more commonly favored by other companies.

In one relatively small dollop, we also learned that Amgen is committing $300 million to its venture fund, which has been noticeably absent from the corporates that have been increasingly busy.

Now that Sanofi and Celgene have both executed some big deals early in the year, Amgen seems a ripe prospect for finding out what is behind door number three.

“We expect big things,” writes Porges, “which are most likely to be dilutive to margins and earnings near term, but to confer some growth and further diversification longer term.”

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