Amgen’s plans to cut between 2,200 to 2,600 jobs and $1.9 billion in capital spending, announced last week, will force it to shut down some of its facilities nationwide, consolidate some others, and retreat from the facility expansion mode it had operated under until financial problems forced it to change course.
Addressing analysts on Aug. 15, Amgen Chairman and CEO Kevin Sharer said the company had yet to decide how much of its current and future space it would ultimately give up. Yet days before the announcement that preceded the call, the troubled biotech company had placed on the sublease market three South San Francisco properties totaling 365,000 square feet.
An Amgen spokeswoman, Kirsten Davis, insisted to BioRegion News that the company had not decided to backtrack on its previously planned South San Francisco expansion, notwithstanding the sublease move.
“We have not made an announcement specific to South San Francisco. We are evaluating all of our capital project plans and will likely adjust plans according to changing business needs. Further decisions and/or announcements about what projects will move forward are pending. Staff and other stakeholders will be informed of any capital project decisions at the appropriate time,” Davis said via e-mail.
By the end of last week, however, Amgen agreed to shut the older of its two manufacturing plants in West Greenwich, RI, the company’s Rhode Island/Cambridge spokesman Larry Bernard confirmed via e-mail to BRN. Amgen has still not determined how many of its current 1,600 employees in Rhode Island it will retain after closing the older plant, which manufactures Enbrel, a treatment for moderate to severe rheumatoid arthritis as well as moderate to severe plaque psoriasis.
Amgen is the largest of the roughly 40 companies that comprise Rhode Island’s nascent biotech sector, which has sought to grow in recent years by emphasizing its lower cost compared to the greater Boston region — which is also home to an Amgen research lab that employs 200 people, the Cambridge Research Center.
The $100 million, 363,000-square-foot facility in Cambridge, Mass., was completed in 2001, 18 months ahead of schedule and $17 million under budget, despite being built on a site that required pollution remediation. Amgen said no decision has been made on whether that plant will survive, and if so, how many jobs there would be eliminated.
Also undecided by Amgen is whether it will proceed with a 550,000-square-foot expansion planned for 2010 at its Elliott Bay campus in Seattle, a 750,000-square-foot facility dubbed the Helix campus. “There have been no announcements regarding the scheduled expansion of Amgen’s Helix campus,” Carol Pawlak, a spokeswoman for Amgen’s Washington state operations, told BioRegion News via e-mail.
Pawlak denied a Seattle Post-Intelligencer report that Amgen would go ahead with the expansion as planned. Another newspaper, The Seattle Times, on July 16, said Amgen’s financial situation “is fostering concerns” about possible delays in the Helix project and other planned expansions, quoting two analysts. Amgen employs about 1,100 workers in Seattle and its suburb of Bothell.
Amgen is struggling to recoup lost sales from a top drug, Aranesp, designed to combat anemia due to chemotherapy or kidney failure. The drug accounted for $4 billion in sales for Amgen in 2006, while a predecessor form of the drug called Eponen generated $661 million in sales last year. Amgen finished last year with a 15 percent jump in profits, to $4.6 billion, on revenues that rose 15 percent, to $14.3 billion.
Amgen reported in January that a phase III test conducted last year linked Aranesp to increased risk of mortality, heart disease and stroke in anemic cancer patients. The company later disclosed the mortality rate was 48.5 percent for Aranesp-treated patients, 46 percent for patients on placebo. Soon after the initial report, private insurers began removing Aranesp reimbursement coverage and the federal government imposed restrictions on the drug’s availability to Medicare and Medicaid beneficiaries with cancer — in one instance, eliminating Medicare coverage for patients taking Aranesp for anemia of cancer.
Losing Medicaid coverage wiped out $250 million in sales, analyst Jason Napodano of Zacks Investment Research in Chicago noted in a report on Amgen issued after the job and spending cuts were announced. Amgen can also expect to lose another $125 million in sales as half the nation’s private insurers are expected to follow the Medicare guideline, he said. Amgen objects to the restrictions, made within a national coverage determination from the Centers for Medicare and Medicaid Services, and insists that limiting access to its drug could hurt patients.
As late as the fourth quarter of 2006, before the problems surfaced, Aranesp could boast of a 27 percent spike in sales over the last three months of 2005, up to $1.106 billion.
However, sales for the drug have declined in 2007 — down to $1.02 billion in the first quarter, then $949 million in the second — and Amgen has blamed waning US demand for the falloff. The second quarter figure marks a 10 percent drop from a year ago, when Aranesp generated $1.055 billion in sales.
The sales skid could worsen. The US Food and Drug Administration is reviewing all the company’s anemia-fighting drugs, or “erythropoiesis-stimulating agents,” which could lead to additional restrictions. Amgen also faces a patent lawsuit filed by Roche over another anemia fighter, CERA.
“We are a company and a management group that faces reality, and we have a new reality to face today compared to when we planned this year,” Sharer said on a conference call. “Our restructuring program is significant, wide-ranging, and responsive. It also is designed to help us continue to fulfill our mission of serving patients, both now and in the future.”
Delay in Ireland
Amgen’s retrenchment mode began overseas earlier this year. Back in April, the company announced a two-year delay in the opening of the first phase of a planned €800 million ($1.08 billion) drug manufacturing plant in East Cork, Ireland, from 2010 to 2012. At the time, the company insisted it would eventually meet its earlier projection that the plant’s two phases would, when completed, employ 1,100 people. The news was another economic development setback for East Cork, since months earlier Pfizer and Motorola had announced layoffs.
On July 26, Amgen disclosed it was “re-scoping” its Ireland expansion plan but has not furnished details.
At last week’s conference call, Sharer offered another clue to Amgen’s future facility decisions by telling analysts the company would not spare from cuts its two biggest cost centers, research and development and manufacturing. R&D spending, he said, will be scaled back from a current level of 23 percent of sales to about 20 percent of sales. The company spent $3.2 billion on research last year.
Even at 20 percent, Amgen still sets aside one of the largest budgets toward R&D of any major life sciences company, Zacks’ Napodano said. Large pharmas, he added, typically devote 16 to 17 percent to R&D, while Genentech shells out 19 percent. Last year, Amgen raised its R&D budget from below 20 percent due to trials still ongoing for denosomab, a drug intended to treat osteoporosis and bone cancer.
“We will continue to invest heavily in the future of the company. It’s what we need to do. It’s the right thing. But we’ll seek new ways to do it,” such as more joint ventures with partners, Sharer said.
But Sharer added that another area of expenses would survive unscathed: “In terms of sales, we have a very efficient, very thin distribution and we think that is sized in the right way now, and so we’re not making a move there.”
In an interview, Napodano said his guess is for Amgen to trim its R&D staff a little bit, and close some of its older facilities.
“If they’re going to lose $1 billion or $1.5 billion in Aranesp sales, there’s potential that they can consolidate some manufacturing. They won’t need as much manufacturing for Aranesp. I don’t know how exactly they’re going to reduce their costs, but that’s pretty standard in terms of what companies do,” Napodano said.
He said Amgen has an advantage over pharma companies: It has expertise both with biologic and small-molecule drug candidates, so it can be more judicious in acquiring smaller companies, and doesn’t have to spend as much as pharmas. But Amgen last month completed its own buying spree, closing on both a $420 million acquisition of Ilypsa, a Santa Clara, Calif., maker of experimental drugs to treat kidney disease, and a $300 million purchase of diabetes drug developer Alantos of Cambridge, Mass.
Amgen had planned to add 1,000 new employees to its current Bay Area workforce of 550 people when it agreed to lease the three South San Francisco properties last year.
GVA Kidder Matthews, which has offices in San Francisco, is the exclusive agent marketing the properties — the 95,000-square-foot 1130 Veterans Blvd., a building whose shell was recently completed; and two buildings totaling 235,000 square feet under construction at Britannia Oyster Point, 331 and 333 Oyster Point Blvd.
At Oyster Point, Amgen signed a 15-year lease for 331 and 333 Oyster Point Blvd., part of the three-building, 320,000-square-foot Britannia Oyster Point II campus being constructed. The campus itself changed hands earlier this month after Health Care Property Investors, a real estate investment Trust in Long Beach, Calif., completed its $2.9 billion acquisition of the US portfolio of Slough Estates USA, an entity of British-owned SEGRO (See feature article on HCP this issue).
“We are a company and a management group that faces reality, and we have a new reality to face today compared to when we planned this year. Our restructuring program is significant, wide-ranging, and responsive. It also is designed to help us continue to fulfill our mission of serving patients, both now and in the future.”
James Bennett, senior vice president of life sciences with GVA Kidder Matthews, would not discuss the sublease with BioRegion News, saying he first needed permission from Amgen.
One veteran real estate professional said the availability of Amgen’s space will likely be good news for the South San Francisco lab market, which has become so tight that several brokerages record vacancy in the low- to mid-single digits.
Dino Perazzo, a senior vice president with CB Richard Ellis specializing in the San Francisco Bay life sciences market, said finding lab sites in South San Francisco has been so difficult for biotech companies needing short-term space that they have had to look elsewhere – primarily on the Mid and South Peninsula, which also have a limited availability of sites, though less so than South San Francisco.
“This Amgen news has actually had a positive effect on the lab market. Many bio users have been discouraged recently because of the limited class A lab available in South San Francisco,” said Perazzo, a director of CBRE’s Global Life Sciences Group, in an interview.
Some companies with short-term space needs have signed short-term lease renewals while they wait for construction of several new lab-space projects in the region. More than 8 million square feet will either be hitting the market, or will be approved, over the next five years, Perazzo said.
“In short, this sublease opportunity may help bridge the gap between today’s market, where there has been little to no opportunity, and the completion of newer bio projects. Momentum will return to South San Francisco – at least in part – as users explore the Amgen subleases. That will be good for the market,” Perazzo added.
The prospect of a pullout by Amgen won’t affect South San Francisco’s economic development strategy of embracing biotechs, Mayor Richard Garbarino told BioRegion News. The city had attracted 95 biotech businesses the last time it studied the biotech market in 2001, most of which are still there — including Genentech, the biotech giant to which Sharer often compares his company.
“I know there [are] going to be reductions in [Amgen’s] facilities, but we have not heard anything officially from them as to exactly when and how many employees we’re talking about,” Garbarino said. “Obviously as a city we never like to see anybody downsize or leave, but that’s a fact of life in the business world. We just have to see what the net overall result is going to be.”
As for Oyster Point, Garbarino said that since Amgen has already spent money on the facility, “I’m sure they will make a good effort to sublet that out — perhaps to another biotech, perhaps another commercial entity. They haven’t really addressed that yet.
Also waiting to gauge the effects of Amgen’s cost-cutting is an economist who studies the region that includes Amgen’s headquarters in the Los Angeles suburb of Thousand Oaks, Calif. Jack Kyser, chief economist for the nonprofit Los Angeles County Economic Development Corp., said Amgen’s 8,600 headquarters jobs account for more than half of Ventura County’s total 15,400 non-durable goods manufacturing jobs as of June.
Yet any cutbacks at Amgen aren’t likely to hurt the regional economy, he said, since Amgen has not produced the concentration of biotechs that, say, Biogen Idec and Genzyme have in greater Boston or Genentech in South San Francisco — though Ventura County is home to another life sciences giant, Invitrogen’s BioSource division, based in Camarillo, Calif.
“Most people, when they think of biomed in southern California, they think of Orange County and San Diego County. Amgen is acknowledged, but people don’t really think of … it as somewhat of an anchor,” Kyser said.
Kyser added that Amgen’s ability to serve as a regional biotech anchor had been constrained until now because the company had maxed out its 41-building, 3.8 million-square-foot headquarters campus in Thousand Oaks.
Amgen cited that space crunch last year, when it expanded its Longmont, Colo., facility with new space for an undisclosed number of information technology, finance, and human-resources operations. Amgen now employs 1,250 workers in Longmont and Boulder, Colo., where the company manufactures four of its eight drugs — though not Aranesp, which is one of four drugs the company makes in Juncos, Puerto Rico. Amgen said July 26 it had agreed to “certain revisions” in its planned Puerto Rico expansion project without specifying them; since then the company has not discussed its operations in the commonwealth.
Last year Amgen announced plans for a $1 billion expansion of its Puerto Rico facility to allow increased production of Aranesp and Epogen, as well as Neupogen, a treatment for bone marrow damage due to chemotherapy or radiotherapy; and Neulasta, which enhances white blood cell production in chemotherapy patients. The expansion was projected to create 500 new jobs and double the space of its Puerto Rican manufacturing operations, to 1 million square feet, upon completion in 2010.
Amgen will keep its headquarters in Thousand Oaks, spokeswoman Davis told BioRegion News, whatever closings and consolidations it carries out elsewhere.