(The following statement was released by the rating agency)
CHICAGO, April 19 (Fitch) Fitch Ratings has affirmed Amgen
ratings, including the Issuer Default Rating (IDR) at 'BBB'. The
is Stable. A full list of ratings affirmed is listed below.
The ratings apply to approximately $26.6 billion of debt at Dec.
KEY RATING DRIVERS
Amgen's gross debt leverage is currently high relative to its
'BBB' IDR. There
is limited flexibility in the rating for any increase in debt
driven by weak operating performance or debt funding of
shareholder returns. However, Fitch notes that given Amgen's
strong free cash flow (FCF) generation and large cash balances,
the company has
ample liquidity to fund its financial policy without increasing
limiting the potential for negative rating action in the near
Leverage improvement from EBITDA jump:
Debt leverage will improve from a boost in EBITDA resulting from
dissolution of the Enbrel co-promotion agreement with Pfizer
November 2013. As such, Fitch estimates that adjusted debt
leverage and total
debt leverage may each drop below 3.0x in 2014 excluding a
decrease in the debt
load. At the end of 2012, adjusted debt leverage and gross debt
3.7x and 3.6x, respectively, and 3.4x and 3.3x (excluding
prefunding 2013 debt).
Strong FCF despite operational pressures:
Fitch anticipates steady, strong FCF despite increasing
dividends. Cash flow
generation has been resilient to operational stresses which have
drug patent losses outside the U.S., expanded brand name
competition to Enbrel,
reimbursement and demand pressures on the once top-selling ESA
higher interest payments from incremental debt used for its
The company has maintained FCF generation greater than $4
billion annually since
2005, and in 2012, FCF was $4.1 billion representing a margin of
Additional liquidity comes from $2.5 billion of unused revolver
$24.1 billion of cash and marketable securities at the end of
2012. Amgen has
debt maturities totaling $2 billion in 2014 consisting of $1
billion in 1.875%
unsecured notes and $1 billion in 4.85% unsecured notes.
Dividends favored over share repurchasing:
Ample liquidity provided by consistent and strong FCF generation
and large cash
balances allows Amgen to fund its financial strategy without
levels. Amgen's financial policy targets an average return of
60% of adjusted
net income to shareholders.
Over the next two years, Fitch sees the company deploying more
dividends than share repurchases. Since 2011, the company
billion in equity, utilizing all but $300 million of a $10
authorized in October 2011. Presently, Amgen has $2.3 billion of
including $2 billion in new capacity in December 2012.
Amgen's board increased the quarterly rate of dividends to $0.47
per share for
the first two quarters of 2013 from $0.28 per share in 2011
which could result
in payments of $1.4 billion this year. Dividends paid in 2012
were $1.1 billion
compared to $500 million in 2011.
Long-term revenue growth despite patent losses:
Solid uptake of Amgen's most promising medicines - Prolia and
Xgeva - mitigates
much pressure from the expiring patents, notably in 2015. Fitch
sustained strong growth of these products and continued demand
increases for the
company's bestseller Enbrel may yield compound annual growth of
1.5% in 2012 to
At the end of 2012, Amgen's maturing drug portfolio represented
48.1% of overall
company sales in 2012, excluding patent lapses in territories
not covered by the
Fitch expects to see competing biological drugs in the U.S. to
two top-5 selling
drugs - Neupogen and Neulasta - over the next three years with a
first-generation filgrastim treatment introduced by Teva
Industries as early as November 2013.
However, new competition to Amgen's biological therapies, either
brand name, will not benefit from interchangeability upon
launch, limiting their
inroads into the marketplace. Moreover, the number of potential
be modest given the high cost to develop and market generic
pharmaceuticals. As such, Fitch anticipates revenue declines
expirations around 20% to 30% as opposed to the 80% to 90%
typically seen with
patent lapses of small-molecule drugs.
Positive rating momentum depends upon a sustained decrease in
with gross debt leverage decreasing to between 2.5x and 3.0x.
would also require solid operational performance supported by
growth despite demand challenges from key drug patent expiration
and new brand
name competition to Enbrel over the intermediate term.
Fitch sees Amgen's presently high debt leverage dropping from
rather than debt reduction, accelerated by significant operating
improvement in 2014 stemming from the phased dissolution of the
co-promotion with Pfizer.
However, significantly falling demand for the maturing drug
jeopardize operational strength and impair leverage improvement.
limited flexibility in the rating for any increase in the
presently high debt
leverage from either weak operating performance or debt funding
or shareholder returns.
Fitch affirms the following:
--IDR at 'BBB';
--Senior unsecured debt at 'BBB';
--Bank loan at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' dated Aug. 8, 2012
--'Rating Pharmaceutical Companies - Sector Credit Factors',
dated Aug. 9, 2012
Applicable Criteria and Related Research
Rating Pharmaceutical Companies
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