(The following statement was released by the rating agency)
CHICAGO, May 19 (Fitch) Fitch Ratings has assigned a 'BBB'
rating to Amgen
Inc.'s (Amgen) proposed $4.5 billion unsecured notes offering.
Amgen to use the net proceeds for general corporate purposes,
the repayment of preferred shares under its Master Repurchase
outstanding term loan borrowings, and pre-funding a portion of
1.875% unsecured notes and 4.85% unsecured notes maturing in
November 2014. A
full list of ratings is listed at the end of this release.
KEY RATING DRIVERS
--Debt leverage increased significantly because of the Onyx
--The acquisition of Onyx was strategically sound and it will
Amgen's patent expiry risks;
--Fitch anticipates Amgen will refrain from share repurchases in
intermediate term to preserve U.S. cash balances;
--Fitch forecasts strong free cash flow (FCF), although
balances are expected to be held outside the U.S.
Leverage Increased from Onyx Acquisition
Debt leverage rose from incremental debt required to consummate
the purchase of
Onyx Pharmaceuticals Inc. (Onyx) for approximately $9.7 billion
(net of Onyx
cash balances) in October 2013. Total debt leverage was 4.2x for
12-month (LTM) period ending March 31, 2014. Fitch expects the
level to remain
above 3.0x through 2015-2016, leaving the company little
flexibility within its
'BBB' rating category. However, the company should deleverage
forecast period primarily through growth in EBITDA, with
possibly some modest
Long-Term Revenue Growth Supported by Onyx
Fitch sees sales from Onyx's three marketed pharmaceuticals -
and Kyprolis - helping to mitigate pressure from expiring drug
in 2015, when two of Amgen's top-5 selling drugs, Neupogen and
face generic competition. Coupled with continued solid uptake of
medicines, Xgeva and Prolia, Fitch anticipates compound annual
growth of 3.2% in
2012 to 2017. Revenues generated by the Onyx portfolio, notably
nearly 2% to the CAGR during this period.
Biosimilar Risks Significant, But Less Than Traditional Generic
As mentioned above, 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
including a first-generation filgrastim treatment, Granix,
introduced by Teva
Pharmaceutical Industries in November 2013. However, new
competition to Amgen's
biological therapies, biosimilars, will not benefit from
launch, limiting their inroads into the marketplace. Moreover,
the number of
potential drugmakers may be modest given the high cost to
develop and market
biosimilar pharmaceuticals. As such, Fitch anticipates revenue
patent expirations at around 20% to 30% as opposed to the 80% to
seen with patent lapses of small-molecule drugs.
Share Repurchases Paused, Dividends to Rise
Given the higher debt burden following the Onyx acquisition,
Fitch expects share
repurchases will be on hold through 2015. Amgen currently has no
plans to make
any significant repurchases during 2014 and 2015. The focus of
returns during this period will turn to dividends, forecasted to
annually during the intermediate term. Amgen's board increased
the annual rate
of dividends 30% to $2.44 per share in 2014 from $1.88 per share
in 2013, which
will result in payments of $1.9 billion this year.
Strong Free Cash Flow Sustained, U.S. Cash Balances Limited
Amgen has maintained significant free cash flow (FCF) generation
2005, and FCF was $4.2 billion for the LTM period ending March
representing a margin of 21.9%. Fitch anticipates steady and
strong annual FCF
(at least $4 billion), despite higher dividend and interest
payments. As a
result, Fitch expects FCF margins of 20% to 25% through 2015.
Amgen had cash (including restricted cash) and short-term
investments of $23.2
billion at March 31, 2014, the majority of which resides outside
of the U.S.
Fitch believes that Amgen will continue to struggle with
diminishing U.S. cash
balances due to capital demands for shareholder-friendly
actions. At March 31,
2014, the company had full capacity under a $2.5 billion credit
maturing December 2016, which provides added liquidity. Fitch
will maintain adequate access to the credit markets to refinance
maturities, including $2 billion of debt that matures in 2014.
Fitch expects Amgen will reduce debt leverage that increased as
a result of the
Onyx acquisition by roughly 0.5x per year through 2015. A
from this pace of deleveraging would likely result in a
downgrade. Such a
scenario could result from leveraging acquisitions,
repurchases or operational stress that decreases profitability.
No positive rating momentum is seen for the near term if the
executed. A positive revision of the Rating Outlook to Stable
would depend upon
Fitch's belief that the company will sustainably operate with
leverage of roughly 2.5x to 3.0x. A decrease to this leverage
range will require
strong operational performance (including solid FCF generation)
relatively stable debt levels.
Amgen's current ratings are:
--Issuer Default Rating (IDR)'BBB';
--Senior unsecured debt 'BBB';
--Bank loan 'BBB';
--Short-term IDR 'F2';
--Commercial paper 'F2'.
The ratings apply to approximately $32 billion of debt at March
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. 15, 2013;
--'Rating Pharmaceutical Companies - Sector Credit Factors',
dated Aug. 9, 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and
Rating Pharmaceutical Companies
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
here. IN ADDITION,
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.
DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH