Amgen needs to start paying a dividend.

Amgen thinks that it is a scrappy little biotech. They sure are a biotech company, maybe even a little scrappy, but definitely not little. In fact, their growth numbers look anemic [they need a shot of EPO :-)]. Amgen was a duopoly for fifteen years - during this period, they sold two drugs - Epoetin Alfa [aka EPO, Epogen, Procrit], and Neupogen [Filgrastim]. Keeping things simple, EPO helps the body build red blood cells and Neupo, white blood cells.

When Amgen had no drugs [in the early 1980's] they sold the rights for dialysis, diagnostics, non-human and overseas [except Japan, which went to Kirin], rights for EPO to Johnson & Johnson (JNJ), and attached an often disputed royalty clause based on EPO's sales. It was an agreement a tiny biotech had to sign - in order to get their development efforts funded [Genentech (DNA) made a similar agreement with Roche in the 1980's - Roche still owns 56% of DNA; and Chiron (now part of Novartis) made a similar deal with Ciba-Sandoz]. The reason for the disputes from my point of view, is that both companies grossly underestimated the amount of money EPO would bring in.

Amgen was smart - before the patent on EPO ran out, they added on a sialic acid group to EPO, and EPO+Sialic Acid (Darbopoetin) was christened NESP [Novel erythropoiesis stimulating protein]. Similarly, AMGN added a PEG group [polyethylene glycol, OK, it really is monomethoxypolyethylene glycol] to Neupo and called it Neulasta. Of course AMGN wanted more money for NESP and Neulasta - than for EPO and Neupo respectively. The first to balk was Britain's NHS. Canada followed, and even medicare started asking tough questions. Then JNJ claimed that NESP was a derivative of EPO and hence JNJ had rights to NESP too.

OK - so now, the reason I went through all of the above is to show that AMGN is now in the big-leagues. They now have nine drugs [the four compounds mentioned above plus Erbitux account for 90% plus of AMGN's sales]. While AMGN faces competition, there is no real generic threat.

Looking at AMGN's balance sheet, they are sitting on $9 Billion in cash - about a half of which is outside the USA - which if repatriated will cost the company dearly, so the company clearly states that if the $4.5 Billion were repatriated to the US, it would be taxes at AMGN's marginal tax rate [the highest], plus local taxes in the country from which the money is repatriated. The bottom-line is that the company cannot use this money directly to issue dividend checks [but there are ways around this].
AMGN repurchased 8.8M shares for $537M in the first three months of 2007 [they still have $6.8 Billion in repurchase authorizations]. Till now, this has been AMGN's preferred way of returning cash to stockholders.

Given that that stock chart for the past five years looks like:



AMGN needs to start paying a dividend. This will also boost investor confidence in the fact that they will be around for a lot longer.

Disclosures: Long JNJ. No positions in AMGN, DNA, AVE, NVS, WYE.