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Amgen Initiates Restructuring Plan

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Transformation model

In the second half of 2014, Amgen (AMGN) initiated a restructuring plan to boost its research and development activities while controlling its overall expenses. This plan is part of Amgen’s efforts to become an industry leader in innovation and profitability.

The above graph shows that Amgen is focused on reallocating resources, restructuring and re-engineering processes, and creating new capabilities as a part of ongoing transformation. These initiatives, implemented across all functions of the company, are expected to result in high shareholder return.

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Restructuring targets

Through its restructuring plan, Amgen aims to generate annual savings of $1.5 billion by 2018. Amgen has also targeted an $800 million reduction in total operating expenses from 2013 to 2018. Although Amgen will continue to invest in global product launches, by 2018 it expects to achieve an operating margin in the range of 52%–54%, an increase of about 15 points from the operating margin of 38% in 2013.

The restructuring plan is thus expected to boost Amgen’s margins to be in line with those of its peers such as Gilead Sciences (GILD), Biogen (BIIB), and Celgene (CELG). In 1H2015, Gilead Sciences, Biogen, Celgene, and Amgen registered operating margins of about 74%, 49%, 52%, and 39%, respectively.

The ongoing restructuring is expected to initially reduce the company’s total operating expenses by approximately $700 million from 2013 to 2016. These cost efficiencies will help the company to generate additional savings that can be invested in growth opportunities.

Restructuring activities

Amgen’s restructuring plan involves transformation activities across the entire organization. The company has closed its facilities in Washington and Colorado and reduced the number of buildings occupied at the headquarters in California. These initiatives have reduced the total number of facilities around the world by about 23%. This will help to streamline operations in both commercial activities and research and development. By the end of 2015, Amgen also plans to reduce its workforce by about 20%, or by 3,500 to 4,000 employees.

Investors can get diversified exposure to Amgen’s restructuring strategy, yet avoid unique company risks, by investing in the iShares NASDAQ Biotechnology ETF (IBB). IBB invests 8.53% of its total holdings in Amgen.

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