Fitch Rates Amgen Inc. Notes Offering 'BBB'; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB' rating to Amgen Inc.'s (Amgen) notes offering. The company intends to use the net proceeds from this offering to repay select outstanding notes. The Rating Outlook is Stable. The ratings apply to $34.5 billion of debt outstanding at Mar. 31, 2016. A full list of Amgen's ratings can be found at the end of this release.

KEY RATING DRIVERS

--At 3.1x gross debt-to-EBITDA, Amgen's gross debt leverage is at the high end of the range for its 'BBB' rating. In 2015, the company issued $3.5 billion of debt to fund share repurchases which offset the deleveraging from EBITDA growth driven by its recently strong operational performance.

--Amgen's profitability improved during 2015. This was largely the result of a change in the Enbrel co-promotion agreement with Pfizer Inc. (Pfizer) which led to declining royalty payments to Pfizer through 2016. Fitch expects further margin expansion in 2016 driven by increasing sales, improving sales mix, lower royalty payments to Pfizer, and additional cost savings.

--Growth of a number of established products, progress in ramping up newer medicines and advancing pipeline projects should help to offset some of the risk of anticipated branded and biosimilar competition with Neulasta, Neupogen and Epogen.

--Amgen has made significant progress in its drug development pipeline during the past two years with a number of key approvals and positive clinical data for other projects in late-stage development.

--Fitch expects Amgen to continue generating solid free cash flow (FCF; CFFO less capital expenditure and dividends) of at least $6 billion annually, representing about a 30% FCF margin, supported by improving sales and margins, modestly offset by an increasing dividend.

--Fitch expects Amgen's margins will continue to improve during the intermediate term. EBITDA margin will benefit from an improving sales mix, and a reduction in selling, general and administration expense. The declining royalty payments by Amgen to Pfizer associated with the start of a three-year phase-out period for the co-promotion agreement of Enbrel in the U.S. and Canada will also support margin improvement in 2016. In addition, prioritization of product pipeline projects has reduced research and development spending as a percentage of sales.

--Newer therapies such as XGEVA (bone metastases), Prolia (osteoporosis), Nplate (thrombocytopenia), Vectibix (metastatic colorectal cancer) and Kyprolis (relapsed and refractory multiple myeloma) are posting strong double-digit growth, as good clinical experience drives increased acceptance in the medical community. These five products accounted for only 18% of sales during 2015 compared to 16% in 2014. Aggregrate growth for these five products was 23% during 2015, while total firm sales grew 8% during the same period. In addition, we believe 2016 sales will benefit from recent market introductions of Repatha and Imlygic.

--Amgen has also experienced a number of successes in advancing products through its pipeline. The company received FDA approval for Blincyto (acute lymphoblastic leukemia) in December 2014, Corlanor (heart failure) in April 2015, Repatha (hyperlipidemia) in August 2015 and Imlygic (cancer) in October 2015. Brodalumumab (rheumatoid arthritis) and romosozumab (osteoporosis) have generated positive clinical trial data. These drugs all have the potential to improve outcomes in a number of patients that currently face suboptimal treatment options.

--Amgen has already lost patent protection in the U.S. for Epogen and Neupogen. Teva's branded medication and Sandoz's recently approved biosimilar therapy will take share directly from Neupogen and to a lesser extent Neulasta, Amgen's long-acting filagrastim treatment. However, the competing products will not benefit from interchangeability with the originator biologics, requiring competitors to spend on marketing and selling. This means that stiff price competition will be less likely for Amgen's products. In addition, Amgen's On-Body injector for Neulasta could help mitigate biosimilar competition.

KEY ASSUMPTIONS

Fitch's key assumptions for 2016 within the rating case for Amgen include:

--Low- to mid-single-digit organic topline growth driven by the uptake of new product commercialization offset by increased competitive pressure for some established products.

--FCF of about $6 billion with a roughly 50bp improvement in the operating EBITDA margin.

--Cash deployment prioritized for dividends, share repurchases and targeted acquisitions.

--Total leverage maintained at or below 3x.

RATING SENSITIVITIES

Positive: Future developments, individually or collectively, that may lead to positive rating action include the following:

--An upgrade of the ratings is not likely in the near term given currently high leverage;

--An upgrade could occur if the company maintained leverage in the 2.2x to 2.6x range and operational performance remained strong.

Negative: Future developments, individually or collectively, that may lead to negative rating action include the following:

--An expectation for gross debt leverage maintained durably above 3x would likely result in a Negative Outlook or a one-notch downgrade;

--Stressed leverage could be driven by financial decisions that include debt-financed share repurchases, dividends or acquisitions. In addition, operational stress that decreases profitability, greater-than-expected biosimilar and brand name drug competition and/or unsuccessful commercialization of the late-stage research pipeline have the potential to stress its current rating.

LIQUIDITY

The biggest concern in Amgen's liquidity profile is the growing amount of cash balances held overseas. The company had cash and short-term investments of $34.7 billion on Mar. 31, 2016, of which only $6.8 billion resides domestically. Unless the company chooses to repatriate cash, Fitch believes that Amgen will continue to issue debt to fund domestic capital deployment, including payments to shareholders. Fitch projects FCF (CFFO less capital expenditures and dividends) to remain above $6 billion annually, representing FCF margins of around 30% through 2018, included a growing dividend that is currently at $2.55 billion for the latest 12 months (LTM) as of Mar. 31, 2016. FCF was $6.5 billion for the LTM as of Mar. 31, 2016.

Additional liquidity comes from full availability of a recently amended and extended $2.5 billion credit facility that matures on July 30, 2019. The facility backstops an untapped $2.5 billion commercial paper program providing additional financial flexibility. Fitch expects Amgen will refinance the vast majority of its debt maturities. The company has roughly $2.1 billion of debt maturing in 2016, $4.3 billion in 2017, $2.1 billion in 2018 and $3.4 billion in 2019.

FULL LIST OF RATING ACTIONS

Fitch rates Amgen as follows:

--Long-Term IDR 'BBB';

--Senior unsecured debt 'BBB';

--Bank loan 'BBB';

--Short-Term IDR 'F2';

--Commercial paper 'F2'.

The Rating Outlook is Stable.

Date of relevant committee: 14-July-2015

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004482

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 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 EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160513005765/en/

Fitch Ratings
Primary Analyst
Bob Kirby, CFA
Director
+1 312 368 3147
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Jacob Bostwick
Director
+1 312 368 3169
or
Committee Chairperson
David Peterson
Senior Director
+1 312 368 3177
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: [email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• TWO Packaging Emerges as the Best Custom Packaging Company in the US in 2026
• Sallie Mae to Release Second-Quarter Financial Results
• Cathay General Bancorp to Announce Second Quarter 2026 Financial Results