Amgen grabs the axe, chops up to 2,600 jobs

(UPDATED: See below.)

The biotech colossus Amgen, stung by safety and regulatory issues that hit hard at sales of its core anemia drugs, announced today that it will cut its headcount between 12 percent and 14 percent, ratchet back on new plant construction, close production operations and prioritize its research spending. The giant biotech said these measures will yield savings of up to $1.3 billion by next year.

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The restructuring is the first in Amgen’s history, and virtually unprecedented within the biotech industry. For the last six years, the company has been on a serious roll, largely thanks to its second-generation anemia drug called Aranesp, which allowed Amgen to sidestep a restrictive marketing agreement with Johnson & Johnson and to vastly expand its sales efforts. The company has more than doubled in overall revenues and employment since Aranesp’s approval in 2001. Last year, Aranesp accounted for almost 30 percent of the company’s $14.3 billion in revenue.

Last October, however, studies began to raise questions about the way Aranesp and its older cousins, all of which stimulate the production of red-blood cells, were used to treat anemia in kidney-disease and cancer patients. One study showed that higher doses of the drugs were associated with higher risks of heart attacks, strokes and death in kidney patients. In another, Aranesp used to treat anemia caused by cancer itself led to a greater number of deaths than no treatment. Regulators were soon involved, and recently the federal Medicare program decided to limit the degree to which these anemia drugs can be used to boost blood-oxygen levels in cancer patients. Next month, an FDA panel will meet to consider similar restrictions for kidney patients.

Until last week, Amgen had denied that it would need cost-cutting measures. But the company couldn’t ignore the pain from a 19 percent second-quarter drop in Aranesp sales. The job cuts will reduce employment at the company by 2,200 to 2,600 people, returning it to 2006 levels.

CEO Kevin Sharer sounded philosophical in an interview with the WSJ:

“It’s the first time in our 27-year history we’ve had to restructure,” Kevin Sharer, Amgen’s chief executive officer, said in a telephone interview, sighing audibly. But, he added, “These kinds of things happen cyclically. Genentech Inc. in 1995 went through their own discontinuity with Roche buying [a majority share]. Virtually any company with any scale has gone through this kind of event. It’s our turn.”

It’s hard to know if, or whether, this sort of bad news will impact biotech startups further down the food chain, but it’s unlikely to help. For instance, Amgen may reconsider the amount of funding it devotes to venture-capital investments. And general biotech-stock turmoil — Amgen shares are down 26 percent this year — is never good for entrepreneurs and VCs looking to take their startups public. This week, for instance, will bring the first test in that regard: Cumberland Pharmaceuticals, which we noted briefly here, is due to launch its IPO sometime between now and Friday.

The WSJ story is here; the LA Times and the WSJ Health Blog have more. If you’d like to look at the Amgen slides for its conference call earlier today, click here (PDF).

UPDATE: The NYT has more, including a more coherent explanation of the likely effects of the Medicare restrictions on anemia-drug sales than I’ve seen elsewhere, here. You can also read the transcript of Amgen’s conference call here (PDF), courtesy of the WSJ and Thomson StreetEvents.

UPDATE REDUX: Aha, it also turns out that Amgen has pulled the plug on a planned expansion in South San Francisco, where the former Tularik serves as its local base of operations.

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