One of my pet peeves with biotech and pharmaceutical companies that have approved and marketed products is that some of them never achieve scale. Scale -- or, more appropriately, economies of scale -- is the notion that as a company gets larger, it will wring more profits out of a certain amount of sales than it would had those sales occurred when the company was smaller and fixed costs were a larger portion of overall expenses.
With its third-quarter earnings release announced yesterday, biopharmaceutical company Amgen
Gross margins were up to an eye-popping 86% for the quarter, but net margins remained flat at 31% due to a 23% increase in SG&A spending and a 55% rise in R&D spending. Earnings were up 14% due to favorable tax rates, and earnings per share grew 22% due to share buybacks, but it would be nice if earnings growth were occurring due to organic growth rather than tax benefits and share buybacks.
The good news is that Amgen raised its earnings per share guidance for the year to a range of $3.85-$3.95 (excluding stock options), which puts the earnings range in the fourth quarter at $0.85-$0.95 per share, up from the $0.75 the company gained in last year's fourth quarter.
The other big victory for the quarter was the approval of Amgen's Vectibix for colorectal cancer. It will be a few more quarters before we get a good picture of the type of market share the drug will have, but chances are good that it will be quite successful.
With so much cash coming into Amgen's coffers, the question becomes: What will Amgen do with all this money, and when will it start paying a dividend like the more traditional large-cap pharmas? With more than $5.7 billion in cash sitting in the bank and little chance for the company to become unprofitable any time soon, it's almost inexcusable for Amgen not to reward shareholders with a dividend at this point in its history. If Amgen ever does start paying out a dividend, it will attract a whole new group of investors, and that's something that would be good for all shareholders.
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