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Thursday, May 19, 2022

Wall Street West—Invigorated Amgen Ready For Investors to Take Notice

There’s a new buzz in local biotech circles about Amgen Inc., the granddaddy of West Coast biotech outfits. The shoptalk: New management and a maturing emphasis on the bottom line are setting the stage for another sustained upward run on Wall Street.

For nearly 20 years, Amgen has thrilled investors, in the process becoming one of Southern California’s few bona fide biotech behemoths. Indeed, the Thousand Oaks enterprise bills itself as the world’s largest biotech company (some of the pharmaceutical giants might take exception to that claim, but it gets into semantics).

Rising on the strength of the company’s two flagship products, Epogen and Neupogen (which help patients produce red and white blood cells, respectively), Amgen stock rose in the early 1990s from low single digits to more than $80 in 2000. For investors who got in early, Amgen was one of those dream investments that just kept rallying. Along the way, it swelled to 8,000 employees, more than $1 billion in profit, $3 billion in revenues, and a market cap of $80 billion.

But on Wall Street, you are only as good as your last quarter. And in the last year, Amgen has stumbled. In trading last week, the stock shuffled around $60, down nearly 25 percent from the highwater mark of 2000. Earnings were not quite as hot as expected. Even so, the stock is trading on stilts, at 50 to 60 times projected earnings.

But many in Southern California’s biotech world think good news will outweigh bad in the years ahead.

“If you look at how Amgen has beefed up their management team in the last six months, you see that they are going to take a much more proactive approach going forward,” said Jim Zukin, principal of Houlihan Lokey Howard & Zukin, a financial shop in Los Angeles. “They are looking for alliances, looking for opportunities, and concentrating on managing their assets.” (Zukin has recently been beefing up his own biotech team at HLHZ, and now has eight professionals involved in biotech investment, corporate valuation and mergers work).

Kevin Sharer, 53, became chief executive and chairman last year, and he quickly created two new positions: George Morrow will become vice president in charge of global sales, and Roger Perlmutter will be the top R & D; officer.

Zukin is especially impressed with the hiring in May of Richard Nanula a former executive of Broadband Sports, Starwood Hotels and Disney to be vice president of finance, strategy and communications and chief financial officer as of Aug. 1. The willingness of Amgen to bring in an industry outsider shows the company has matured.

Of course, not all money managers are buying. “Amgen is a great company, that’s a given. But at the price, we are not acquiring the stock,” said Chris Orndorff, chief equity strategist for the $37 billion-in-assets Payden & Rygel money shop in downtown Los Angeles.

Wall Street today punishes any company that doesn’t exhibit nearly heroic earnings growth, said Orndorff. Yet Amgen operates in the heavily regulated medical field, one almost defined by unexpectedly slow product introduction, sticky government regulations or drugs and therapies that flop after introduction.

And Orndorff said he was not bowled over by Amgen’s new leadership, even though the management team looks excellent. “This is a business driven by products, not management. Will their products work?” asked Orndorff.

Big Returns

In the world of private equity investing largely the leveraged buyout funds and venture capitalists most fund managers tell of huge double-digit returns piling up year after year. But unlike with public mutual funds, few, if any, can check the veracity of private equity manager claims.

So it was interesting when Calpers, the huge State of California pension fund, last week revealed how 106 different private equity funds had done over the years. Standing tall was Brentwood-based Kline Hawkes of California LLP fund, which ranked No. 3 out of 106 funds ranked by Calpers, in terms of how those private equity managers did for the state’s pensioners.

In the 1990s, Kline Hawkes generated a 57 percent annually compounded return for the state. Measured another way, “For every dollar the state has given us, we have given back four,” said Jay Ferguson, principal with Kline Hawkes. “And we still have some money under management.”

Some spectacular Web-infrastructure home runs in the late 1990s, including a terrific early investment in Goto.com, the Pasadena-based Web search engine (a 20-1 killing) boosted overall returns, said Ferguson. Also working for Kline Hawkes: “We get out, when we have made a huge hit,” said Ferguson. “We tend to invest in series b (second stage venture capital), and we get out when it hits. It’s less risky, but the returns are just as great,” said Ferguson.

Imperial Capital

Beverly Hills-based Imperial Capital LLC, the boutique investment banking shop, has entered another chapter in its colorful history. The shop was started in 1991 by Neil Dabney and Judy Resnick, a couple refugees from the collapse of brokerage Drexel Burnham Lambert, to trade in high-yield debt, and finance some private equity deals. After some troubled investments and internal management fights, the faltering shop was acquired by Wayne Snavely’s mini-financial conglomerate Imperial Credit Industries Inc. in 1997. Snavely and ICII have since themselves hit a rough patch, and are paring back to their core business of commercial business banking. And so last week, Imperial Capital President Jason Reese confirmed that he, and other management and employees of Imperial Capital, have completed a buyout of the shop. They bought the remaining 36 percent stake held by Imperial Credit Industries. “We are now 100 percent employee owned,” said Reese.

Contributing columnist Benjamin Mark Cole writes about the local investment community. His new book is “The Pied Pipers of Wall Street: How Analysts Sell You Down the River,” published by Bloomberg Press. He can be reached at sevencontinents@mind spring.com.

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