OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to Amgen Inc.'s (Amgen's) European notes offering. The company intends to use the net proceeds from this offering to repay outstanding indebtedness, including borrowings under the Term Loan Credit Agreement, to repurchase shares of common stock and for general corporate purposes. The Rating Outlook is Stable. The ratings apply to $31.6 billion of debt outstanding at Dec. 31, 2015. A full list of Amgen's ratings can be found near the end of this release (date of relevant committee 14 July 2015).

KEY RATING DRIVERS
At 3.0x, 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 recently strong operational performance. --Amgen's profitability improved during 2015. This is largely the result of aa change in the Enbrel co-promotion agreement with Pfizer Inc. (Pfizer) resulting in declining royalty payments to Pfizer through 2016. Fitch expects further margin expansion in 2016 driven by increasing sales, improving mix, lower royalty payments to Pfizer, additional cost savings.

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

--Amgen has made significant progress with 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, CFO 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.

Continued Margin Improvement Expected: 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 reduced research and development spending as a percentage of sales.

Younger Portfolio Products Growing: 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 four 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, 2016 sales will benefit from recent market introductions of Repatha and Imlygic.

Significant Pipeline Progress: 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.

Intellectual Property Challenges: The base patent for Neulasta in the U.S. expires in October 2015, and in Europe it expired in February 2015. International patents for Sensipar lapse in October 2015. In addition, the European patent for the second-generation erythropoietin medicine, Aranesp expired in August 2014. Collectively, these maturing pharmaceuticals represent roughly 30% of total firm revenues at risk to branded or biosimilar competition.

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 the 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 .
--Free cash flow of about $6 billion with a roughly 50 bps improvement in the operating EBITDA margin.
--Cash deployment prioritized for dividends, share repurchases and targeted acquisitions.
--Total leverage is maintained at or below 3.0x.

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 3.0x 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.

ADEQUATE LIQUIDITY
The biggest concern in Amgen's liquidity profile is the increasing amount of cash balances held overseas. The company had cash and short-term investments of $30 billion on Sept. 30, 2015, of which only $1.1 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 forecasts FCF (CFO 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 $2.26 billion for the latest 12 months (LTM) as of Sept. 30, 2015 FCF was $6.6 billion for the LTM as of Sept. 30, 2015.

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 $2.3 billion of debt maturing in 2016, $4.3 billion in 2017, $2.0 billion in 2018 and $3.4 billion in 2019.

FULL LIST OF RATING ACTIONS

Fitch rates Amgen as follows (date of relevant committee: 14 July 2015):
--IDR 'BBB';
--Senior unsecured debt 'BBB';
--Bank loan 'BBB';
--Short term IDR 'F2';
--Commercial paper 'F2'.

The Rating Outlook is Stable.