‘Bizarre’ Potential $7.1 Billion Tax Bill Sinks Amgen Shares

(Bloomberg) — Shares of Amgen Inc. fell the most in a year after the company disclosed that it is facing a potential tax bill of at least $7.1 billion from the U.S. Internal Revenue Service.

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The IRS is seeking $5.1 billion in back taxes related to how profit was allocated between Amgen’s entities in Puerto Rico and in the mainland U.S. for the years 2013 to 2015, in addition to about $2 billion in penalties. The drugmaker disclosed the news with its first-quarter results on Wednesday, and it largely overshadowed better-than-expected revenue and earnings.

Many pharmaceutical companies have operations in Puerto Rico, where profits are taxed at a lower rate. Amgen has been in a spat with the IRS for more than a year over this issue, and the company had already disclosed that the agency is seeking $3.6 billion in back taxes for the years 2010 through 2012. Amgen wants to consolidate the two cases in tax court and said the dispute will likely take several years to resolve.

Yaron Werber, a senior biotechnology analyst at Cowen Inc., said the timing of the IRS actions is “bizarre” since Amgen’s Puerto Rico operations are well known and have been a part of its business for a long time.

Amgen has contested the 2010 to 2012 issue in U.S. tax court and plans to file a petition disputing the most recent action. Chief Financial Officer Peter Griffith told analysts on a conference call that the company is “very confident” in its tax reserves.

Werber said the tax issue isn’t a grave concern for investors.

“There’s also an assumption that what the U.S. government is starting with is sort of the worst-case scenario, subject to negotiation and litigation, and at the end, it’s going to be a much more appetizing resolution,” he said.

Shares of the Thousand Oaks, California-based company slid as much as 7.1% on Thursday, their biggest drop since April 2021.