3 Biotech Dividend Darlings
Post on 23-Aug-2014
DESCRIPTIONFinding biotech investments that fit the needs of both growth and dividend investors is no easy job. But there are three intriguing companies with ties to biotech that do pay dividends and in the following slide showshow you'll learn how Amgen (NASDAQ: AMGN), PDL Biopharma (NASDAQ: PDLI), and Teva Pharmaceuticals (NASDAQ: TEVA) are leveraging biologics for dividend friendly cash flow.
- 3 Biotech Dividend Darlings
- 3 Biotech Dividend Darlings While drug companies are staples in dividend investors' portfolios thanks to their predictable demand and solid cash flow, biotech investors have far fewer dividend paying choices. Instead of paying dividends, most biotech companies reinvest cash flow back into their business. New product development. Collaboration & licensing deals. Acquisitions. Amgen, Teva Pharmaceuticals and PDL Biopharma are exceptions. These three biotech dividend darlings may offer investors an intriguing blend of growth and dividends.
- 1. Amgen Inc. (AMGN) 1. Neulasta/Neupogen: Commonly used to boost the immune system in chemotherapy, sales totaled $1.3 billion in Q1. 2. Enbrel: The widely used drug for rheumatoid arthritis and psoriasis had sales of $988 million in Q1. 3. Xgeva/Prolia: Sales of these bone bulking drugs grew 25% and 38% year-over-year, respectively, to a combined $475 million. Amgens 2.2% forward dividend yield is supported by a stable of top sellers and fast-growing drugs
- Amgen Inc. Amgens cash dividend payout ratio, a measure of operating cash minus capex and preferred dividends, is just 27%. That suggests there may be room for future dividend increases.
- 2. Teva Pharmaceuticals (TEVA) Tevas a global company with $5 billion in Q1 sales Teva sells more than $1 billion in generic drugs in the U.S. quarterly. Specialty drug sales account for $2.1 billion in quarterly revenue. Tevas patent is expiring on Copaxone this year. Copaxone sales totaled $1 billion in Q1. Teva has launched a 3x weekly version of Copaxone in a bid to protect its market share from potential generic competitors. Uncertainty remains over when/if generic biosimilars to Copaxone will be approved. Tevas isnt a traditional biotech company, but it does get roughly a quarter of its sales from Copaxone, a specialty drug for multiple sclerosis. Tevas 2.4% forward dividend yield is on more solid footing today than a year ago thanks to the introduction of a new, longer lasting version of Copaxone.
- Teva Pharmaceuticals Tevas cash dividend payout ratio spiked at the end of last year as the company paid out $200 million in legal settlements, but it remains healthy at 27%. That suggests there could be room for future dividend hikes, especially if Teva can convert Copaxone patients to the new version.
- 3. PDL Biopharma (PDLI) A significant amount of PDLs revenue is generated from royalties paid by Roche tied to patents on key cancer drugs including Avastin and Herceptin. Those patents expire this year; however, an agreement with Roche means royalties on Avastin, Herceptin, Xolair, Perjeta and Kadcyla will be paid to PDL through December, 2015. Royalty payments from those patents made up $116 million of PDLs $139 million in sales in Q1. Total royalty revenue of $139 million was substantially higher than the $99 million recorded the year before. The companys cash grew to $337 million exiting March from $99 million in December. PDLs 7.1% forward dividend yield is the highest of the three, but comes with more risk.
- PDL Biopharma PDLs cash dividend payout ratio jumped in Q1 because of $12 million in cost of royalty expenses tied to a royalty purchase agreement with Depomed. In that deal, PDL paid $240 million for certain rights to collect royalties on Depomed licenses tied to diabetes drugs including Santarus Glumetza, Mercks Janumet, and Johnson & Johnsons Invokana. Given the expected drop in royalty revenue tied to expiring patents, its unlikely PDL will increase its dividend. Instead, it may need to reduce it.
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