More Drug and BioHealth Dividends (MRX, WCRX, AMGN, MRK, PFE, PPH, BBH)
Medicis (NYSE: MRX), a specialty pharmaceutical company in treatments of dermatological and aesthetic conditions, has the talk going again about dividends in the drug and biotech sector. The company declared a quarter-end cash quarterly dividend of $0.06 payable on April 30, 2010 for holders of record at the close of business on April 1, 2010. This dividend hike is a 50% increase versus the previous $0.04 dividend and the last hike was in March 2008. But what is more important than Medicis is that this brings up the focus on dividends in both the pharma sector and potentially in the biotech sector.
Many investors have seen scores of dividend hikes since the end of December, which is the yardstick for a vote of confidence issued by a company. We have noted two more dividend candidates which are not currently paying dividends:
- Amgen Inc. (NASDAQ: AMGN) as the world’s largest independent biotech stock;
- Warner Chilcott plc (NASDAQ: WCRX) as perhaps the newest and best up and comer in the pharmaceuticals sector.
Neither pay a dividend. Not yet. It would seem that the most likely candidate of the two would be Warner Chilcott because companies like Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) do pay dividends with roughly a 4% yield. Here is a full dividend analysis we gave earlier on the sector.
So far Amgen is opting for share buybacks right now and it has not indicated that it will pay a dividend.
The two key ETF products we use to follow the biotech/drug sector are the Pharmaceutical HOLDRs (NYSE: PPM) and the Biotech HOLDRs (NYSE: BBH). Both have irregular dividends and he biotech is far more sporadic than the pharma HOLDR.
More dividends coming!
JON C. OGG
Dividends Coming In Biotech & Pharma? (WCRX, AMGN, MRK, PFE, PPH, BBH)
Many investors have been focusing on the number of dividend raises we have so far seen since the end of December. It is the perfect vote of confidence issued by a company, much more so than a share buyback plan. The dividend means “we will be able to this rate over and over” for investors. There have been very few big moves in the BioHealth arena. We have two very interesting dividend candidates. Amgen Inc. (NASDAQ: AMGN) as the world’s largest independent biotech stock, and Warner Chilcott plc (NASDAQ: WCRX) as perhaps the newest and best up and comer in the pharmaceuticals sector.
Neither pay a dividend. Not yet. It would seem that the most likely candidate of the two would be Warner Chilcott because companies like Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) do pay dividends with roughly a 4% yield. Amgen is opting for share buybacks right now and its peers are not known for being thge greatest of the world’s dividend candidates. We wanted to take a look at each in a deep review of the basics that allow for dividends.
There is a precedent here. The two key ETF products we have used to follow the sector are in the HOLDRs family, which are the oldest of the drug and biotech ETF products. And they are liquid, mostly and usually. The Pharmaceutical HOLDRs (NYSE: PPM) pays dividends, but these are irregular and are dependent upon which shares are making quarterly distributions through each quarter. Then there is the Biotech HOLDRs (NYSE: BBH), which are currently less liquid than what we have seen in the past. Dividends are more sporadic here, but they are present.
WARNER CHILCOTT
Warner Chilcott plc (NASDAQ: WCRX) seems to quietly and rapidly emerging as one of the greatest drug companies on the scene in years. Many pharma and biohealth investors still do not even really know the company. If all goes well and according to plan, the company may be one of the best value stocks out there in the land of pharma and biotech. The company pays no dividend, but after we get a couple of more quarterly adjusted balance sheets and earnings reports behind us it seems as though the company will want to join Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) with a dividend to help further get on the map.
The stock has done very well since it completed the acquisition of the global branded pharmaceutical business from The Procter & Gamble Company (NYSE: PG) on October 30, 2009. Its most recent guidance is as follows for 2010: Adjusted total revenue for 2010 after the impact of its distribution agreement with LEO Pharma A/S in range of $2.9 to $2.95 billion; Adjusted gross margin of 88% to 89%; Total SG&A expenses in the range of $1.2 to $1.25 billion; total R&D in the range of $180 to $200 million; net income of $190 to $215 million; adjusted cash net income in the range of $842 to $867 million; and using 255 million ordinary shares adjusted cash net income per share of $3.30 to $3.40 per share for the full year 2010.
We would think it is safe to assume that the company wants to get a couple more quarters to pass before a dividend is launched, but barring any other mergers we would expect the company to get on the map with a dividend. With shares close to $25.00, a 4% yield would be about $1.00 per year of that $3.30 to $3.40 per share in 2010 earnings. Thomson Reuters has estimates of $3.37 EPS and that would give a forward P/E ratio expected of less than 8-times earnings. An estimated guess is that the dividend will start at about $0.60 to $0.75 per year, for now.
AMGEN INC.
Amgen Inc. (NASDAQ: AMGN) is the world’s biggest independent biotech by market cap. Yet the stock has been stodgy enough and its anemia franchise has been under fire enough that Amgen almost feels like a good old-fashioned Big Pharma stock now. It seems like an unlikely dividend stock on the surface and not just because it wants to be thought of as a biotech that does not pay dividends. So far, the company has chosen to conduct share buybacks to deploy cash and it is not in a hurry to begin paying a dividend.
In the investor Q&A of its investor relations site, the phase is there: “Amgen does not pay a dividend on stock, and does not foresee doing so in the immediate future.” There is an issue though and that is that the expected earnings growth leaves more and more room for Amgen to begin rewarding its shareholders. It recently announced a $5 billion share buyback, on top of the $1.2 billion remaining at the time still authorized for buybacks. But share buybacks were the shareholder-friendly actions of 2007 to 2009. In the new normal, the dividend may matter more to holders who want to get money back from companies. Amgen trades at a mere 11-times 2010 estimates from Thomson Reuters.
We do not want to say that Amgen has been dead money for five years, but it has been very quiet money. For more than 3 years the stock has had a hard time staying above $60 for very long. And for some time we have noted that Amgen is effectively valued more like a Big Pharma stock than a biotech stock. With $5 billion in cash flow and with a mountain of cash, it can afford a dividend on top of its debt and on top of its buyback plans. Both Merck & Co (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) yield close to 4%, and Amgen could easily afford to pay close to 2% or $1.00 per share for its initial dividend rate.
There are two issues which would keep Amgen from paying a dividend for years. The first is a big acquisition, but the company likely knows that this would likely take its stock lower as we have seen in most buyer situations. Amgen could also embark on a huge debt pay-off in the future. That is also shareholder friendly. But initiating a dividend, and a noticeable one, might be the best effort the company could make.
JON C. OGG
FEBRUARY 11, 2010
The Rise of Biotechs May Be Attracting The Shorts (PFE, MRK, BAX, BDSI, SPPI, GNBT, AVII, CEGE, BBH, GILD)
Biotechnology stocks have risen faster than any sector in the past 30 days, although the new short-interest data suggest traders are now increasing their directional bets against the group.
Large biotechs including Pfizer Inc. (NYSE: PFE) and Merck & Co. (NYSE: MRK) are in the top 10 of all large-cap stocks with the greatest increase in the number of shares shorted. And biotechs including Baxter (BAX) are among the stocks seeing a greater than 50 percent increase in short interest from mid-June until the end of that month, the most recent short interest data available.
Perhaps one reason biotechs are an increasing near-term target of the shorts is that the group’s price movement has been counter to the overall market. The price of all biotech stocks with a market cap of $1 billion or more is up 3.6 percent in the past 30 days, vs. a drop of 6.2 percent for the S&P 500. Biotech is the only group to advance more than 3 percent over that time period, other than health care services, up 3.2 percent.
Pfizer is not a stock most traders bet against, with only 3.5 percent of its float sold short. But the short interest of Pfizer rose 16.2 percent to more than 235 million shares by the end of June. Merck shares, with a heftier 6.9 percent sold short, saw its short interest rise 9.1 percent over the same time period.
Some smaller biotech names have seen a very large short interest increase, including BioDelivery Sciences International (Nasdaq: BDSI), up 93 percent. Spectrum Pharmaceuticals Inc. (Nasdaq: SPPI) short interest is up 54 percent. Biotech stocks with at least a 40 percent rise in short interest include Generex Biotechnology Corp. (Nasdaq: GNBT), AVI BioPharma Inc. (Nasdaq: AVII) and Cell Genesis Inc. (Nasdaq: CEGE).
One of the biotech ETFs that is watched most closely by traders is the Biotech HOLDRs (BBH). One of its top holdings is Gilead Sciences Inc. (Nasdaq: GILD), which makes up roughly a third of the index. Its stock saw a 17 percent increase in its short interest to more than 20 million shares.
The biotech Holdrs in early July rose to levels not seen since September 2008, although the index has fallen early this month after creating a bearish candlestick pattern. The fall occurred not not long after MACD, an oscillator watched by technical traders, turned negative — Mike Tarsala
Genetech Re-Bid Puts Biotech ETF Weightings At Risk (DNA, BBH, BHH, AMGN, GILD)
There is a hidden twist in the increased merger tender offer price for Genentech Inc. (NYSE: DNA). That twist comes into play in the oldest ETF in the biotech sector. The Biotech HOLDRS (AMEX: BBH) has about 15 biotech stocks in it. This ETF, unlike others, may have a significant change in the components if the Genentech merger goes through.
If you go confirm the data at HOLDRS.COM, you will see that Genentech represents about 48% of the entire current weighting of this ETF. That is about to significantly change if this merger goes through. What is interesting is that HOLDRs DO NOT RECONSTITUTE. We think they can reconstitute upon a vote, but by and large these were created to hold baskets of stocks that can actually be collected in the form of the underlying shares and there is a “let it ride” history there. If you do not believe it, then look up the weightings of Biotech HOLDRS (AMEX: BHH) on the HOLDRS.COM site.
Shareholders also receive annual reports and proxy materials of each company which is inside the ETF. Holders of HOLDRS can also ONLY buy these in 100 share blocks. There are no odd lots and there are no normal lots plus odd lots.
The weighting of this will make the Biotech HOLDRs be called the “Genentech ETF” today. The next two largest constituents are Amgen Inc. (NASDAQ: AMGN) with a 18.4% weighting and Gilead Sciences Inc. (NASDAQ: GILD) with a 17.3% weighting. If Genentech’s buyout occurs, this particular ETF is going to see a monster change in its weightings.
JON C. OGG
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