According to the Honolulu Star Advertiser, Merck & co. has agreed to a deal to purchase a vaccine research branch of the small, bankrupt biotech firm, Hawaii Biotech. The sale of the unit, which develops treatments for the Dengue virus, is good news for the small biopharma company, which recently filed for chapter 11 bankruptcy, and is in need of cashflow to catalyze the rebuilding proccess. The sale involved an undisclosed amount of capital.
Merck stands to add to its impressive lineup of what spokesman Ian McConnell calls “vaccines that meet global unmet medical needs.” The pharma giant was down 0.11% this afternoon. Shares of MRK closed on a three-month high of $35.49 last week.
-Michael B. Sauter
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 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. (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
Large drug stocks are testing four-month highs in early trading this morning, and are among the strongest stock groups.
Most of the big names in the group including Pfizer (NYSE: PFE), Johnson & Johnson (NYSE: JNJ), Eli Lilly & Co. (NYSE: LLY) and Abbott Laboratories (NYSE: ABT) all are trading higher in the early going.
One of the stocks to watch could be Merck & Co. (NYSE: MRK), which has lagged its peers’ relative strength in recent sessions. It has further to go to challenge its June highs, vs. most of its peers.
While Merck has not enjoyed very strong analyst sentiment even compared to its large drug stock peers, it stands out based on relative valuation, trading at about 8 times forward 12-month earnings expectations, vs. more than 10 times for peers such as JNJ and ABT.
It may benefit most from the positive group sentiment.
Pharmacyclics Inc. (NASDAQ: PCYC) is seeing shares surge today after it said that its Phase 1/2 trial of motexafin gadolinium plus antibody targeted radiation therapy demonstrated a high complete response rate in patients with non-Hodgkin’s lymphoma. The results of the study showed a 46% complete response rate in patients with multiply recurrent non-Hodgkin’s lymphoma who were treated with motexafin gadolinium in combination with Yttrium-90 Ibritumomab Tiuxetan, an approved antibody-targeted radiation therapy.
Patients were treated with a standard dose of Zevalin administered with 2.5 to 5.0 mg/kg of MGd given for six days. Of the 28 evaluable patients in the study, 46% showed a complete response and 11% more showed a partial response. Rituximab refractory patients showed an overall response rate of 86%, with a 64% complete response rate and a median time to progression of 14 months.
Adverse events seen were related to bone marrow suppression, an expected side effect of treatment with Zevalin.
This data was part of a presentation at the International Conference on Malignant Lymphoma. Shares are up some 19% at $1.25 today on more than 5-times volume. Its 520week trading range is $0.55 to $3.28 and its market cap is a mere $32.5 million even after the run. As of last quarter, it had roughly $21 million in liquidity from cash and equivalents.
June 5, 2008
by Mark S. Senak
Last week, Governor Rick Perry (R-Texas) decided on a bold move when he announced an Executive Order mandating the vaccination of girls with Merck’s (MRK) new anti-HPV vaccine Gardasil. By itself, this news would be interesting. A governor so interested in public health, that he or she bypasses all other regulatory and legislative channels with an Executive Order would be newsworthy. But in this case, there is controversy.
Here is the background. Gardasil was approved last year in June, 2006 by the FDA as the first vaccine to prevent cervical cancer in women by building immunity to human papillomavirus – the most common sexually transmitted infection in the United States. The vaccine is given to young girls because it is most effective if administered prior to any HPV infection. Planned Parenthood has advocated for widespread vaccination. According to the Washington Post coverage – “The most effective vaccination programs are either given to young children or are mandated for attending school,” said Jeffrey Waldman, senior director for clinical affairs for Planned Parenthood Federation of America. Rarely does one expect to find Planned Parenthood and a conservative Republican governor of a southern state in bed together.
But some people disagree with them. Their logic (or lack thereof, depending on your point of view) echoing back to the needle exchange/condom availability controversy in HIV/AIDS prevention, is based on the belief that the vaccine will encourage or condone sexual activity. But some of the outrage directed at the Governor, by such organizations as The John Birch Society are based on the fact that some perceive the move by the Governor not to be out of public health concern, but due to lobbying by the drug’s manufacturer, Merck. In fact, apparently one of Merck’s Texas lobbyists is in fact Governor Perry’s former chief of staff.
Coverage of this issue in the media or the blogosphere generally takes note of the fact that Merck is actively lobbying in other states for mandatory coverage. Without getting into the merits of requiring the vaccination, the sudden emergence of this situation in Texas points to the need for a delicate balance between direct lobbying and public affairs efforts. In this case, it is important that parents have a full understanding of the complexities of the problem between HPV and cervical cancer, along with rates of sexual activity among teens. In that way, they understand the problem so that when the solution presents itself, by whatever mode, it has a higher level of acceptance.
I’m not saying that Merck has failed to consider the balance between lobbying and public affairs in advocating for immunization. I have no insight into their public education efforts in Texas and have no other facts at hand. But judging by some of the coverage, it is possible to consider that the governor of Texas provided a solution to a problem before many were even aware of the problem. Educating the public after the fact is much harder. While public health advocates may cheer, if people perceive big pharma is pushing solutions on them before they want them through intensive lobbying efforts and campaign contributions, the value of the geniuine public health contribution being made by a drug like Gardasil can be easily overshadowed by resentment. That does neither Merck or the pharma industry any good. It is essential that public relations communicate before lobbying activates.
By the way, anyone interested in contacting Governor Perry about this decision can do so through this link.
(This article was published by BioHealth Investor with permission of Mark S. Senak, author of EyeOnFDA.com)