Top BioHealth Analyst Upgrades & Downgrades (AMGN, AZN, BAY, BIIB, CELG, EXAM, GILD, GSK, HGSI, LH, NVS, PFE, UTHR, WCRX)
We have seen many research calls from Wall Street analysts with upgrades, downgrades, and initiations this Tuesday in the world of biotech, pharmaceuticals, and biohealth. Some of the key calls we have seen are as follows:
Amgen Inc. (NASDAQ: AMGN) Started as Neutral w/ $58 target at Credit Suisse.
AstraZeneca (NYSE: AZN) Cut to Underperform at Credit Suisse.
Bayer AG (NYSE: BAY) Raised to Outperform at Credit Suisse.
Biogen Idec Inc. (NASDAQ: BIIB) Started as Neutral w/ $68 target at Credit Suisse.
Celgene Corporation (NASDAQ: CELG) Started as Neutral w/ $60 target at Credit Suisse.
Celgene Corporation (NASDAQ: CELG) Maintained Buy with $68 price target at BofA/ML.
Examworks Group Inc. (NASDAQ: EXAM) Started as Outperform w/ $22 target at Credit Suisse.
Gilead Sciences Inc. (NASDAQ: GILD) Started as Outperform w/ $52 target at Credit Suisse.
GlaxoSmithKline plc (NYSE: GSK) Raised to Neutral at Credit Suisse.
Human Genome Sciences Inc. (NASDAQ: HGSI) Started as Outperform w/ $31 target at Credit Suisse.
Lab Corporation of America (NYSE: LH) Started as Neutral w/ $89 target at Credit Suisse.
Novartis (NYSE: NVS) Raised to Outperform at Credit Suisse.
Pfizer Inc. (NYSE: PFE) Maintained Outperform at Credit Suisse.
United Therapeutics Corp. (NASDAQ: UTHR) Started as Neutral w/ $57 target at Credit Suisse.
Warner Chilcott plc (NASDAQ: WCRX) Reiterated Buy at BofA/ML.
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JON C. OGG
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
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
Some secondary offerings are good for the existing holders and some are not. Adding cash to the coffers is good when a company can take advantage of a high share price when they need to raise long-term growth capital. But there is also the type of secondary offering that is just private equity or private investors selling shares after a bg run. This morning we have seen three stock offerings in drug and biotech stocks, and there is some good and some bad in here.
BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX) is getting hit this morning after the company sold 5 million shares in a secondary offering at $9.75 per share via Morgan Stanley, J.P. Morgan, and Oppenheimer. After 10:15 AM EST we have seen 2.5 million shares trade, making this one almost a full-day’s volume (2.9 million on average). This one is down 6.3% at $9.74 and the 52-week trading range is $0.85 to $13.47. This offering is under an existing shelf registration when the company filed to raise up to $57 million. Gross proceeds from this offering before fees and commissions is $48.75 million.
Novavax, Inc. (NASDAQ: NVAX) is trading down this morning on its 6.8 million share public secondary offering which priced at $3.30 per share through Piper Jaffray and Lazard Capital Markets. We have seen only 2.8 million shares so far this morning and the stock is down 10.6% at $3.37. Average volume is now over 6 million shares and the 52-week trading range is $0.52 to $7.79. This is just over $22.4 million in gross proceeds, and the company noted that it would net out $21 million.
Warner Chilcott plc (NASDAQ: WCRX) was the big sale today. The drug company priced a 20 million share secondary offering of common stock at $22.92 per share via Goldman Sachs, Morgan Stanley, Credit Suisse, and JPMorgan. This is not for the company’s benefit as selling shareholders include funds affiliated with Bain Capital Partners, DLJ Merchant Banking, J.P. Morgan Partners, Thomas H. Lee Partners, and certain other institutional investors and members of the company’s senior management. WCRX will not receive any proceeds from the sale of the shares, but it is still paying for the expenses of the offering under an existing agreement. This was a very low discount compared to the $23.15 close yesterday, and frankly it is sort of surprising that shares are only down 1.8% at $22.71. That is a new supply of $458 million in stock which has been dumped on the market.
JON C. OGG
Warner Chilcott plc (NASDAQ: WCRX) may have figured an even cheaper way of acquiring the pharma business from Procter & Gamble (NYSE: PG). The company is effectively selling its licensing rights of its topical psoriasis treatments to Leo Pharma, who is reacquiring the licensing rights from Warner Chilcott for about $1 billion. The deal will result in a one-time gain of roughly $450 million and will net Warner Chilcott roughly $980 million in cash.
Leo will also regain the rights to Taclonex, Taclonex Scalp, Dovonex and all products in the developer’s pipeline. Warner Chilcott will continue marketing these drugs for Leo, through the end of the year. Warner Chilcott is to also further assist with the transition for up to a year. The companies have been partners since 2003.
Warner Chilcott will use the funds to pa down its senior secured facilities and also to help finance the acquisition of Proctor & Gamble’s pharma division.
As long as the figures come to pass as we have been told through 2010 by Warner Chilcott and P&G, then it seems as though Warner Chilcott has figured out how to be rather crafty in its strategy.
Shares are up over 1% at $19.99 today and the 52-week trading range is $9.24 to $22.94.
JON C. OGG
This morning’s merger announcement where The Procter & Gamble Company (NYSE: PG) announced the sale of its global pharmaceuticals business to Warner Chilcott plc (NASDAQ: WCRX) was a strange deal for more than one reason. For starters, this is entirely a cash payment of a sum of $3.1 billion. Another issue is that very few consider P&G as a having a drug company, but more strange is that the acquirer saw its stock rise substantially. P&G’s portfolio of branded pharmaceutical products includes the following:
- Asacol® HD (mesalamine) Delayed-Release Tablets for ulcerative colitis,
- Actonel® (risedronate sodium) for osteoporosis,
- the co-promotion rights to Enablex® (darifenacin) for the treatment of overactive bladder,
- and P&G’s prescription drug product pipeline and manufacturing facilities in Puerto Rico and Germany.
The majority of the 2,300 employees working on P&G’s pharmaceuticals business are also being transferred to Warner Chilcott in a merger that is expected to close by the end of this calendar year. The deal is pending necessary regulatory approvals, although a deal of this size will probably face very little if any reviews.
Warner Chilcott believes that this will transform the business into a global pharmaceutical company with an expanded presence in women’s healthcare and the urology market ahead of the planned launch of its own erectile dysfunction treatments. It will also add in gastroenterology therapies to the company’s prpduct list.
The sale price $3.1 billion will result in a one-time earnings increase for P&G of approximately $1.4 billion after-tax, or approximately $0.44 per share. P&G also sees dilution in the range of $0.10 to $0.12 off of earnings per share in fiscal year 2010 due to the lost earnings from the business and from stranded overhead costs.