When investors think of pharmaceutical stocks, they tend to see them as growth opportunities, capitalizing on a collection of novel, game-changing, and often life-saving drugs. Rarely does a steady stream of income factor in to the decision to buy a particular drugmaker’s stock.
Some of these names might even surprise you.
Even with the stock’s 22% run-up this year, AstraZeneca (AZN) still pays dividends at a rate of 4.9% — the best of the big-name pharma stocks. But wait a minute … wasn’t this London-based pharma name supposed to be in trouble thanks to its rapid approach towards the patent cliff?
As it turns out, the company saw it coming years ahead of time, and did something about it. Sales for 2013 are on pace to be down nearly 8% compared to 2012’s top line, and the pros see another revenue slide coming in 2014. Beyond that, however, it’s apt to start growing again on the heels of a likely approval of the company’s diabetes drug, dapagliflozin.
Some believe U.S. sales of dapagliflozin alone could be worth more than $600 million per year.
You may know it as the company that brought you the diabetes drug Januvia and asthma treatment Singulair. But some investors know Merck (MRK) as the pharmaceutical stock that paid out 3.6% of the stock’s current price in the form of dividends over the past twelve months.
But what about the fact that its former-top-selling drug Singulair is now facing generic competition from every direction, while Januvia’s revenue has been falling for a few months? Both are legitimate concerns. However, Merck has a couple of compelling antivirals in the pipeline, while ovarian cancer therapy vintafolide and insomnia treatment suvorexant are currently receiving their final reviews by the FDA. The market is optimistic about each.
Some experts suggest suvorexant could be driving $700 million in sales in just a few years, while vintafolide could be a $2.5 billion-per-year therapy. That should help keep the dividends flowing.
Despite the recent expiration of its best-selling drug, Cymbalta, in addition to the clock ticking on Evista and the no-longer-patent-protected Humalog, it’s too soon to count Eli Lilly (LLY) out, and it’s too soon to assume its 3.9% dividend yield is going to evaporate.
See, Eli Lilly’s got five drugs currently being reviewed for approval by the FDA, and eight more therapies in phase 3 trials. None of them are apt to be the blockbuster Cymbalta is. In fact, statistically speaking, some of those drugs will ultimately be rejected or fail to meet their end goals.
In the aggregate though, the combination of the ones that cross the finish line could effectively replace the $5 billion in sales Cymbalta generated for Lilly in 2012. That means LLY can keep pumping out the dividends.
With a trailing yield of 4.7%, GlaxoSmithKline (GSK) offers the second-biggest payout among the traditional pharmaceutical companies (pharma names that develop new drugs with the intent to collect all the revenue they produce). GlaxoSmithKline, however, has decided to make a major departure from the sales-process model that got the $123 billion company to where it is today.
That change? GSK will stop paying doctors to prescribe its drugs. The company is also going to stop paying its salespeople purely based on meeting sales targets and driving prescription growth. Instead, the new compensation model rewards product knowledge, quality of service, and of course, some sort of sale s performance … though the details remain a tad fuzzy.
It’s a risky move to be sure; nobody really knows if physicians will continue to favor Glaxo’s drugs when there’s no financial incentive to do so. But what the company has lost in marketing muscle it seems to have more than made up for in credibility. That may support dividends better than any pay-per-prescription plan could.
It may be the smallest company making the list of top names in the pharma dividends race, but PDL BioPharma (PDLI) boasts the biggest payout with a whopping yield of 7.4%.
PDL is a curious pharmaceutical name, different from the traditional players. Rather than develop its own drugs on hopes at least some of them will become blockbusters, the company buys approved or nearly-approved medicines that could be described as … important but not particularly earth-shattering. The aim is to own or control marketing rights to therapies that are easy — and profitable — to monetize, and then pass a significant part of that cash flow along to shareholders in the form of dividends.
For instance, cancer agent Avastin was actually developed by Genentech (now owned by Roche), but PDL has steadily improved its royalty revenue from the drug’s sales over the past eight years, reaching a whopping $32.2 million in the third quarter of 2013.
Avastin is just one eight drugs currently licensed to PDL BioPharma right now, and they each are strong revenue contributors. There’s no limit to how many more marketing licenses PDL could garner, however, which directly boosts its dividends.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities