Amgen Inc. (NASDAQ: AMGN) and Genzyme Corporation (NASDAQ: GENZ) are two dead money biotech giants which are trying to turn their ships around. The reason for each being dead as a stock is a night and day difference. But both have a quest to boost long-term value, and so far both have resisted the call to begin making high yield dividend payments.
Genzyme’s woes go to its manufacturing issues back in 2009 and in 2010. Despite the company reaching a pact with the government via a huge fine, the company refuses to pay its shareholders directly. So far management did a bond offering of $1 billion and pledged to use that to accelerate its $2 billion share buyback plan with what is effectively a $1 billion share purchase through the end of this month. There are no assurances that the buyback will make the stock rally, but worst case it will likely offset all of those shares being sold and then some.
Amgen’s woes are tied to Medicare reimbursement rates and other safety issues. It is a political whipping stock and when you hear politicos say things about “generic biologicals” they mean Amgen and its anemia franchise. Amgen appears to have reached a stalemate for now in D.C. and the company has now said that it is aggressively looking for international diversification via acquisitions.
You know that InvestorPlace and its readers love dividends. And if you track biotech stocks, you know that the sector is effectively nothing more than a group of tracking stocks that are day to day bets on the success and failure of current and future drugs.
If you look at the Biotech HOLDRs (NYSE: BBH), you will see a history of large dividends sporadically, but some of these are from deals that have been made in the sector and some are capital gains distributed. There is just no steady dividend in biotech. If you look at how Genzyme and Amgen are valued out into Fiscal-2011, the reality is that these companies begin to look more and more like a Big Pharma company. Pfizer Inc. (NYSE: PFE) trades with a 4.7% yield and Merck & Co. (NYSE: MRK) trades with a 4.3% yield.
Dividends are not exactly synonymous with aggressive growth. And historically biotech has been aggressive growth. Now that the sector’s growth has reached maturity and now that growth rates are moderating, these companies need to start conducting the good old-fashioned shareholder reward program… dividends.
None of the big biotechs want to be first to offer up a dividend. One day they will, and maybe not by choice.
