April 6, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
Although the biotech sector doesn’t typically offer dividends to its investors, market watchers are closely watching the dividends being offered by Gilead Sciences, Inc. , Amgen and GlaxoSmithKline as possible signs that the broader sector might soon begin issuing payouts to shareholders as the climate changes.
Front and center? Regeneron Pharmaceuticals, Inc. , Celgene Corporation and Alexion Pharmaceuticals Inc. , who some biotech experts think might soon be next to dole out a piece of the profits in the form of dividends.
In an article on investors forum the Motley Fool this week, a panel of biotech columnists took a stab at guessing which sector companies could begin to issue payouts soon.
“Most biotechs are reluctant to start paying a dividend as long as they have promising candidates to invest in internally,” said Dan Caplinger, who covers finances. “While it’s a bit of a stretch to expect Regeneron Pharmaceuticals to consider a dividend right now, it could easily be in position to do so in the not-too-distant future.”
His colleague, Sean Williams, said that he thought Alexion will be next in line. “Following Gilead, I’d suggest the next biotech company likely to begin paying a dividend to investors is Alexion Pharmaceuticals,” said Williams.
“Alexion primarily focuses on rare and ultra-rare disease drugs, with Soliris being its lone drug approved by the U.S. Food and Drug Administration (FDA),” he added. “Soliris is currently approved in two indications: paroxysmal nocturnal hemoglobinuria, an ultra-rare blood disorder that results in premature destruction of a patient’s red blood cells, and atypical hemolytic uremic syndrome, an ultra-rare disease capable of damaging vital organs.”
However, other members of Motley Fool’s stable said that if they had to pick, Celgene would be the next biotech offering up dividends, though Biogen, Inc.’s significant profits and strong pipeline also make is a possibility.
“Between Biogen and Celgene, I’m going to guess that Celgene is more likely to offer a dividend first because its management has been more willing during the last couple of years to use cash to repurchase shares,” wrote Brian Orelli.
“[Celgene’s] share repurchases are a clear sign that the company has a little extra money sitting around with nothing else to spend it on. At this point, share repurchase plans are the better option as these programs can be slowed down or shut off if better opportunities arise, whereas investors don’t respond well to dividends that go away,” said Orelli.
“At some point, however, the level of repurchases becomes so large that it makes more sense to return at least some of the free cash flow to investors directly.”
Indeed, Glaxo CEO Sir Andrew Witty has been rushing to reassure the market that the massive hemorrhaging of value Glaxo has experienced also stops with him, scrambling in December reassure investors its dividend is secure despite cutting its profit forecast and increasing concern from analysts.
In a conference call Dec. 19, Witty told analysts worried about the dividend that they can expect the company to ante up its share. The firm said it will splash out 80 pence, or $ 1.25, per share for 2014.
“I don’t think people should be concerned about that,” Witty said in a call after a shareholder meeting discussing new deals the company is doing with Novartis AG .
Witty also reassured analysts that shareholders will get an additional 4 billion pounds when the deals with Novartis close.
Pending regulatory approval, both in the U.S. and in Europe, Glaxo will sell its cancer drug pipeline to the Swiss company for around $16 billion, in exchange for snapping up Novartis’s entire vaccines business for $7.1 billion. The two are also attempting to partner in a joint health venture, the parameters of which have not yet been distinctly defined.
Glaxo has been a ripe target for bearish analysts this year, after slow growth and whittled forecasts had several predicting the company will have to call in its dividend this year. After Glaxo cut its forecast in July, analysts at Liberum Capital Ltd. warned investors that the likelihood of a dividend cut was “increasing dramatically.”
Instead, Glaxo appears poised to pay out a dividend, even at an enormous cost to the company’s bottom line. If it keeps to its initial 80 pence guidance, it will use around 85 percent of its profits to meet dividend calls this year, one of the highest margins in biotech, let alone the wider capital markets.
BioSpace Temperature Poll
After last week’s news that Gilead had issued a health advisory to doctors, concern is growing after nine patients taking Harvoni or Sovaldi along with another drug, amiodarone, were treated for abnormally slow heartbeats. One of the patients died of cardiac arrest. Three of the nine patients required a pacemaker. That has BioSpace asking, what next?
