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Page 1: 3 Biotech Dividend Darlings

3 Biotech Dividend Darlings

Page 2: 3 Biotech Dividend Darlings

3 Biotech Dividend Darlings

• While drug companies are staples in dividend investors' portfolios thanks to their predictable demand and solid cash flow, biotech investors have far fewer dividend paying choices.

• Instead of paying dividends, most biotech companies reinvest cash flow back into their business.

• New product development.• Collaboration & licensing deals.• Acquisitions.

• Amgen, Teva Pharmaceuticals and PDL Biopharma are exceptions.

These three biotech dividend darlings may offer investors an intriguing blend of growth and dividends.

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1. Amgen Inc. (AMGN)

1. Neulasta/Neupogen: Commonly used to boost the immune system in chemotherapy, sales totaled $1.3 billion in Q1.

2. Enbrel: The widely used drug for rheumatoid arthritis and psoriasis had sales of $988 million in Q1.

3. Xgeva/Prolia: Sales of these bone bulking drugs grew 25% and 38% year-over-year, respectively, to a combined $475 million.

Amgen’s 2.2% forward dividend yield is supported by a stable of top sellers and fast-growing drugs

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Amgen Inc.Amgen’s cash dividend payout ratio, a measure of operating cash minus capex and preferred dividends, is just 27%. That suggests there may be room for future dividend increases.

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2. Teva Pharmaceuticals (TEVA)

• Teva’s a global company with $5 billion in Q1 sales– Teva sells more than $1 billion in generic drugs in the U.S. quarterly.– Specialty drug sales account for $2.1 billion in quarterly revenue.

• Teva’s patent is expiring on Copaxone this year.– Copaxone sales totaled $1 billion in Q1.– Teva has launched a 3x weekly version of Copaxone in a bid to protect its

market share from potential generic competitors.– Uncertainty remains over when/if generic biosimilars to Copaxone will be

approved.

Teva’s isn’t a traditional biotech company, but it does get roughly a quarter of its sales from Copaxone, a specialty drug for multiple sclerosis. Teva’s 2.4% forward dividend yield is on more solid footing today than a year ago thanks to the introduction of a new, longer lasting version of Copaxone.

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Teva PharmaceuticalsTeva’s cash dividend payout ratio spiked at the end of last year as the company paid out $200 million in legal settlements, but it remains healthy at 27%. That suggests there could be room for future dividend hikes, especially if Teva can convert Copaxone patients to the new version.

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3. PDL Biopharma (PDLI)

• A significant amount of PDL’s revenue is generated from royalties paid by Roche tied to patents on key cancer drugs including Avastin and Herceptin. Those patents expire this year; however, an agreement with Roche means royalties on Avastin, Herceptin, Xolair, Perjeta and Kadcyla will be paid to PDL through December, 2015.– Royalty payments from those patents made up $116 million of PDL’s $139 million in sales

in Q1.– Total royalty revenue of $139 million was substantially higher than the $99 million

recorded the year before.– The company’s cash grew to $337 million exiting March from $99 million in December.

PDL’s 7.1% forward dividend yield is the highest of the three, but comes with more risk.

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PDL BiopharmaPDL’s cash dividend payout ratio jumped in Q1 because of $12 million in cost of royalty expenses tied to a royalty purchase agreement with Depomed. In that deal, PDL paid $240 million for certain rights to collect royalties on Depomed licenses tied to diabetes drugs including Santarus’ Glumetza, Merck’s Janumet, and Johnson & Johnson’s Invokana. Given the expected drop in royalty revenue tied to expiring patents, its unlikely PDL will increase its dividend. Instead, it may need to reduce it.


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