Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

This Biotech Patent Leader Generates an 8.3% Dividend Yield

Companies / Dividends Mar 19, 2013 - 11:29 AM GMT

By: Money_Morning

Companies

Michael A. Robinson writes: I was a hard-working journalist in the early 1990s - and the whole Human Genome effort was transforming biotechnology into front-page news - when the Oakland Tribune offered me a job as a financial writer.

When the editor explained that biotechnology would be one of my "beats" ... well, I jumped at the chance.


It was one of the best career decisions I ever made.

Biotech was an exciting beat to work ... and that was an exciting time to work it. So I immersed myself in my assignments. And that meant that I talked at length with patients, company executives, industry analysts, financiers, top researchers, and senior officials at the U.S. Food and Drug Administration (FDA), the federal agency that approves all new drugs sold in the United States.

A five-part series that I produced about a pioneering therapy for multiple sclerosis generated a lot of accolades and was one of my favorite achievements from the four years I spent on the biotech beat.

But the real benefit was in the insights that I gained, and the lessons I learned.

They've paid off for me in a big way through the years.

And now they're going to pay off for you.

Biotech Patents Generate Cash
You see, I not only learned how the industry worked, how to identify future blockbuster drugs, and how to tell which biotech stocks have the firepower to survive clinical testing to become an actual revenue-generating company.

I also learned that one indicator in particular can show you whether or not a biotech has big-profit potential.

I'm talking, of course, about patents.

A biotech, you see, is no different than any other kind of high-tech firm: If it has enough patents, it can use them as a cash-generating machine.

I don't mean it has to auction them off, like some troubled tech firms have been doing of late. A biotech with a hefty patent portfolio can simply license its technology to other companies. That brings in revenue without all the high costs - and big risks - of actually making the drug.

That's where PDL BioPharma Inc. (NASDAQ: PDLI) comes in. It's a leader in what's now known as "humanized" monoclonal antibodies.

That leadership has paid big dividends for the company.

And it can do the same for you, too.

Based in Incline Village, Nev., PDL has several drugs on the market. But it's been succeeding by letting Big Pharma do all the heavy lifting.

Consider that PDL has licensed its technology to such heavyweights as Roche Holding Ltd. (OTC ADR: RHHBY), Novartis AG (NYSE AG: NVS), Pfizer Inc. (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ).

As I see it, this is a great business model. For investors at this point, it pays to think of PDL as really more of a patent play than a true science firm.

Not that the underlying science isn't great. It's just that PDL's main sales and profits stem from its relationships with much bigger firms.

PDL's six main drugs bring in more than $300 million a year in royalty revenue. PDL refers to its portfolio as the "Queen et al patents." They expire in 2014, pending changes to those products lines that could yield either new compounds or create new uses for existing molecules.

This is one of the reasons why PDL's stock remains so low-priced and the fundamentals so appealing for at least for the next year.

With a market cap of about $1 billion, PDL trades at less than four times forward earnings, or about one-third that of the overall market.

And talk about high internal returns. It has a profit margin of an astounding 56%. Not only that, but it has a return on assets (ROA) of nearly 80%.

PDL certainly knows what to do with all that cash - it returns it to the shareholders. The stock pays an annual dividend of 60 cents a share, for a current yield of 8.3%.

A yield like that greatly reduces the risk of buying this stock. Think of it this way: If you held PDL for a year and lost 10% on the stock price you'd still almost break even.

Not Your Typical Biotech Stock
It is a rare small-cap tech leader that offers such a strong dividend. Founded in 1988, the firm specializes in making hybrid antibodies. These contain a high degree of human cells.

The idea is to use these compounds so that they don't trigger an immune response. At the same time, the drugs target cancer cells more precisely, which can be a more-effective way to treat this malady than by using strong drugs that also kill a lot of healthy cells.

In fact, two of PDL's Top Three selling drugs target cancer. They are:

■Avastin, a tumor-starving therapy used as a first-line treatment with certain cancers that invade the colorectal system, the lungs and the kidneys.
■Herceptin, which prevents the over-expression of the HER2 protein found in breast cancer.
■And Lucentis, a compound that inhibits the growth of a protein that leads to the age-related eye damage that can cause blindness.

Now, as much as I like PDL's business model, I do see some risks. The most obvious is the possibility of one of its drugs being pulled from the market for safety reasons. But this holds true for every member of the sector.

More to the point, the company has set itself up to generate new sales as its patents begin to expire. So, by far the biggest risk is seeing the stock price go down because the firm can't add enough new revenue.

But just last week, PDL announced that that it's projecting a better-than-expected $92 million in royalty payments during the first quarter. That's up 19% from the year-ago quarter and easily eclipses the $86 million that analysts were looking for, says FactSet Research.

PDL gets the royalties based on the sales of its drugs by other companies in the prior quarter and says the increase comes from higher payments for the drugs.

Should you buy this stock now?

Well, this isn't your typical "breakout" biotech.

But that's not a bad thing.

As my biotech lesson demonstrates, the deeper the collection of patents a company holds, the more business options that it has. Those patents are like a business "moat" that can keep potential rivals at bay - enabling the patent-holder to generate some hefty profit margins.

So if you're looking for a high-yielding play in the biotech/Big Pharma - and can accept a moderate level of risk - PDL could be a nice addition to your portfolio.

Source :http://moneymorning.com/2013/03/19/this-biotech-patent-leader-generates-an-8-3-dividend-yield/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in