Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

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


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 :

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:

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

© 2005-2019 - 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