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Gilead, Bristol-Myers Pumped More Into R&D Than Shareholder Enrichments


I previously discussed Ovid Therapeutics (NASDAQ:OVID) CEO Jeremy Levin's argument that pharmaceutical companies should put more cash into their research and development and less into stock buybacks. He said doing so would better serve shareholders over the long term because, after all, new and novel drugs are the lifeline of the industry..

In 2019, the eight biggest pharma companies spent more than $31 billion on stock buybacks during the first nine months of the year, according to an article in FierceBiotech. Let's take a look at the list of companies to see who made the biggest buybacks and how the figure compared with R&D expenditures.

A caveat here. The list has been culled by filings with the Securities and Exchange Commission through the third quarter of 2019 and doesn't include companies outside the U.S. So let's look at the list:

  1. Johnson & Johnson (NYSE:JNJ)

  2. Pfizer (NYSE:PFE)

  3. Merck & Co. (NYSE:MRK)

  4. AbbVie (NYSE:ABBV)

  5. Bristol-Myers Squibb (NYSE:BMY)

  6. Gilead Sciences (NASDAQ:GILD)

  7. Amgen (NASDAQ:AMGN)

  8. Eli Lilly (LLY)

Johnson & Johnson repurchased more than $6 billion of its own shares in the first nine months of 2019, tripling what it spent for the same period a year earlier. The company also paid out nearly $7.5 billion in dividends, bring its total enrichment expenditures to about $13.75 billion. By contrast, it invested about $8 billion in research and development during the first three quarters, giving it a ratio of about 1.8 in buybacks and dividends to R&D.

Pfizer spent $8.8 billion on stock buybacks in the first nine months of 2019, nearly $2 billion more than the previous year. Its dividend payments of about $6 billion were just a hair higher than the 2018 figure. The money it poured int R&D totaled $5.8 billion, giving it a ratio of about 2.5 to 1.

Pfizer's shareholders could enjoy even bigger payoffs now that it jettisoned its Upjohn generics business in July as part of a merger spinoff with Mylan.

Merck dished out just over $8 billion in buybacks and dividends in the first three quarters of 2019, just about what it spent on research and development. Merck has done a good job of acquiring new assets in oncology, the latest the superblockbuster Keytruda.

AbbVie, meanwhile, spent a relatively paltry $300 million on buybacks in the first nine months of the year, due in great part to its deal to acquire Allergan deal. That figure was dwarfed by the nearly $10 billion it shelled out the previous year. AbbVie shareholders pocketed nearly $4.8 billion in dividends in 2019, just about what they earned the previous year. By comparison, the drugmaker spent a whopping $9.8 billion in the same time period in 2018. The small buyback total meant the company spent as much on R&D as it did on stockholder disbursements.

Bristol-Myers Squibb spent about $2.3 billion on buybacks and dividends for the first nine months of 2019, a drop of $20 million from the same period a year earlier. The company spent nearly twice as much on R&D as shareholder payouts.

Gilead took a different approach than many of its pharma brethren. The company's R&D expenditures were more than $7 billion, about twice what they were a year earlier. That amount was also $3 billion than the company spent on buybacks and dividends. Rumors persist that Gilead is on the hunt for acquisitions.

Amgen is a more streamlined company thanks to major restructuring--instead of mergers and acquisitions-- that have increased the company's profit margins. That strategy has put a lot of money in shareholders' pockets. In the first nine months of 2019, the company's combined total of buybacks and dividends was about $9.25 billion. That's about $6.5 billion higher than what it pumped into R&D. And even though Amgen is operating at a deficit, it plans to continue to reward shareholders handsomely, a plan that could be altered if an attractive acquisition came along.

Disclosure: The author holds positions in Johnson & Johnson, Bristol-Myers, Gilead, Amgen and Eli Lilly.

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This article first appeared on GuruFocus.