AstraZeneca’s (AZN) Blockbuster Drug Pipeline

Finding winners in the pharmaceutical sector is not an easy process. But it is potentially quite lucrative.

For the pharmaceutical companies themselves, the current environment for success is reminiscent of the Greek myth surrounding Sisyphus, whom the gods condemned to repeatedly roll a boulder up a hill—only to have it roll down again once he got it to the top—for all eternity.

Today’s pharmaceutical firms must use vast amounts of capital in search of a blockbuster drug, which can generate $1 billion or more in annual sales. But then, even when such a medicine is found, the benefits provided are fleeting: from the moment a drug makes it to market, the clock begins ticking on its patent exclusivity. Once this expires and generic copycats reach the market—typically within a decade or so—revenues for the original inevitably fall, and often quite rapidly.

Then, like Sisyphus, the companies climb the hill of developing blockbuster drugs again, investing anew in the whole risky and costly process of drug development.

If you are an investor in the sector, you want to focus on the companies that have drugs in their pipelines with blockbuster potential, as well as the funds necessary to propel them through several trial stages.

Since 2010, the global pharmaceutical sector has invested the equivalent of around one quarter of its revenues in drug development each year. The U.S. industry alone spent some $83 billion on R&D in 2019—when adjusted for inflation, that’s about 10 times what it spent in the 1980s!

So, which segments of the pharmaceutical industry (and which drug companies) are poised to come up with the next blockbuster drugs?

Precision Therapies

Recent advances in science are ushering in a new era of highly effective personalized medicines. So-called precision therapies are based on greater understanding of how diseases work on a molecular level. This translates to doctors being able to identify what treatments fit which patients, and why.

Precision therapies are tailored to fit specific groups of people. This means they will likely be highly effective. But can cutting-edge personalized medicines reach blockbuster drug status? The naysayers say the market size is too small…but they seem to forget that innovative drugs can command very high price tags.

Consider recent data from the drug price tracking service division of GoodRX (GDRX). It shows that, after 15 years on the market, the average drug with accelerated approval by the FDA underwent 15.4 price increases. Drugs subject to conventional approval saw 12.7 price increases in the same span of time.

Keeping an eye on the list of development-stage therapies expedited through the FDA’s approval processes can provide insight into which companies have potential blockbusters in the pipeline. Continue reading "AstraZeneca’s (AZN) Blockbuster Drug Pipeline"

Growing Dividends is the Secret to Wealth

For the dividend-focused investor, nothing is better than one of your stocks announcing a dividend increase. So you can be assured that this Seeking Alpha headline caught my eye: 100 REIT Dividend Hikes.

Investing for dividend growth is a sure-fire way to build your wealth over the long term. The article explained that 100 real estate investment trusts (REITs) had increased their dividend rates so far in 2022. Last year there were 120 rate increases in the REIT sector.

This many increases bodes very well for one of my favorite investment strategies…

REITs own commercial properties or invest in real estate-related debt securities. The Nareit includes 213 publicly-traded REITs in its All REITs Index. These companies operate as pass-through businesses, which means they don’t pay corporate income taxes as long as they pay out at least 90% of net income as dividends to investors. The REIT dividend rules make the sector a good place to look for attractive dividend-paying stocks.

A few years ago, I researched the returns from growing dividend stocks. I found that investors earn an average annual compound total return that, over the long term, will be very close to the average dividend yield plus the average dividend growth rate.

For example, if an REIT (or shares of any stock with growing dividends) has an average yield of 4% and the dividends grew by an average of 10%, investors in that stock will have seen a 14% compound annual total return.

While the shorter-term market cycles will pull returns above and below the expected results, owning a dividend growth stock for ten years or more will push the returns very close to mathematical expectations.

When researching dividend growth stocks, look first at the historical dividend growth rate. You want to see the average growth rate and how many years the company has been increasing its dividend. For example, industrial property REIT Prologis, Inc. (PLD) has increased its dividend for eight consecutive years with an average of 10.5% dividend growth. Add in the current 2.5% yield, and you have a low-teens return potential. Continue reading "Growing Dividends is the Secret to Wealth"

Chesapeake Energy All in on Natural Gas

Forget oil—the real money is in natural gas.

Or at least that’s the message coming from a pioneer of the U.S. shale revolution, Chesapeake Energy (CHK).

From Prince to Pauper to Prince Again?

Once upon a time—when its stock was valued at more than $35 billion and its CEO, Aubrey McClendon, had the biggest pay package of any CEO of a listed firm—Chesapeake Energy was America’s best-known fracker.

But those glory days disappeared quickly, and Chesapeake became the poster child for the shale sector’s excesses.

About a year and a half ago, in the autumn of 2020, Chesapeake was in the midst of bankruptcy proceedings after the coronavirus pandemic-led crash in energy demand proved to be the final straw in the company’s fall from grace.

And for the industry more broadly, the prospects for liquefied natural gas (LNG) exports were looking bleak after a $7 billion contract to supply the French utility Engie went down the tubes on concerns over the emissions profile of U.S. natural gas.

Fast forward to 2022 and the picture has changed dramatically. Natural gas exports are booming!

Thanks to the Russian invasion of Ukraine and subsequent sanctions, Europe is in the middle of an energy crisis. It is buying up as much American LNG as it can. Those concerns about emissions are long forgotten.

In the first four months of the year, the U.S. exported 11.5 billion cubic feet a day of gas in the form of LNG, an 18% increase from 2021. Three-quarters of those exports went to Europe. And European leaders have pledged to ratchet up their imports by the end of the decade. There is also a massive opportunity in Asia, where LNG demand is set to quadruple to 44 billion cubic feet a day by 2050, according to a recent report released by think-tank, the Progressive Policy Institute.

And even here in the U.S., natural gas supplies look set to be tight this winter. Hot summer weather and high demands for power generation are sucking up supplies and leaving storage precariously low. Continue reading "Chesapeake Energy All in on Natural Gas"