Big Pharma can mean big money for dividend investors. Many of the Big Pharma companies pay out dividends that are well above the market average. Investing in these companies does come with risks. New drugs only have patent protection for a limited time. Once the patent protection expires the companies risk losing revenue due to generic and biosimilar drugs being allowed to enter the market. To stay competitive, many of these companies rely on mergers and acquisitions. This can significantly increase the amount of debt a company carries. There is also the high cost of research and development, the long process of gaining FDA approval, potential lawsuits and competition from other pharmaceutical companies. Let’s take a look at a couple of pharmaceutical companies that I recently decided to sell.
In the the case of Bristol Myers Squibb (BMY) its top two selling drugs, Revlimid and Eliquis, will be facing patent expirations in the next few years. These two drugs make up about half of BMY’s product sales. When the patents expire BMY could be facing a significant reduction in revenue. BMY does have about 50 drugs in the pipeline that could replace some of the lost revenue in the future. While 50 drugs in the pipeline seems like a lot, it is considerably less than competitors Pfizer (PFE) and Merck (MRK) which each have over 90 drugs in phase 2 and 3 trials. While the stock pays a nice dividend of about 3.5%, the share price has not really appreciated in the past 5 years.
AbbVie (ABBV) on the other hand seems to be better positioned. While it does stand to lose revenue from the loss of patent protection on its number one selling drug Humira, it seems to have done a better job preparing for the loss. Skyrizi and Rinvoq are a couple of newer drugs that will help to replace some the revenue that will be lost when Humira loses patent protection. Also, the acquisition of Allergan with its Botox brand should help with the expected revenue loss. ABBV pays a great dividend of about 4.25%. Unlike BMY, ABBV has seen appreciation in its share price the last few years. Despite all of these good things, ABBV still faces the same risks as every other pharmaceutical company.
When I started investing a couple of years ago, many of the companies that I invested in I did not fully research. BMY and ABBV were two of the companies that I invested in while doing minimal research. As I grow and evolve as an investor I am learning more about what type of investor I want to be. I have learned that investing in Big Pharma is not for me. Big Pharma companies take a lot of monitoring. I am not really interested in these companies like I am other companies. The risk, or at least the risk that I perceive, is more than I want to take on in my portfolio. This is why I sold out of BMY and ABBV. I still maintain a position in Johnson & Johnson (JNJ) and will continue to hold it, at least until after the company splits.
Big Pharma can be a great investment opportunity but I have decided it just not for me. Personal finance is personal. Everyone has to find what works for them. Some will say investing in individual stocks is risky. Some of the stocks I invest in are risky so it may seem odd that I have decided Big Pharma stocks are too risky. To that I say, I invest in what I am comfortable investing in. Many will be comfortable investing in BMY and ABBV and I wish them well. I will sleep better at night now that I have sold out of those positions.
On a side note, I have added a Recommended Resources in the menu. It currently is a work in progress. It will contain blogs and YouTube channels that I enjoy as well as some sites that I use. I hope you take the time to check it out.
*Disclaimer – I am not a financial professional. The information shared here should not be considered financial advice. I am just a factory worker sharing my experience as I strive to achieve financial freedom. Before investing or making any financial decision do your own research and due diligence or consider seeking the advice of a financial and/or tax professional.
Here are some of the businesses that I use that I thought some of you might be interested in.
Lolli has a variety of stores that it is affiliated with and offers rewards for shopping at these stores. I use Lolli when I shop on Chewy and I get bitcoin as a reward. Who doesn’t want free bitcoin! If you are interested in Lolli and want to help support the blog here is my referral link: https://www.lolli.com/share/XP7gxDgqC4
I use M1 Finance for my taxable growth account. M1 Finance offers promotions for signing up. At the time of writing this post, the promotion is for $50. These promotions vary from time to time but is usually a $10 bonus. If you are interested in M1 Finance and want to support the blog here is my referral link: https://m1.finance/ktIiFeOI5zDr
Varo Bank is one of the banks that I use. From time to time the bank will run promotions. Currently, you can earn up to 3% on your savings with Varo, if you meet certain requirements. If you are interested in checking it out, here is my referral link: https://bank.varomoney.com/signup?r=William360
I use the free version on trackyourdividends.com. This is a quick an easy way for me to track my estimated annual income from dividends.
If you use the referral links listed above I could receive compensation. Please take the time to read the terms and conditions before signing up.