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Eli Lilly and AstraZeneca Lowest Spenders on Dividends, Buybacks

These companies have plowed their cash into R&D, both in-house and external

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May 24, 2022
Summary
  • Along with AbbVie, Eli Lilly and Astra stocks were top performers in the pharma industry in the past 5 years
  • Bristol-Myers put the most into R&D, but its share price failed to reflect investments.
  • There are pros and cons to stock buybacks and dividends.
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Share buybacks and dividends among large drug makers reached a five-year high in 2021 as spending climbed to about $110 billion, according to an analysis by pharma consulting group Evaluate Vantage.

Eli Lilly and Co. (

LLY, Financial) and AstraZeneca (AZN, Financial) were two outliers in the group, choosing to put big amounts of cash into R&D. The result? Lilly investors enjoyed the greatest price appreciation among drug makers from 2016 to 2021, gaining some 270%, more than doubling the performance of second-place finisher AbbVie Inc. (ABBV, Financial), while AstraZeneca came in third with a return well over 100%. Although the share prices of pharma companies are determined by several factors, pipeline progress seems to be the most important in my experience.

In terms of their deployment of cash, Lilly spent nearly $31 billion on internal R&D and about $18 billion on external R&D, along with $12.69 billion on dividends and about $9 billion on share repurchases. Meanwhile, AstraZeneca steered $42.3 billion into outside R&D, more than $32 billion to in-house efforts, and about $18 billion into dividends while scoring a negative $3.36 billion on share buybacks. That occurred because the company issued more shares than it bought back over the period.

Roche (

RHHBY, Financial) and Pfizer Inc. (PFE, Financial), two of the biggest companies in the group, spent nearly the same amount on their shareholder returns as they did on R&D, both internal and external. Johnson & Johnson (JNJ, Financial), meanwhile, invested nearly the same in dividends as it did in in-house R&D. The three finished fourth, fifth, and sixth,, respectively, in terms of share price gains among drugmakers.

There are plenty of pros and cons to stock buybacks. Proponents say they can boost share prices, proving to be a short-term benefit to investors because there are fewer shares trading in the public markets. Companies may also be able to raise their dividends because there are fewer shares to pay on. Buybacks can also increase earnings per share and may be a way to reduce excess cash in times of low interest rates. Buybacks also might ignite a buying spree if investors see the move as a signal the company thinks its share price is too low.

On the other hand, stock repurchases have the potential to result in a dividend cut as the company has less cash on hand to return to shareholders. More importantly, investors might have concerns about the company’s long-term prospects, wondering why it doesn’t have a better place to spend its cash, including R&D, marketing, adding staff, etc.

Below is the amount the top pharma companies spent on R&D, both internal and external, as well as stock repurchases and dividends from 2016 to 2021, along with their rank for percentage increase in share price during the same period:

Company

R&D ($bn)-Internal & External

Stock Repurchases/Dividends ($bn)

Rank % Increase in Stock price

JNJ

$104.7

$70.4

6

Roche (

RHHBY, Financial)

$71.47

$66.15

5

Pfizer

$74.83

$64.79

4

Novartis (

NVS, Financial)

$76.25

$51.46

8

AbbVie

$99.72

$48.21

2

Merck (

MRK, Financial)

$79.51

$47.12

7

Bristol-Myers Squibb (BMY

$135.0

$34.26

10

Sanofi SNY)

$80.52

$26.12

9

GlaxoSmithKline (

GSK, Financial)

$52.94

$25.93

11

Eli Lilly

$48.74

$21.63

1

AstraZeneca

$74.38

$14.36

3

Source: Evaluate Pharma

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I am/we currently own positions in the stocks mentioned, and have NO plans to sell some or all of the positions in the stocks mentioned over the next 72 hours. Click for the complete disclosure
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