In this special “new year” edition of Wealthy Retirement, we’re running a stock through the Safety Net model and The Value Meter… at the same time.

Using these two popular methodologies in tandem – one for dividend safety, the other for valuation – can give us a more complete picture of whether a stock is worth investing in.

Without further ado, here’s the first-ever combined edition of Safety Net and The Value Meter… featuring a company that just made a potentially industry-changing announcement.

Chief Income Strategist Marc Lichtenfeld

Safety Net

Now that the calendar has turned to 2026, lots of folks are making promises to themselves that they won’t keep. However, one resolution just got much easier.

Losing weight.

GLP-1 (glucagon-like peptide-1) drugs have been game changers for patients and the pharmaceutical companies that make them. Now, oral GLP-1 drugs will again move the needle significantly for customers and drugmakers.

Last week, Danish pharmaceutical giant Novo Nordisk (NYSE: NVO) received FDA approval for an oral version of Wegovy, which was previously available by injection only. The change to the company’s financial picture will be momentous.

We won’t have the full 2025 figures until next month, but free cash flow is projected to come in at $7.7 billion, a 28% decline from 2024’s $10.7 billion and 36% below 2023’s total.

However, because of the new approval, free cash flow is expected to jump 34% to $10.3 billion in 2026 and another 27% in 2027 to $13.2 billion.

The sharp decline in 2025’s free cash flow costs Novo Nordisk a couple of points on its dividend safety rating.

Another issue is the payout ratio.

Novo Nordisk is expected to have paid shareholders $7.1 billion in dividends in 2025. If free cash flow slid 28% as projected, the payout ratio would rise to 92%, which is way too high.

This year’s projected $8.1 billion in dividends would lead to a payout ratio of 78% based on the consensus cash flow estimate. That is also too high, but it’s within spitting distance of the 75% threshold for Safety Net. If cash flow is a little higher than expected (or dividends paid is a little lower) in 2026, the payout ratio may come in below the 75% level, and the company would not be penalized.

In 2025, American investors received two semiannual dividends totaling $1.73 per share, which comes out to a 3.3% dividend yield.

In its local currency, the Danish krone, Novo Nordisk has raised its dividend for 31 consecutive years – though American investors may have seen slight reductions because of currency fluctuations.

Due to falling cash flow and a too-high payout ratio, Novo Nordisk’s dividend safety rating is low. But this is an unusual situation with the company’s fortunes about to change dramatically due to oral Wegovy.

Combine that with a three-decade run of annual dividend increases and a likely upgrade this year, and the dividend should be okay despite the poor rating.

Dividend Safety Rating: D

Director of Trading Anthony Summers

The Value Meter

Sometimes the best businesses make only decent stocks – not because the company slips, but because expectations outrun what the cash can reasonably deliver.

That’s the situation with Novo Nordisk today. The business is still excellent. The stock, after a long reset, is finally being treated with more discipline.

The company is the unquestioned global leader in diabetes and obesity treatments. And Ozempic and Wegovy – overnight name brands, it seems – have reshaped how investors think about the company.

For a while, the market assumed that dominance meant inevitability. But recent results remind us that even great businesses have limits.

Over the first nine months of 2025, sales rose 12%, or 15% at constant exchange rates. Operating profit increased 5%, held back by roughly 9 billion kroner (roughly $1.4 billion) in restructuring costs tied to a companywide transformation. Free cash flow came in at 63.9 billion kroner (about $10.1 billion). That’s lower than the previous year, but still substantial.

Capital spending climbed as Novo expanded its manufacturing capacity. That spending isn’t optional. It’s the cost of staying competitive in GLP-1 therapies. Management also narrowed guidance and lowered growth expectations for diabetes and obesity treatments.

Novo trades at an enterprise value-to-net asset value ratio of 8.43, well above the universe average of 3.82. On that metric alone, the stock still looks expensive. The market continues to pay a premium for quality.

Cash flow is what keeps that premium from becoming a problem. Novo generates quarterly free cash flow equal to 11.28% of its net asset value. The universe average is just 1.12%. In plain terms, the company turns its assets into cash about 10 times more efficiently than the typical company. That matters.

Novo is consistent too. While the Safety Net model rewards year-over-year cash flow growth, The Value Meter prioritizes quarter-over-quarter growth. Over the past 12 quarters, the company grew its quarterly free cash flow 54.5% of the time, compared with 46.7% for peers. It also produced positive free cash flow in each of the past 12 quarters.

This isn’t a lucky stretch. It’s a durable pattern.

As we saw above, however, the stock has gone through a humbling year. Shares peaked in mid-2024 and slid through much of 2025.

That move wasn’t driven by collapsing fundamentals. It was driven by disappointment. Investors stopped paying for perfection.

That change is important. Novo is not cheap in absolute terms. You are still paying for elite assets. But you are no longer paying as if nothing can go wrong.

The business earns its valuation. The balance sheet is strong. The cash engine is real. What’s different now is the margin of safety. After the sell-off, it finally exists.

This isn’t a stock for traders chasing excitement. It’s for patient investors who want exposure to a world-class cash producer after expectations have cooled. The upside may be quieter from here, but it no longer depends on flawless execution.

The Value Meter rates Novo Nordisk as “Slightly Undervalued.”

The post Novo Nordisk: What’s Next for the Pharma Giant? appeared first on Wealthy Retirement.

Stoke’s mission is simple but bold: Use RNA science to “fix” diseases caused by missing or insufficient proteins.

The company’s approach works by boosting protein production only in tissues where the protein normally exists. It doesn’t alter DNA or insert new genes. Instead, it teaches the body to make more of what it’s already built to make.

In August, Stoke dosed the first patient in its Phase 3 EMPEROR trial for zorevunersen, which is a potential disease-modifying treatment for Dravet syndrome – a severe form of childhood epilepsy marked by constant seizures and developmental delay. Patients will receive four doses over a 52-week period.

The main goal of the study is a reduction in seizure frequency at week 28, with secondary goals related to cognition and behavior.

Current drugs can reduce seizures but don’t address the root problem. Zorevunersen might.

Early data have been encouraging. In long-term studies, patients on zorevunersen showed substantial seizure reductions and lasting improvements in cognition and behavior – signs that the treatment may truly modify the disease, not just mask it.

Results through 36 months have shown continued seizure reduction and steady gains in daily living, communication, and motor skills.

Beyond zorevunersen, Stoke is advancing another treatment called STK-002 for autosomal dominant optic atrophy (ADOA). Management confirmed that STK-002 has begun a Phase 1 study in the U.K. The company is also exploring other disorders such as SYNGAP1, expanding its reach across rare neurological conditions.

Now, the Value Meter test.

On valuation, EV/NAV stands at 2.13, about half the peer average of 4.20. Investors are paying less for Stoke’s assets than for similar companies, leaving room for upside if zorevunersen succeeds.

On cash efficiency, FCF/NAV averages -2.69%, compared with a peer average of 0.79%. That’s normal for a clinical-stage biotech. It signals steady spending, not waste.

On consistency, Stoke’s 12-quarter FCF growth rate of 45.5% nearly matches the peer average of 46.2%. For a company still in the clinic, that’s a quiet sign of control.

(The company expects its current cash to fund operations through mid-2028, helped by its collaboration with Biogen, which will handle commercialization outside the U.S., Canada, and Mexico.)

Together, these numbers reveal that the market is giving Stoke credit for the science and its strong balance sheet while still pricing in the risk of a binary trial outcome.

The stock reflects that balance. It built a long base over the past year, then broke higher into the fall. Shares recently traded in the high $30s after a strong run.

With Phase 3 now underway and results years away, volatility will remain part of the ride.

For investors, Stoke is a patient-capital story. If the EMPEROR study for zorevunersen delivers, today’s discount could vanish quickly. If not, the market’s caution will look wise. Until then, this one belongs on the watchlist, not in the “set-and-forget” pile.

The Value Meter rates Stoke Therapeutics as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Stoke Therapeutics: A Biotech on the Verge of a Breakthrough appeared first on Wealthy Retirement.

For as long as I can remember, Wall Street has been scared silly about AbbVie (NYSE: ABBV).

The rub on AbbVie is that Humira, the company’s top revenue generator and the biggest-selling drug in the world, is now off-patent. For many years, Wall Street analysts advised investors to stay away, warning that when Humira’s patent expired, generics would flood the market and cause AbbVie’s revenue, earnings, and stock price to crater as a result.

But in reality, the company is as terrifying as a polite 4-year-old trick-or-treater in a princess costume.

The chart below shows how wrong Wall Street analysts have been about AbbVie.

Even now, more than a third of analysts that cover the stock don’t rate it a “Buy.” But I never let the “Wrong Way Corrigan” analysts influence me.

AbbVie has been in the Compound Income Portfolio in my monthly newsletter, The Oxford Income Letter, since 2016. With dividends reinvested, we’re sitting on a gain of 376% and enjoying an annual yield of 10.8% on our original investment.

AbbVie is a Perpetual Dividend Raiser, having boosted its dividend every year since it was spun off from Abbott Laboratories (NYSE: ABT) in 2013. It currently pays shareholders a quarterly dividend of $1.55 per share, which gives the stock a 3.3% yield on the current price.

Can AbbVie continue to be a Perpetual Dividend Raiser?

In the second quarter, Humira sales dropped 29% year over year.

As a result, the company’s free cash flow is forecast to decline from $22.1 billion last year to $17.6 billion in 2024.

However, AbbVie is only expected to pay $11.1 billion in dividends for a payout ratio of 63%, which is well within my comfort range. I like to see companies’ payout ratios stay below 75% of their free cash flow. That tells me that even if free cash flow declines, the company should be able to afford its dividend going forward.

Plus, as I said above, AbbVie has boosted its dividend every year for 11 years, showing investors its commitment to dividend growth.

With AbbVie boasting a strong history of dividend raises and enough free cash flow to cover its dividend, don’t be scared off by the Humira situation. AbbVie’s dividend has a low risk of being cut.

Dividend Safety Rating: B

What stock’s dividend safety would you like me to analyze next? Leave the ticker in the comments section.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.

The post AbbVie’s Dividend Isn’t as Scary as It Looks appeared first on Wealthy Retirement.

So when he talks, I – and his thousands of readers – listen.

Today, he’s sharing a story about a time he narrowly avoided a catastrophic biotech investment… and learned several valuable lessons in the process.

– James Ogletree, Managing Editor

“It’s either water, or it’s not water. And we know it’s not water.”

That’s what the CEO of a small cap biotech company once said to me in a hotel suite during the J.P. Morgan Healthcare Conference.

He was talking about his company’s groundbreaking cancer drug that was in clinical trials. He was basically telling me that the drug worked.

The CEO was a Harvard grad, and he was energetic and charismatic. I believed him.

I was early in my career covering biotech stocks, and this drug tackled a difficult-to-treat cancer. I wanted the medicine to work for patients, and I wanted the recommendation to work for my readers, as we were getting in early.

My readers made a tiny bit on the stock, but not a ton, as we got stopped out when the stock started to slip after an initial gain.

I was disappointed to get stopped out, but I stuck to my discipline and recommended selling the stock when the stop was hit.

Boy, am I glad I did.

It turns out that the CEO was right. The drug wasn’t water.

It was poison.

Not only did the Phase 2 data show that the drug did nothing to treat cancer, but patients who took it actually had a higher death rate than those not taking it.

You can imagine what happened next. The stock fell off a cliff. It dropped from about $15 to below $1 and eventually became a zero.

As I said, this was very early in my days covering biotech, about 15 years ago. I learned three valuable lessons…

Lesson No. 1: Fine-tune your BS detector.

CEOs of publicly traded companies are typically measured in what they say about their companies – or, in the case of biotech and pharmaceutical companies, what they say about their drugs.

They’ll tell you what the data shows and will of course be bullish, but they won’t say definitively that a drug is safe and effective until the FDA says it is.

The guy I talked to was so cocky about his drug, alarm bells should have been ringing.

If you ever hear a biotech CEO talking exuberantly and definitively about a drug that has not finished clinical trials yet, be wary.

Lesson No. 2: Look at the data.

When it comes to clinical trials, understand what the data shows. A drug may have shown effectiveness in an early trial, but if the number of participants was low or if the study wasn’t double-blind (where neither the patients nor the doctors know who is getting the drug), the data may not be accurate.

That doesn’t mean the drug doesn’t work. Many successful blockbusters started with a small trial. But you should temper your expectations until a larger, more rigorous trial is conducted, because lots of failed drugs started with a small trial too.

Lesson No. 3: Stick to your stops.

I’ve always been disciplined when it comes to trading. When a stop is hit, I sell – no matter how bullish I am. (In some cases, after I sell the stock, I may look for a better opportunity to buy it again later.)

When you’re upset about potentially getting stopped out, it’s too easy to make excuses and justify why you should stay in a trade. Stops take the emotion out of trading, and that’s the single most important thing you can do to improve your results.

Honor your stops.

The Cost of Learning

Everyone makes mistakes and pays “tuition” – the cost of learning – when they start trading. I certainly have.

Luckily, this one wasn’t costly at the time. But the lessons I learned helped shape the way I invest and trade – especially in the biotech and pharma sectors.

The next time you hear a CEO talking about their company, ask yourself whether the statement is equivalent to the “it’s not water” declaration. If it is, don’t just walk away – run.

The post Avoid These Pitfalls of Biotech Investing appeared first on Wealthy Retirement.

Organon has hit the ground running with a diverse portfolio of women’s health products, including its flagship product, Nexplanon – a long-acting reversible contraceptive implant. It’s also working on treatments for conditions like endometriosis and polycystic ovary syndrome.

The company is aiming to capitalize on the growing market for biosimilars, which are lower-cost alternatives to biologic drugs. It also has an “established brands” business that produces cash flow from well-known drugs that have lost patent protection.

Overall, Organon has an interesting business model that blends the potential high growth of women’s health and biosimilars with the stability of established brands.

Speaking of high growth, the stock has just about doubled year to date.

But as we’ll see, the financials tell a more complicated story.

First, let’s examine Organon’s enterprise value-to-net asset value (EV/NAV) ratio. As always, this metric gives us a sense of how the market is valuing the company relative to its assets.

Organon’s EV/NAV sits at an eye-popping -1,215.7, which is nearly 11 times worse than the average of -111.2 for companies with negative net assets.

We typically compare our Value Meter stocks with companies that have positive net assets, so you might be wondering why we’re looking at companies with negative net assets today. The reason is simple: It’s not uncommon for younger companies to have more liabilities than assets as they grow and invest in the future, so I wanted to compare Organon with the companies it’s most similar to.

Even so, Organon’s situation is far more extreme than most – especially when you consider its cash flow generation.

In three out of the last four quarters, Organon has burned through cash faster than a California wildfire. On average, its free cash flow was -99.6% of its net assets over those four quarters.

For context, the average for similar companies was just -5.3%. While that’s still not great, it’s a far cry from Organon’s cash bonfire. It’s like comparing a leaky faucet to Niagara Falls.

Organon did, however, manage to report some solid numbers in the first quarter of this year.

Total revenue was up 7%, with all three of the company’s franchises showing growth. Biosimilars revenue grew by a very strong 46%, women’s health revenue rose 12% (led by 34% growth for Nexplanon), and established brands revenue increased 2%.

But despite those promising results, it’s important to step back and look at the bigger picture. And that picture shows a company that’s been struggling mightily with its balance sheet and cash flow.

The Value Meter is focused on the company’s overall financial health, and the road to consistent profitability and positive cash flow looks long and bumpy. Plus, Organon’s extremely negative EV/NAV ratio and cash burn rate are simply too glaring to overlook.

Of course, none of this means Organon is a lost cause. But it does mean that at current prices, investors might be paying too high of a premium for its shares.

The Value Meter rates this one “Slightly Overvalued”… but it’s dangerously close to crossing into “Extremely Overvalued” territory.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post A Healthcare Stock Burning Cash at an Alarming Rate appeared first on Wealthy Retirement.

Health insurance premiums rose 7% last year. Medical costs are expected to rise 7% this year after increasing 6% last year. And I’ve exclaimed “What?! That can’t be right!” after receiving a medical bill or checking out at the pharmacy more times than I can count.

Yet my doctor friends claim they make less money and spend more time doing insurance paperwork than ever before.

I felt bad that one of my physician friends recently had to spend time fighting with my insurance company (thanks a lot, Cigna) to get approval for medicine that I was already taking. This medicine keeps me out of his office, which actually saves the insurance company a considerable amount of money.

Luckily, there are several ways you can reduce the healthcare headaches and lower your costs by hundreds or even thousands of dollars per year.

Here are three that have worked for me in the past:

1. Use the GoodRx app.

GoodRx is one of the simplest tools you can use to save money on your medication. If you’re not already using it, download the app right now. It’s absolutely free.

I featured GoodRx in my book You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners.

All you do is type your ZIP code and the name of your medicine into the app, and it will tell you the cheapest place to buy it. And in case you don’t want to go elsewhere to buy your medication, the app often has big money-saving coupons that you can use at your preferred pharmacy.

Last week, when my pharmacy notified me that my prescription was ready, it said it would cost me $289 out of pocket (thanks again, Cigna). So I looked up the medication on GoodRx, and there was a coupon that lowered my out-of-pocket cost all the way down to $133. All I had to do was show the coupon to the cashier.

GoodRx feels like one of those things that are too good to be true, but it’s helped me save money for years. It’s incredibly simple. I’ve never had a pharmacy refuse it, and it even has discounts and coupons on medication for your pets.

2. Ask.

No, that’s not the name of another app. If your medical costs are very high, ask your healthcare provider to lower your bill.

Now, I’m not talking about nickel-and-diming them for a small expense. No one wants to feel like they’re haggling at a tourist market when they’re talking to the physician’s office manager.

But when you have a big bill that your insurance isn’t covering, ask as nicely as you can if there’s anything your provider can do to help you out. Most of the staff in doctors’ offices are hard-working people who don’t make a fortune, so they get it. And your doctor may also be perfectly willing to help you out. You’d be surprised how accommodating they may be in the right circumstances.

I wouldn’t do this every time, but when you get that big whopper of a bill – especially if your insurance company is being difficult – go ahead and ask.

Many years ago, when my son was born, the anesthesiologist wasn’t in our insurance network even though the hospital was in our network. We didn’t choose the doctor; he was simply the one who was on call when my wife went into labor. So when we got a bill that would’ve forced us to decide between paying the doctor or sending our son to college someday, we explained the situation to the doctor’s staff, and they only charged us half.

Thanks to their flexibility, I’m happy to say that my son is a college graduate.

3. Stay out of the emergency room.

Obviously, if you’re in an emergency and you need to go to the ER, you should. But many situations that are not emergencies can be handled at urgent care. And that can make a huge difference – in more ways than one.

First of all, the ER is awful. You’ll be surrounded by people who have horrible injuries or are really sick. On top of that, the average wait time at an emergency room in the United States is two hours and 25 minutes. You’ll typically wait for 15 minutes to an hour at an urgent care facility, though the majority of patients are seen in under 15 minutes.

And keep in mind that only 12% of emergency room visits result in hospital admission.

Then, of course, there’s the cost. Emergency rooms are disgustingly expensive. A trip to the ER costs five to 10 times as much as an urgent care visit on average.

Many insurance companies have nurses on call 24 hours a day who can help you decide whether you’re better off going to the emergency room, heading to urgent care or just waiting it out.

You may think these nurses always recommend whichever option is the cheapest for the company. But in my experience, that is not true at all.

There are too many ambulance-chasing lawyers out there who would sue the insurance company if it gave you bad advice. So the insurance providers are going to make sure their butts are covered.

Once, after I had an allergic reaction, the insurance company’s nurse told me to go to the ER right away. Since it was in the middle of the day, I asked if I could go to urgent care instead. She begrudgingly said I could as long as I went right away.

So I went, got treated and was back home in about an hour. And I saved myself and the insurance company a few thousand dollars.

(You’re welcome, Cigna.)

The post 3 Easy Ways to Save Money on Healthcare appeared first on Wealthy Retirement.

Many thanks to all of you for your kind words and encouragement. It certainly feels good to be back at the Club, and I look forward to sharing my honest thoughts with you, as I’ve always done in years past.

In addition to the niceties, I also received many requests to run certain stocks through The Value Meter. Today’s stock is one such example.

Pfizer (NYSE: PFE), one of the world’s largest drugmakers, became a Wall Street darling during the pandemic as demand surged for its COVID-19 vaccine and booster shots. But now, with that health crisis mostly behind us, shareholders have seen their fortunes reverse.

Since hitting an all-time high a couple of years ago, Pfizer’s stock price has been cut in half, reverting to pre-pandemic levels. This steep drop now has many investors wondering whether Pfizer has “value” written all over it.

However, it’s important not to mistake a lower price for inherent value. Let’s look more closely at the company’s financials to see why.

Again, as global demand for its COVID-related products has waned, Pfizer’s revenues and EBITDA (earnings before interest, taxes, depreciation and amortization) have unsurprisingly retreated back to their pre-pandemic levels.

You can see that the company’s growth in both revenue and EBITDA was tepid for several years before spiking during the pandemic.

Meanwhile, free cash flow generation has been steadily deteriorating for the past couple of years, and it has now fallen significantly below pre-pandemic levels.

Simply put, both the euphoria and the exceptional financial performance that buoyed Pfizer’s stock price have vanished. And investors know it. Hence the sell-off.

The deep cut in the stock price means the market is rightfully pricing in the post-pandemic reality of Pfizer’s core business, which happens to look a lot like it did before the pandemic.

But I don’t think the stock is quite at the point of being undervalued yet.

Pfizer’s price-to-cash flow ratio of 19.3 is roughly equal to the industry average of 18.2. Its price-to-book ratio of 1.6 also approximates the average of 1.5 for all publicly traded stocks.

But in terms of sales, earnings and cash flow growth, the company pales in comparison with many of its peers, which offer better opportunities to grow your capital.

While the stock is much cheaper today than it has been over the past two years, Pfizer does not appear meaningfully undervalued.

The Value Meter rates shares of Pfizer as being “Appropriately Valued.”

Be excellent,

Anthony

P.S. In the weeks ahead, I will be updating The Value Meter to better reflect my own research and my approach to finding the best value opportunities in the market. My hope is that these updates will make my ratings even more accurate and will make identifying undervalued gems – and avoiding overinflated traps – even simpler.

As always, if you have a stock that you’d like to have rated by The Value Meter, leave the ticker symbol in the comments section below.

The post Is Pfizer a “Buy” After Crashing Back to Earth? appeared first on Wealthy Retirement.

The stock currently yields 4.5%. But can it continue to pay its $0.57 per share quarterly dividend despite an expected decline in its free cash flow next year?

Bristol Myers Squibb has 35 approved drugs, including well-known names like blood thinner Eliquis and cancer fighters Opdivo and Revlimid.

This year, revenue and earnings are forecast to dip, though free cash flow is projected to grow considerably from 2022’s total. However, next year, while earnings are expected to recover, free cash flow will drop, according to Wall Street analysts.

In the Safety Net model, there is no sin bigger than falling cash flow.

However, the drug giant’s other numbers are very solid. The company will likely pay out about $4.6 billion in dividends this year, which is just 30% of its expected free cash flow. Next year’s predicted $4.8 billion in dividend payouts should result in a payout ratio of just 33%.

Those numbers are quite low and make the dividend quite affordable.

Should free cash flow continue to head south in 2025, the company’s dividend safety would likely get a downgrade. But given Bristol Myers Squibb’s low payout ratio and its strong track record of 14 straight years of dividend increases and 44 straight years without a dividend cut, the current dividend is very safe.

Dividend Safety Rating: A

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section. You can also take a look to see whether I’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name and hit “Enter.”

The post Can Bristol Myers Squibb Keep Its Streak Alive? appeared first on Wealthy Retirement.

Do Knicks fans wish they had landed Kevin Durant?

Phase 2 trials are my favorite time to get involved in a biotech company. I’ll explain why in a moment. But first, a quick review of the phases of clinical trials…

The Three Distinct Phases of Clinical Trials

Before a new, experimental drug is tried in humans, it’s put to work in test tubes and then animals. Once it’s ready for human trials, it’s tested in three distinct phases.

The Phase 1 trial is conducted with a limited number of subjects, usually fewer than 50. In cancer trials, the drug will be given to patients sometimes as a last resort. For drugs targeting many other diseases, they’re given to healthy volunteers so doctors can better understand how the drug reacts inside the human body.

If a drug is deemed safe after this period, the company will proceed to Phase 2. This trial usually consists of a few dozen to several hundred patients receiving varying dosage levels of the particular drug.

The data that’s considered most accurate is from a trial that’s “double blind” (neither the patient nor the doctor know if the patient has received the drug) and placebo controlled (compared with a placebo or standard of care). Some, but not most, Phase 2 trials are double blind and placebo controlled.

In Phase 3, companies test hundreds to thousands of patients. If the data proves that the drug is safe and effective, the company will usually apply for approval.

Naturally, the more patients who take part in a trial, the greater the chance the drug fails. For example, the drug may not work, or there may be unexpected side effects. This is especially common in cancer trials, where the response rates are low, even with approved drugs.

Positive results in Phase 3 can push a stock higher as investors begin focusing on approval and the sales and profits that could follow. However, it doesn’t always work that way. Many drugs with seemingly strong Phase 3 results have been rejected by the FDA for one reason or another. This can crush investors who followed a drug stock all the way to the end.

Alkermes (Nasdaq: ALKS) is a great example. Investors got their hopes up when Phase 2 data showed that Alkermes’ antidepressive drug ALKS 5461 was safe and effective for patients who did not respond adequately to standard therapies… Yet the FDA rejected it and shares tanked.

This is one reason why Phase 2 is the real sweet spot for biotech investing…

Phase 2 Trials: a Profitable Time to Be Involved in Biotech Stocks

Phase 2 is often the most profitable time to be involved in a small cap biotech stock. Many times, Phase 2 results are positive. Sometimes it’s because the drug works. And other times it’s because the trial is rigged to provide positive results.

For example, Cel-Sci (NYSE: CVM), a company that stirs passion (both positive and negative) among biotech investors, ran a Phase 2 study on the head and neck cancer drug Multikine. However, rather than test the drug against other existing treatments, Multikine was given along with an existing treatment.

At the end of the trial, Cel-Sci boasted a 12% complete response rate. But it was impossible to determine if the two out of 19 patients who had a complete response saw their tumors disappear due to Multikine or due to the other treatment.

So why would a company do that?

To show good results in the hopes of raising additional capital.

There are also times when the science is conducted properly and Phase 2 claims are valid, but the drug isn’t able to replicate results in a Phase 3 trial. Remember, a Phase 2 trial usually contains a much smaller sample size, which can easily distort results.

Very often, when a company reports strong Phase 2 results, the stock takes off, as it is the first real indication that it might be approvable. Investors get excited, potential partners begin sniffing around and the media begins to cover the drug’s potential. Even though at this point things are just starting to get promising, it’s often a great time to take the money and run.

Here are a few great examples…

Dermira (Nasdaq: DERM) recently released positive Phase 2 results for its drug lebrikizumab – an immunosuppressive used to treat asthma. The stock doubled in value almost immediately.

Novocure (Nasdaq: NVCR) – one of my past recommendations in my biotech trading service Lightning Trend Trader – released strong Phase 2 results in September.

We closed out a 228% gain on my options recommendation in October.

Last July, I recommended Regeneron Pharmaceuticals (Nasdaq: REGN) following positive Phase 2 results. Soon thereafter, we closed out a 108% options gain.

Phase 3, on the other hand, is fraught with risk. These trials are expensive to run, and there’s no guarantee that the drug will again show strong results. For example, there have been some instances where the drug replicated its earlier results, but there was a stronger-than-expected response from the placebo group, narrowing the difference that the drug made and making it appear less effective.

Phase 2 Takes Off and Fails in Phase 3

There are many instances of stocks that have taken off during or after Phase 2 results, where investors made lots of money but then suffered losses when the drug failed in Phase 3.

Here’s a great example…

Several years ago, my subscribers made money on Medivation despite a disastrous Phase 3 trial that resulted in the stock plummeting.

Medivation had a drug for Alzheimer’s called Dimebon. The Phase 2 results were outstanding. They showed a slower deterioration and fewer side effects than the existing therapies, including Pfizer‘s (NYSE: PFE) Aricept. Despite skeptics’ doubts, the stock ran in anticipation of Phase 3 results. If the data was strong and the drug got approved, it would likely be an immediate blockbuster.

After the stock doubled, I recommended that subscribers take half of their profits off the table. Note, this is not the usual Oxford Club philosophy, but with small cap biotech stocks that can plummet on one piece of news, I often suggest readers take their risk capital off the table once the stock has risen 100% or more.

So with investors now playing with the “house’s money” after taking their initial investment back, we waited for the Phase 3 results.

As it turns out, the drug didn’t work.

The stock got crushed, and we sold out our remaining position. But because we had sold half at a 100% profit, we still pocketed a 37% gain. Not bad for a failed drug…

If the Smart Money Leaves… Take Your Profits and Follow

There have been several other instances where something similar has occurred.

I recommended Celldex Therapeutics (Nasdaq: CLDX) right before the company released positive Phase 2 clinical trial data on its treatment for triple-negative breast cancer… and the stock surged 419%.

We also made 102% gains on Delcath Systems (OTC: DCTH) and 42% gains on Mela Sciences (Nasdaq: MELA), despite FDA rejections.

Although in these cases the Phase 3 trials were not deemed a failure, the FDA has rejected the applications for approval until more questions are answered.

Lastly, after positive Phase 2 results, you sometimes see the early investors and venture capitalists exit the position. They’ve made their money and don’t want to stick around for the risky Phase 3. If the smart money is leaving, it may be a good idea to follow them out the door. At least with part of your investment.

There’s nothing wrong with hanging around and seeing if a small biotech company can get the ball across the goal line and get its drug approved. But considering that less than half of all drugs in Phase 2 actually make it to the market, it’s a smart idea to take profits along the way when you can.

Good investing,

Marc

The post The Sweet Spot for Biotech Investing appeared first on Wealthy Retirement.

This makes pet pharmaceuticals a $6 billion a year business and growing. PetMed Express (Nasdaq: PETS) is America’s largest pet pharmacy.

But will America’s love affair with its pets translate into a stable dividend?

Thanks in part to the booming industry, PetMed Express has grown its cash flow over the past several years. And next year, cash flow is forecast to spike.

The stock’s attractive 4.75% yield is fueled by $17.5 million in dividends paid last year. In 2019, that number is expected to rise to $21.3 million. That gives PetMed Express a low 37% payout ratio.

A stock’s payout ratio is the percentage of earnings or cash flow that is paid out in dividends. I calculate payout ratio using free cash flow, which is the most conservative measure of cash flow and reflects the amount of cash that truly comes into a business. Earnings, on the other hand, includes all kinds of noncash items in its calculation.

In other words, in PetMed Express’ case, for every $1 in free cash flow, the company paid shareholders $0.37 in dividends. That is low, which is a good thing. That means that if cash flow were to decline, there would be plenty of room for the company to continue to pay the dividend without having to cut it.

If a company paid out all or most of its cash flow in dividends and hit a rough year or so, it would have to either dip into cash on hand or borrow money to pay the dividend. Otherwise, the dividend would have to be cut.

In this case, there is so much wiggle room that management could continue to raise the dividend as it has for each of the last nine years.

The fact that it has a solid track record of paying and raising the dividend bodes well for future dividend payments.

PetMed Express’ strong cash flow growth easily covers the dividend, which means shareholders can feel as comfortable with their dividend as a little one with their best friend.

Dividend Safety Rating: A

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker in the comments section.

Good investing,

Marc

The post A 4.75% Yield That’s the Cat’s Meow appeared first on Wealthy Retirement.