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A big week in biotech -- and we're just getting started
The first couple days of the week are only just over, and already Wall Street's published at least a half-dozen new recommendations in the industry. Allergan scored a buy rating from William Blair on Monday, while ThinkEquity is partial to Sarepta Therapeutic. Apparently, some shop by the name of "WallachBeth" likes Jazz Pharmaceuticals. But that's not all -- some bigger firms are making even bigger news.

Time for Glaxo to go?
For example, just yesterday UBS downgraded
GlaxoSmithKline (NYSE: GSK) to neutral. With the stock up just 10% over the past year, Glaxo's hardly been on a wild run. But according to UBS, the company's 5% long-term growth rate just isn't going to cut it, and Glaxo's valuation, even at a lowly 14 times earnings, is too high to justify.

Investors who own the stock already, however, might want to hold onto it a bit longer. While it's true Glaxo's growth rate is nothing to crow about, the stock does pay a 4.5% annual dividend. In a volatile market like this one, there's something to be said for the stability of a nice, safe, 4.5% yield.

What about Eli Lilly?
But if that's the case, there could be even more to say for the stability of a 4.5% yield... at a better valuation. And wouldn't you know it? The analysts at Atlantic Securities think they've found just such a stock in Eli Lilly (NYSE: LLY). Like Glaxo, Lilly pays its investors a 4.5% divvy. Unlike Glaxo, Lilly's costs less, weighing in at a P/E ratio of just 12.5. Atlantic thinks these numbers all add up to a buy argument for Lilly.

And it may be right. After all, with $6.4 billion in annual free cash flow, Lilly's still a monster cash producer. The key thing to keep an eye on here, and the key reason why you might want to think twice before following Atlantic's advice, is that while Glaxo's not growing particularly fast, it is at least growing. Lilly's not. To the contrary, most analysts who follow the company think Lilly's profits are destined to shrink at about 8% per year over the next five years. If this is how things play out, then five years from now Lilly might conceivably be producing cash at only 65% the rate it's churning the stuff out today.

The good news? That would probably still be enough cash to pay for Lilly's dividend. The bad news: It won't leave much over for the kind of research necessary to get Lilly growing again.

Gilead is golden
Of course, the biggest biotech news of the week was Monday's FDA approval of Gilead's "Stribild" (which looks like a word with a few typos, but isn't). Four analysts -- Leerink Swann, Oppenheimer, Needham, and Brean Murray -- all responded to the news by reiterating their buy recommendations on Gilead (Nasdaq: GILD). A fifth analyst, Jefferies, wasn't quite as enthusiastic about the new HIV treatment, but did at least raise its target price on Gilead to $55.

So what has the analysts so excited about Stribild? According to, Oppenheimer noted that "GILD also announced annual pricing at a 33% premium to Atripla." (Note that Atripla is a similar combo-HIV treatment, mixing drugs from Gilead with Bristol-Myers Squibb's (NYSE: BMY) efavirenz.) Oppy estimates that Gilead can "achieve peak sales of >$2B, given the [new] drug's advantages in tolerability and bill burden relative to other front-line HIV regimens."

Needham pointed out that Gilead's pricing on Stribild will also be a 28% price improvement over Complera, another Gilead joint effort, this time with Johnson & Johnson (NYSE: JNJ). Needham further notes that with Stribild on the market, "Gilead will now have three single-tablet regimen options" for patients to choose from, at three different price points, and "with more in development." While some patients may continue to choose the cheaper options, Needham thinks margins will "gradually improve as patients transition to Complera and Stribild," and sees Gilead earning $4.35 per share in fiscal 2013.

To put it mildly, this would be a big improvement over the $3.30 per share that Gilead has booked over the past year. It would be enough to knock the company's P/E (currently at 17.5) down to just 13.3. And needless to say, that's a number that's going to look really attractive if Gilead can maintain the rate of 16.6% annual profits growth that Wall Street projects for it.

Adding to the attraction, Gilead already makes $1.35 in free cash flow for every $1 it reports as "net income" under GAAP. Arguably cheap already when valued on its free cash, the successful introduction of Stribild could make Gilead an even bigger bargain.

Long story short, the pharmaceutical and biotech sectors offer rich pickings for investors looking to receive steady, generous dividend checks from rock-solid dividend stocks. If that's your thing, check out our recent report on nine such high-quality dividend payers. Investors seeking uber-growth in the drugs industry, however, have only to look at Gilead to find it.