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Cisco Subscription Software Growth, Dividends Are Bright Spots

Cisco Systems ( CSCO ) stock has bounced back nearly 20% since Feb. 11 and while there could be more upside in 2016, weaker spending by telecom customers could impact April-quarter results, says Pacific Crest Securities. Cisco is scheduled to report earnings for its fiscal Q3 ended April 30 on May 16, after the close. “We believe large-cap investors should continue to overweight CSCO, even after the stock has climbed 22% off  lows (now 19%), based on a favorable risk/reward ratio and the prospects for ‘The Rise of the Digital CEO’ theme to emerge as a new tailwind to drive share gains in the coming year,” Pac Crest analyst Brent Bracelin said in a research report. He says Cisco is well positioned to capitalize as CEOs and corporate boards take on a bigger role in IT (information technology) decision-making. Cisco stock is about even in 2016, but it was down 2% in early trading in the stock market today , and touched a nearly two-month low below 27. Cisco has a so-so IBD Composite Rating of 62 out of a possible 99. The network gear maker’s growing software revenue is a bright spot, contends Bracelin. “Cisco’s new leadership team continues to streamline operations and drive the model toward a higher mix of software subscriptions,” he wrote. “This, in turn, is slowly helping insulate profits during challenging periods, in our view.” He expects Cisco to remain acquisitive even as shareholder returns increase. Cisco has nearly $36 billion in cash and investments on its balance sheet. “Cisco recently raised its dividend by 24%, which currently equates to a 3.8% dividend yield,” said Bracelin in a report. “The only mega-tech companies with higher yield are telecom companies  Verizon Communications ( VZ ) and AT&T ( T ). The $15 billion buyback is another avenue of shareholder return.”

Biogen Spinning Off Hemophilia Business As Competition Heats Up

Big biotech Biogen ( BIIB ) said Tuesday that it will spin off its hemophilia business into an independent company in a move much anticipated by Wall Street. Biogen, which focuses mainly on neurological diseases, got into hemophilia with the 2014 launch of its two long-acting infusion treatments, Eloctate and Alprolix, for hemophilia A and B, respectively. It carved out some market share from leader Baxter International ( BAX ), but in mid-April press reports relayed rumors that Biogen was thinking of selling or spinning off the business. Baxter had already made a similar move when it spun off its hemophilia-focused biopharma arm as Baxalta ( BXLT ) last July. Baxalta was quickly snapped up by Shire ( SHPG ) in a $32 billion deal. Both Baxalta’s and Biogen’s infusion therapies are under potential threat from new gene therapies that might be able to cure the disease with a one-time treatment, or at least manage it with far fewer treatments. BioMarin Pharmaceutical ‘s ( BMRN ) early-stage trial results for its hemophilia gene therapy , reported last month, supported the method’s potential. Biogen’s press release mentioned that investment in research was one rationale for the spinoff. “The new company, to be named at a later date, will focus on the discovery and development of therapies for the treatment of hemophilia,” said the release. “The new company plans to bring longer-acting therapies utilizing the XTEN technology into clinical development in the first half of 2017 and to accelerate the development of bispecific antibodies and hemophilia-related gene therapy programs.” It added that the spinoff will also enable the remaining portion of Biogen to focus on its core multiple-sclerosis business, which has been struggling lately as shown in Biogen’s Q1 earnings  last month. Still, RBC Capital Markets analyst Michael Yee found the decision a bit puzzling. “Why would Biogen want to remove a growing and profitable, long-IP-duration biologics business that diversifies  Biogen and ‘dilutes’ the EPS when it’s removed?” he asked in a research note. “In addition, Biogen is not selling the business and bringing in cash (approximate $4 billion to $6 billion valuation), and prior to today, the question was what would they do with that cash and who would they buy (they aren’t getting cash in this deal). So this seems odd and perhaps implies the valuation is not what the Street perceives if a buyer was not willing to pay up.” Biogen stock was up a fraction in early trading on the stock market today , near 275. The stock has found support above its 50-day line.

Quintiles, IMS Health Merger To Forge Drug Industry Data Giant

IMS Health Holdings ( IMS ) will merge with Quintiles Transnational Holdings ( Q ) in an all-stock transaction with an equity value of about $9 billion, bringing together two of the biggest providers of data about the pharmaceutical industry. IMS Health shareholders will receive 0.384 Quintiles common stock for each share of IMS. The combined business will have an enterprise value of more than $23 billion, the companies said, and IMS Health shareholders will own about 51.4 percent of the shares of the combined business, according to a statement Tuesday. The equity value is based on IMS’s 336 million shares outstanding. The combination, which the companies expect to complete in the second half, will create an expanded pool of information drugmakers can buy to improve their businesses. IMS Health tracks prescriptions, medical claims and electronic records and sells the data, while Quintiles offers a range of services focused on product development, including advice on clinical-trial design — a business called a contract research organization, or CRO. “We view today’s merger as an intriguing combination, combining a market leading CRO with a dominant data service/technology company,” Ross J. Muken, an Evercore ISI analyst, said in a note to investors, calling the transaction a “bold move” for Quintiles. The transaction initially valued IMS at $26.53 a share, below its closing price of $26.87 on Monday. The stock had gained 5.5 percent this year, while Quintiles was little changed. IMS fell 7.3% to 24.90 in morning trade on the stock market today as Quintiles slid 7.2% to 64.11. That would value the deal at $24.61 per IMS Health share. How healthy is Quintiles’ stock, and how does it compare to rivals? Find out at IBD Stock Checkup The deal will add to 2017 earnings excluding some items. The combined company, Quintiles IMS Holdings Inc., will maintain dual headquarters in Danbury, Connecticut, and Research Triangle Park, North Carolina. Ari Bousbib, chairman and chief executive officer of IMS Health, will become chairman and CEO of the merged business. Quintiles CEO Tom Pike will become vice chairman. The board will be comprised of six directors appointed by the Quintiles board and six directors appointed by the IMS Health board. Goldman, Sachs & Co. provided financial advice to IMS Health, whose legal adviser was Weil, Gotshal & Manges LLP. Morris, Nichols, Arsht & Tunnell LLP served as legal adviser to the independent committee of the IMS Health board of directors. Quintiles’ legal advisers are Bryan Cave LLP and Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP, and its financial adviser is Barclays. Simpson Thacher & Bartlett LLP served as legal adviser to Quintiles’ independent directors.