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Robbing Peter to pay Paul

Nature Biotechnology volume 24, page 1341 (2006)Cite this article

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When your biotech buys back its own shares, at best, it's a decision to invest cash to buy back shares today that may be worth more in the future, when the company can reissue the same shares for more money, netting more than it could earn investing the cash in drug development. At worst, it's robbing Peter to pay Paul, giving stock options to employees, while buying back stock with the other hand to mask that dilution of your interest. It may also be a wrong decision to prefer buybacks to dividends.

This matters because company cash is your money. And the two companies most-owned by biotech investors, Genentech (S. San Francisco, CA, USA; NYSE:DNA) and Amgen (Thousand Oaks, CA, USA; Nasdaq:AMGN), spent $8 billion and $3.8 billion in 2004 and 2005 of investor money, respectively, to buy back stock. That is not spare change, and it's wrongly spent.

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  1. Tom Jacobs: cofounder of Complete Growth Investor, http://www.completegrowth.com, a stock service for individual investors. Tom was neither long nor short shares nor options of the companies mentioned here at time of writing.

    • Tom Jacobs
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  1. Tom Jacobs
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Jacobs, T. Robbing Peter to pay Paul. Nat Biotechnol 24, 1341 (2006). https://doi.org/10.1038/nbt1106-1341

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