Does Novartis AG (ADR) (NVS) Pass Buffett’s Test?

The expiration of Merck & Co., Inc. (NYSE:MRK)’s Singulair asthma drug patent leveled a hit to the company’s revenues. However, it has some promising drugs in its pipeline that may be able to increase revenues in the future, including diabetes treatments Januvia and Janumet and cholesterol drug Vytorin.

Pfizer has faced patent-cliff issues of its own, as the expiration of its Lipitor patent has caused a massive drop in Lipitor’s sales. The company has tried to make up for the loss in revenue by reducing staff to cut costs. Pfizer also has some new drugs that may help improve its revenues, including blood clot treatment Eliquis and rheumatoid arthritis treatment Xeljanz.

GlaxoSmithKline plc (ADR) (NYSE:GSK) recently acquired lupus drug Benlysta through its purchase of Human Genome Sciences. This acquisition also gives GlaxoSmithKline access to several promising drugs that were in Human Genome Sciences’ pipeline. The company is also working with a company in India to create a single vaccine that guards against polio, hepatitis B, and whooping cough as part of a larger strategy to expand into emerging markets.

Businesses with consistently high ROIC show that they’re efficiently using capital. They also have the ability to treat shareholders well, because they can then use their extra cash to pay out dividends to us, buy back shares, or further invest in their franchise. And healthy and growing dividends are something that Warren Buffett has long loved.

The article Does Novartis Pass Buffett’s Test? originally appeared on Fool.com and is written by Jim Royal.

Jim Royal has no position in any stocks mentioned, and neither does The Motley Fool.

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