On The Fly: What to watch in biotech earnings reports

The earnings season for large cap biotech companies is in full swing with Biogen (BIIB), Amgen (AMGN), and Celgene (CELG) having already reported first quarter results, and Gilead Sciences (GILD) set to report early next week. 1. POLITICAL UNCERTAINTY: The biotech sector has been facing political headwinds since before the onset of the past U.S. presidential election cycle with both candidates voicing concern on drug pricing. Investors were not dissuaded by Trump's pledge to lower drug prices and the new administrations futile efforts to repeal Obamacare during the first quarter. The sector has had its best quarter in years, with the NYSE Arca Biotech index up almost 17% year-to-date. 2. MERGERS AND ACQUISITIONS: M&A transactions were significantly lower in 2016 than the prior year, which gave industry watchers optimism for an up-tick in deals for 2017, especially with the prospect of Trump tax reforms allowing bio-pharma to repatriate profits held overseas at a reduced rate. Unfortunately, that optimism has been dashed by President Donald Trump's attack on drug makers, vowing to cut prices. According to Bloomberg, "Pharmaceutical and biotech acquisitions totaled $44B last quarter, down 13% from a year earlier, and 35% below the first quarter of 2015." 3. MIXED EARNINGS: Earlier this week, Biogen reported earnings per share of $5.20 on revenue of $2.81B, higher than analyst expectations. The company's CEO said, "I am very pleased with the results of the first quarter. We saw continued stability in our MS business, executed a strong launch of Spinraza, grew market share for our biosimilars business across Europe, and reinforced the intellectual property for Tecfidera. Furthermore, we continued to build our neurology pipeline with the anticipated addition of our new Phase 2-ready anti-tau antibody." On the heels of the Biogen report, Piper Jaffray analyst Joshua Schimmer raised his price target for Biogen to $332, saying the sales beat was driven primarily by a "robust" Spinraza launch. Spinraza is Biogen's new spinal muscular atrophy drug developed with Ionis Pharmaceuticals (IONS). The next to report was Amgen (AMGN). The drug giant reported Wednesday night with EPS of $3.15, ahead of Street views for $3.00. Amgen, however, missed on its revenue line, reporting $5.5B, less than consensus views of $5.61B. The company said sales of Enbrel and Neupogen fell 15% and 31%, respectively, in the quarter. Celgene (CELG) was up next, reporting EPS of $1.68 higher than consensus views of $1.64, on revenue of $2.96B missing expectations of $3.04B. The Summit, NJ based Celgene focuses on developing drugs to treat cancer and inflammatory diseases. The company revenue miss can be attributed to lackluster sales for its psoriasis drug Otzela. "It's our belief that it's a one-quarter phenomenon because we think the company will add new patients onto therapy at a rate that will overcome whatever first-quarter contraction we saw," said Cantor Fitzgerald analyst Mara Goldstein about Otzela weakness. 4. GILEAD: The last of The Big Four to report Q1 earnings will be Gilead Sciences, slated for next Tuesday afternoon. Analysts are expecting EPS of $2.28 on revenue of $6.61B. This past Tuesday, Wells Fargo said in a note to investors that after analyzing prescription data for January and February, prescriptions of Gilead's HIV and HCV drugs were tracking ahead of expectations. The firm said the company's Q1 results appear on track to beat expectations.