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) and Amgen (AMGN) having already reported their fourth quarter results. Celgene (CELG) and Gilead Sciences (GILD) are set to report over the next couple of days. 1. POLITICAL FEARS LESSEN: During the month of June, various news outlets reported that President Trump's executive order may be more accommodative to drug companies than feared. The new regime in DC is not looking to have U.S. regulators "negotiate drug prices or allow the importation of cheaper drugs from abroad," said Politico. A meeting in June, which was led by OMB Director Mick Mulvaney and included top leadership of U.S. health agencies, trade officials and senior Trump advisors resulted in little progress on "on even on more modest goals that are said to be an executive order on drug prices," added Politico. Since mid-June the biotech sector, as measured by the iShares Nasdaq Biotechnology Index or IBB is up over 11% to date. 2. EARNINGS SO FAR: Biogen reported second quarter results that blew by analyst estimates on Tuesday. The biotech titan reported Q2 EPS of $5.04 on revenue of $3.1B. Analysts were expecting EPS of $4.41 on revenue of $2.81B. Multiple sclerosis drugs help to drive quarterly earnings with revenues Tecfidera sales up 13%. Following the earnings beat, Goldman Sachs analyst Terence Flynn upgraded to Buy from Neutral and raised his price target on the shares to $338 from $288. Biogen's balance sheet is under-levered, which provides flexibility, while Aducanumab provides Alzheimer's optionality, Flynn tells investors in a research note. After the close Tuesday, the second of the "Big Four" Amgen reported Q2 results that surpassed revenue and profit views. Amgen reported Q2 EPS of $3.27 on revenue of $5.8B, ahead of consensus view for EPS of $3.11 on revenue of $5.67B. Despite the quarterly beat, shares of Amgen have been under pressure due to what some on the Steet considered tepid guidance. Sales in two of the company's key drugs Enbrel and Neulasta were down due to increased competition and lower unit demand. Soon after Amgen's financial results, BMO Capital downgraded Amgen to Market Perform from Outperform. Analyst M. Ian Somaiya downgraded the stock based on valuation and his belief that American College of Cardiology guidelines probably won't be updated until late 2018, likely preventing a positive turning point in Repatha sales until 2019. Target $199. 3. BIOTECH M&A FALL: Corporate deals for pharmaceutical and biotech companies were down 13% in the first quarter, according to Bloomberg. According to the report out in April, "is that President Donald Trump dashed hopes for a new biotech boom. Once thought friendlier to the industry than his Democratic campaign opponent, he's since attacked drugmakers and vowed to force down their prices."