Biotech companies Biogen (BIIB) and Gilead Sciences (GILD) will likely top Wall Street's second-quarter revenue expectations, while Regeneron Pharmaceuticals (REGN) is at risk of a "significant" earnings miss, an analyst said Monday.
XThe second-quarter earnings season is set to kick off in earnest for biotech companies next week. Notable reports include Biogen, Alexion Pharmaceuticals (ALXN) and Celgene (CELG). The Street sees solid performances, but Leerink analyst Geoffrey Porges has "extreme caution."
Porges notes that the second quarter tends to be the strongest seasonally for biotech companies. This quarter captures an additional shipping day vs. the year-earlier period. However, drug price increases have been "especially sparse (and controversial) midyear," he said in a report.
"This means that channel inventory may recover from first-quarter lows, but will not be boosted above usual levels in the second quarter," he said. "The currency tailwind that has supported ex-U.S. product sales has also significantly diminished this quarter."
Porges sees sales from Biogen, Gilead and biopharma AbbVie (ABBV) as likely to beat the consensus. The best earnings performances among biotech companies could come from AbbVie and Gilead, he said. Biogen and Regeneron are most likely to come up short in earnings, he predicted.
Meanwhile, new drugs could provide upside. Amgen (AMGN) is launching a migraine drug, Aimovig. Vertex Pharmaceuticals (VRTX) and Gilead have new drugs in cystic fibrosis and HIV, respectively. Alexion's Soliris has a new use, and Biogen is launching Spinraza outside the U.S.
"Any of these products could meaningfully surprise and drive outperformance, provided sufficient revenue is incremental rather than cannibalizing other products," he said.
On the stock market today, shares of biotech companies sank 1.5%. The group is now ranked eighth out of 197 groups tracked by Investor's Business Daily. It rose two spots from last week — though it still lags the medical products group, which is holding strong in second place.
Amgen Facing Biosimilars
Biosimilars are aiming to chip away at Amgen's anemia drug Epogen and its bone marrow-stimulating drug Neupogen. Dow Jones component Pfizer (PFE) gained approval to make a copy of Epogen. Novartis (NVS) has a copycat of Neupogen. Blockbusters Neulasta and Enbrel are facing similar challenges.
"We expect to hear management address the heightening biosimilar competition against the company's (Epogen) and (Neupogen) franchises," Porges said. "We also expect management to comment on the trends in the immunology markets in the quarter."
Overall, Porges calls for Amgen to report $5.82 billion in sales, which is 2% above the consensus. But RBC Capital Markets analyst Kennen MacKay is slightly more bearish. He sees Amgen reporting $5.74 billion in sales, mostly in line with the consensus.
MacKay expects sales of arthritis and psoriasis drug Enbrel and bone marrow-stimulating drug Neulasta to come in light. Views for cholesterol drug Repatha are likely moderated, given rivalry from Regeneron. But he expects osteoporosis drug Prolia to continue to be "a positive growth story."
Regeneron Earnings Worries
Leerink's Porges expects Regeneron's sales to be 1.3% below the consensus. Though he notes the degree of the miss could be offset by better-than-expected partnership and collaboration revenue. He also calls for Regeneron's earnings per share to lag by 9.7%.
Regeneron won't be alone in its earnings disappointment, Porges predicted. He expects all of the large-cap biotech companies to report lower year-over-year growth in earnings per share vs. last year.
This "is a signal that new launches from growth companies such as Regeneron and Alexion are not delivering the impact that they were last year, or that the companies are still increasing operating expenses in line with, rather than slower than, top-line growth," he said.
RBC's MacKay notes that investor focus will remain on Dupixent, a treatment for eczema in adults. He sees $126 million in U.S. sales and $150 million in global sales. The consensus, on the other hand, calls for global Dupixent sales of $184 million to $194 million.
Alexion Could Beat
Investors will also focus on the trajectory for Alexion's drug, known as ALXN1210, analysts said. ALXN1210 is a next-generation version of Soliris, which treats two blood disorders and a neuromuscular condition. ALXN1210 is likely to gain approval in early 2019, Leerink's Porges said.
Alexion will need to convert patients from Soliris to ALX1210 to be successful, Credit Suisse analyst Martin Auster said in a report. He notes that investors will also look for commentary regarding Soliris' use in generalized myasthenia gravis, a neuromuscular disorder.
RBC's MacKay sees $846 million in second-quarter sales of Soliris. In generalized myasthenia gravis, he calls for sales of $41 million vs. the Street estimate for $28 million. Leerink's Porges models $856 million in worldwide Soliris sales.
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