What to watch in large cap biotech earnings reports

The earnings season for large-cap biotech companies is in full swing with Biogen (BIIB) having already reported quarterly results and Amgen (AMGN) slated to report after the bell on Tuesday. Celgene (CELG) is due out at the end of this week and Gilead Sciences (GILD) soon after in early February. 1. BIOTECH STOCKS ON A TEAR: Since bottoming on December 24, the iShares Nasdaq Biotechnology Index (IBB), an ETF that tracks the stocks of biotech group, is up over 20%. Biogen, a component of the IBB, reported fourth-quarter results earlier today that beat on both the top and bottom lines. CEO Michel Vounatsos said in 2018 Biogen executed well against its strategic priorities and financial objectives. “We made significant progress in developing and expanding our pipeline, as well as advancing multiple modalities to potentially deliver new therapies to patients. We also reported solid revenue growth for the year, led by continued strong global penetration of Spinraza, significant gains in our biosimilars business, and resilience in our core MS business. We believe our strong base business, including a deep and diversified neuroscience pipeline, positions Biogen well to take advantage of the opportunities before us,” he stated. 2. AMGEN DOWNGRADE: Biotech heavyweight Amgen fell around 6% on Monday after Evercore ISI analyst Umer Raffat downgraded the stock to In Line from Outperform, citing increased biosimilar competition and an imminent court decision on Enbrel patents with Novartis’ (NVS) Sandoz. Raffat said he sees a reasonable chance the Enbrel patents are not upheld and thinks the consensus is not forecasting in a biosimilar Enbrel till the mid-2020s. Sandoz has expressed a desire to launch in the wake of a district court decision, and the appeals process will be wrapped up by January 2020 regardless, the analyst wrote in a note to investors. Further, Raffat thinks double patenting is a real concern for Amgen’s 2028 patents. 3. BIOSIMILAR THREAT: When the patent that protects a drug’s formula expires, other companies can release a drug with a similar chemical make-up, called a biosimilar, creating competition for the original drug maker. This past summer, Mylan (MYL) confirmed that it will launch its biosimilar pegfilgrastim at a wholesale acquisition cost of $4,175 per syringe, a price that reflects a 33% discount to the wholesale acquisition cost of Amgen’s reference product, Neulasta. Another large-cap biotech company, Celgene (CELG), has a key drug, Revlimid, which may see biosimilar pressure in a few years. 4. MORE MERGERS?: In early January, Bristol-Myers Squibb (BMY) and Celgene announced that they have entered into a definitive merger agreement under which Bristol will acquire Celgene in a cash and stock transaction with an equity value of approximately $74B. In the wake of the deal, Piper Jaffray analyst Christopher Raymond remained “bullish on biotech.” In a research note titled “Bristol for CELG – In Retrospect, it Makes Perfect Sense” that was published on January 3, Raymond said the market is likely to ask “who’s next?” Among large-caps, Alexion Pharmaceuticals (ALXN) and Biogen would seem to make sense as potential targets, as well as BioMarin (BMRN), Raymond wrote. While any small-to-mid cap could likely be seen as a take-out candidate, Aimmune Therapeutics (AIMT), Deciphera Pharmaceuticals (DCPH) and Rigel Pharmaceuticals (RIGL) “in particular could make sense to any strategic buyer,” added the analyst at the time.

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