The COVID-19 pandemic took its heavy toll on many industries and market sectors, and diversified biopharmaceutical companies were not among those to come out clean.
Hospitals across the country prioritized COVID-19 patients and pushed back non-vital treatments of longer lead time diagnoses, such as cancer and complex chronic diseases. Consumers did their part and kept the pockets tight as economic uncertainty loomed and unemployment hit record highs. Unsurprisingly, the quarterly performance of “non-covid” names took a hit and the market noticed – shares of big biopharmaceutical companies were some of the least impressive large-cap performers of 2020.
But all bad things must come to an end, right? We’ve just wrapped up Q2 21 and the world is very different compared to what it looked like at this time of last year. Both domestic and international economies seem to be on a good trajectory, hospitals are no longer over capacity and the public is ready to pull out their wallets, as evidenced by growing consumer confidence and spending, both of which are nearing pre-pandemic levels.
So, with the headwinds out of the way, but estimates and valuations still at cautious pandemic levels for most of biopharma names, can their Q2 Reports bring out some very pleasant surprises?
SVB Leerink analyst Geoffrey Porges most certainly believes that. In his recent update on the healthcare sector, he writes: “Diversified biopharma stocks have been languishing for much of the last year, with multiples heavily discounted compared to the market, prior history, and other healthcare sectors, based on fears of drug pricing regulation and lackluster operating results. While it’s too early to say the coast is clear on pricing risks, we believe the operating performance of the industry is likely to be much better in Q2 than in Q1.”
There’s plenty of reasoning behind his optimism. For one, COVID-10 aside, Q1 has historically been a challenging quarter for biopharmaceuticals, which under current circumstances likely led to further valuation depression. Porges goes on to point out: “Q1 results are disrupted by slowing renewals and starts for new medicines, increased gross to net discounts due to commercial co-pay contributions, patient discontinuations due to their re-started deductible contributions, increased discounts to distributors and PBMs.”
This time around, he believes the natural Q2 rebound will be coupled and greatly facilitated by beats and further raises over conservative, covid-era guidance.
“Management teams that were very cautious in their initial guidance for the year are likely to increase their guidance for the year, based on a more positive outlook in the US and selected international markets," he adds. The analyst expects that stocks will “react positively to these results, with strong double-digit EPS estimate revisions reflected in positive share price responses.”
The analyst models strong recovery in vaccines, headache medicines, skin and joint treatments as well aesthetics product and services, while anticipating a more gradual pick up in long lead times disease therapies. He also points to positive FX headwinds for US based companies, given the 9% weakness in US dollar on when compared to Q1.
Based on the above, SVB Leerink is revising their Q2 Sales Estimates across the entire large cap universe: “Our analysis suggests that most large caps in our coverage could beat consensus estimates on revenue and EPS, with strongest revenue beats indicated for REGN, ALXN, SNY, GILD, and ABBV.”
Further, they’re making upward EPS revisions across the board “all of the large-cap diversified biopharmas except GSK could beat consensus on EPS, with strongest beats indicated for REGN, SNY, VRTX, and ALXN.”
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.