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Sunday, September 23, 2018

Biotech week ahead, Sept. 24


After ending almost flat in the week ended Sept. 14, biotech stocks have seen some bounce in the running week, with the iShares NASDAQ Biotechnology Index IBB 0.62% up about 1.3 percent through Thursday.
Altimmune Inc ALT 0.15% more than doubled in the week, while the worst decliner of the week was nano-cap Egalet Corporation EGLT 266%, which announced termination of an offer to repurchase its debt due 2020, suggesting it would default on the loan.
The following are catalysts in the upcoming week that could sway biotech stocks:

Conferences

  • 21st European Society for Clinical Virology, or ESCV, Meeting: Sept. 23-26 in Athens, Greece
  • The International Association of Study of Lung Cancer, or IASLC, 19th World Conference on Lung Cancer: Sept. 23-26 in Toronto
  • 9th International conference on Clinical Research and Diagnosis: Sept.. 24-25 in Chicago
  • 3rd International Conference on Diagnostic Microbiology and Infectious Diseases: Sept. 24-25 in Montreal
  • 3rd World Conference on Breast and Cervical Cancer: Sept. 24-25 in Abu Dhabi
  • 27th International Conference on Pediatrics, Neonatology and Pediatric Nursing: Sept. 24-25 in Tokyo
  • 18th International Conference on Glaucoma & Retinal Diseases: Sept. 24-25 in Dallas
  • 5th World Heart and Brain Conference: Sept. 24-26 in Abu Dhabi
  • International Conference on Neuroimmunology, Neurological disorders and Neurogenetics: Sept. 26-27 in Montreal
  • 20th World Congress on Radiology and Oncology: Sept. 26-27 in Chicago
  • 18th World Congress on Optometry and Vision Science: Sept. 26-27 in Montreal
  • 29th International Congress on Prevention of Diabetes and Complications: Sept. 27-28 in Berlin
  • 10th Euro-Global Conference on Infectious Diseases: Sept. 27-29 in Rome
  • 15th International Conference on Clinical and Experimental Dermatology: Sept. 28-29 in San Antonio, Texas
  • 7th Annual Summit on Microbiology: Education, R&D and Market: Sept. 28-29 in San Antonio

PDUFA Dates

  • The FDA is set to rule Thursday, Sept. 27 on Adamis Pharmaceuticals Corp ADMP 1.64%‘s sNDA for low-dose Symjepi, chemically epinephrine, injection in the treatment of anaphylaxis.
  • The low-dose version is 0.15 mg in strength and is intended to potentially treat patients weighing 33-65 pounds.
  • The agency will also announce its verdict on Insmed Incorporated INSM 1.93%‘s Amikacin Liposome Inhalation Suspension for treating nontuberculous mycobacterial lung disease caused by mycobacterium avium complex.. The PDUFA date is set for Friday, Sep. 28.
  • Antares Pharma Inc ATRS 3.26%‘s testosterone deficiency treatment candidateXYOSTED is up before the FDA for review. A decision on the application is due Saturday, Sept. 29.

Clinical Trials

  • Chimerix Inc CMRX 1.53% is due to release Phase 1 data for its CMX51 in norovirus at the 21st ESCV meeting Sunday, Sept. 23.
  • Checkpoint Therapeutics Inc CKPT 7.52% and Fortress Biotech FBIO 1.25% will present preliminary Phase 1/2 data for its non-small cell lung cancer treatment candidate CK-101 at the IASLC Monday, Sept. 24.
  • Syndax Pharmaceuticals Inc SNDX 5.31% is set to present updated Phase 2 data for its recurrent NSCLC and colorectal cancer combo treatment option Entinostat plus Keytruda, which is being evaluated in a study dubbed ENCORE, at the IASLC Monday, Sept. 24.
  • Spectrum Pharmaceuticals, Inc. SPPI 0.74% will present Phase 2 data for its poziotinib — which is being evaluated on NSCLC patients with exon 20 insertion mutation in EGFR or HER2 — at the IASLC Monday, Sept. 24.
  • Loxo Oncology Inc LOXO 0.01% is due to present updated Phase 1 data for its LOXO-292 for treating RET-fusion NSCLC, medullary thyroid cancer and other tumors at the IASLC between 3:15 and 4:45 p.m. ET Tuesday, Sept. 25.
  • Novocure Ltd NVCR 1.12% will present final Phase 2 data for its tumor treating fields for mesothelioma Tuesday, Sept. 25.

Q3/September Schedule

  • Novo Nordisk A/S (ADR) NVO 0.35% will release Phase 2 data for its concizumab, which is under evaluation as a treatment option for hemophilia A. The company is also set to release Phase 3 extension data for its adult growth hormone deficiency treatment candidate somapacitan.
  • GALAPAGOS NV/S ADR GLPG 1.69% is due to release Phase 2 data for its combo treatment GLPG 2451+2222+2737 for cystic fibrosis in homozygous F508del patients.
  • Omeros Corporation OMER 3% is scheduled to release Phase 2 data for its OMS721 in IgA nephropathy.
  • Inovio Pharmaceuticals Inc INO 3.47% will release Phase 1 data for its prostate cancer treatment candidate INO-5150.
  • Ra Pharmaceuticals Inc RARX 5.01% is scheduled to release Phase 1b pharmacokinetics data for RA101495 SC, its pipeline candidate for atypical hemolytic uremic syndrome.
  • Lexicon Pharmaceuticals, Inc. LXRX 2.15% is due to release Phase 1b data for its Type 2 diabetes treatment candidate LX2761.
  • Syndax Pharma is set to release Phase 3 progression-free survival data for E2112, its treatment candidate for HR-positive and HER2-negative breast cancer.
  • Cytokinetics, Inc. CYTK 4.29% will release interim analysis of Phase 1b data for its CK-2127107 for limited mobility. The company will also release results of a Phase 2 study of the same candidate in COPD.
  • AnaptysBio Inc ANAB 0.54% is due to release Phase 2a data for its ANB020 that is being evaluated in severe adult eosinophilic asthma.
  • Celsion Corporation CLSN 2.95% is likely to release Phase 1b data for its ovarian cancer treatment candidate GEN-1.
  • CTI BioPharma Corp CTIC 1% is due to release interim Phase 2 data for pacritinib, its pipeline candidate for myelofibrosis.
  • Amarin Corporation plc (ADR) AMRN 2.05% is due to release Phase 3 data for its Vascepa to treat high triglycerides with mixed dyslipidemia.
  • Geron Corporation GERN 0.73% and Johnson & Johnson JNJ 0.62% are scheduled to release a primary analysis of data from the Phase 2 IMbark study for their Imetelstat in myelofibrosis.
  • Proteostasis Therapeutics Inc PTI 4.88% is set to release final Phase 1 data for its cystic fibrosis treatment PTI-801.
  • TapImmune Inc. TPIV 2.23% will release Phase 2 interim response data for TPIV200, which is being evaluated as second-line treatment for triple-negative breast cancer.
  • Radius Health Inc RDUS 4.78% is expected to release Phase 1 data for AB122 in the treatment of solid tumors.
  • Spero Therapeutics Inc SPRO 5.36% is due to release final Phase 1 data for its SPR994 in healthy volunteers to assess its safety.
  • Arena Pharmaceuticals, Inc. ARNA 1.56% will release Phase 2 data for its olorinab to treat pain associated with Crohn’s disease.
  • Alnylam Pharmaceuticals, Inc. ALNY 0.67% is set to release interim analysis of Phase 3 data for its acute hepatic porphyrias treatment Givosiran.

Earnings

Thursday
  • AngioDynamics, Inc. ANGO 0.38% (ahead of the market open)

IPOs

  • Entasis Therapeutics Holdings, a clinical-stage biotech developing therapies for multi-drug resistant bacteria, is set to offer 4.41 million shares in an IPO, with the price estimated between $16 and $18. The shares are to be listed on the Nasdaq under the ticker symbol ETTX.
  • Arvinas Holding, a biotech company developing protein degradation therapies for advanced cancer, is seeking to list its shares on the Nasdaq under the ticker symbol ARVN by offering 6.67 million shares in an IPO, priced in the $14-$16 range.
  • Urovant Sciences is due to offer 10 million shares in an IPO, with the shares expected to be priced between $14 and $16. The shares would be listed on the Nasdaq under the ticker symbol UROV. The company develops an acquired oral therapy for overreactive bladder.
  • Sutro Biopharma, a biotech company developing immuno-oncology therapies, is offering 5 million shares priced between $14 and $16. The shares are to be listed on the Nasdaq under the ticker symbol STRO.
  • Gritstone Oncology, a biotech company developing a therapy to enhance checkpoint immuno-oncology drugs, will offer 6.07 million shares in a price range of $13-$15. The shares would be listed on the Nasdaq under the ticker symbol GRTS.
  • Ra Medical Systems seeks to list its shares on the Nasdaq under the ticker symbol RMED. The company that commercializes excimer lasers used to treat dermatologic and vascular diseases will offer 3.33 million shares in an IPO, with an estimated price range of $14-$16.
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TCT: Abbott MitraClip Saves Lives in Functional Mitral Regurgitation


Percutaneous repair of the mitral valve improved key outcomes in moderate-to-severe, symptomatic mitral regurgitation for heart failure patients who had exhausted pharmaceutical options, the COAPT trial showed.
The primary efficacy endpoint of heart failure hospitalizations within 24 months fell a relative 47% with MitraClip implantation compared with medical therapy alone (annualized rate 35.8% vs 67.9%, P<0.001), reported Gregg Stone, MD, of Columbia University Medical Center in New York City, at the Transcatheter Cardiovascular Therapeutics conference.
All-cause mortality at 24 months was also substantially reduced to 29.1% versus 46.1% among controls (HR 0.62, P<0.001).
The number needed to treat was 3.1 to prevent a heart failure hospitalization within 24 months and 5.9 to save one life within 24 months.
The findings, simultaneously published in the New England Journal of Medicine, follow closely on the heels of the MITRA-FR trial, which showed MitraClip did not improve 12-month all-cause mortality and unplanned heart failure hospitalization compared with medical therapy alone (54.6% vs 51.3%, P=0.53).
But both trials concurred on safety of the procedure. In COAPT, the primary safety endpoint of freedom from device-related complications at 12 months (96.6%) met the performance goal. In MITRA-FR, there was a 3.5% rate of complications requiring surgery or transfusion.
“These patients have a very bad prognosis, despite all our best medical therapies, revascularization, and CRT [cardiac resynchronization therapy],” Stone told MedPage Today.
The new data “I believe have very clear implications for the future treatment of patients with heart failure and moderate-to-severe or severe secondary mitral regurgitation — according to the American Society of Echocardiography criteria — who remain symptomatic having failed all guideline-directed medical therapy and CRT,” he said. “For such patients, the MitraClip should be the standard of care.”
COAPT Reigns
“This in a lot of way in my mind trumps the neutrality of results that MITRAL-FR had,” commented Vinod Thourani, MD, of MedStar Heart and Vascular Institute in Washington. “This study is a landmark study that will change the management of a very high-risk patient population that, thus far, we have had very few options [for treatment], so that makes it a very attractive therapy.”
“The differences were not 2% or 3% or even equivocal. It was a major difference in [heart failure] admission and mortality. We’re talking about massively different studies; the results weren’t even close to being in the same ballpark,” Thourani added.
However, Sanjay Kaul, MD, of Cedars-Sinai Medical Center in Los Angeles, expressed some skepticism at seeing such an “unexpected and unprecedented” mortality boost.
“There are several examples where implausibly large treatment effects seen in small trials fail to be replicated in subsequent investigations,” he told MedPage Today. “So the major challenge is how do we reconcile the disparate results of these two trials? … Luckily, there are two additional trials, RESHAPE and MATTERHORN, which will serve as a tie-breaker. The trials are currently ongoing and will report the results soon (at least RESHAPE). If the results are positive, then we have to acknowledge the COAPT trial results are indeed not ‘too good to be true,’ and that the trial provides reliable and credible evidence to inform guidelines and guide clinical practice.”
Thourani said he didn’t see any need for a tie-breaker. “The results are so compelling in the U.S. study that it would shock me if this is not approved for secondary mitral regurgitation in the U.S. [by the] FDA. This study is analogous to the PARTNER IB where we had medical therapy versus [stenting of] severe aortic stenosis, the difference is almost similar to that for difference in outcomes.”
Differences in the Trials
As to why the two trials might have come to such different conclusions, leading cardiologists gave a range of explanations.
According to Stone: COAPT with 614 patients was twice the size of MITRAL-FR (n=307); it used the more stringent U.S. criteria for severity of mitral regurgitation, with an effective regurgitant orifice of 31 mm2 to MITRAL-FR’s 41 mm2; less dilated left ventricles than in MITRA-FR; a more rigorous assurance that patients really had maxed out what optimal medical therapy could do before randomization; over 2 years of follow-up versus 1 year in MITRA-FR; and potentially greater experience with MitraClip among operators.
“Given the size of COAPT and its robustness, these data are definitive to me,” Stone told MedPage Today.
Patrick O’Gara, MD, of the Brigham and Women’s Hospital in Boston and a past president of the American College of Cardiology, agreed.
“I think that the community of cardiovascular clinicians and surgeons is really desperate for some kind of an intervention that is going to help this very sick population of patients and here’s a potential solution,” he said in an interview. “So you have a safe, reasonably effective, not very complicated intervention that seems to be associated with significant reductions in heart failure hospitalizations and also all-cause mortality. It’s going to be hard to not embrace that.”
For U.S. practice, the U.S. data is likely to “carry a lot more weight” than that from France in MITRA-FR, Thourani suggested.
Stone noted that in Europe, and most other places where MitraClip is available, its most common use is in secondary mitral regurgitation — until now based on data from uncontrolled registry studies — so the potential for expanding use of the device is huge.
But O’Gara added, “The challenge for us in the United States with respect to how this technology is going to be disseminated is going to, once again, rely on patient selection and making sure we abide by the principles of failure of medical therapy before activating a plan for treatment of mitral regurgitation. That is not always done.”
Stone disclosed relevant relationships with Abbott, Claret, Ablative Solutions, Matrizyme, Miracor, Neovasc, V-wave, Shockwave, Valfix, Robocath, Cagent, the Biostar family of funds, TherOx, Reva, Vascular Dynamics, Heartflow, Gore, the MedFocus family of funds, Ancora, Qool Therapeutics, Aria, Caliber, and SpectraWave, as well as royalties to Columbia University from Abbott for sale of MitraClip.
Thorani disclosed relevant relationships with Edwards, Abbott, Gore, and Boston Scientific.
O’Gara disclosed relevant relationships with Medtronic (APOLLO TMVR) and Edwards (Early TAVR).
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TCT Confab: Spotlight on Novel Heart Tech


A bevy of new technology for transcatheter approaches to heart disease showed early promise in solving durability and safety of devices and their implantation, researchers reported here.
A session on innovation at the Transcatheter Cardiovascular Therapeutics (TCT) conference provided a rundown of technology in the works.
Polymer Valves
While current valve replacement devices are made out of materials that eventually wear out, ideally “we would like to have one valve for life,” noted Christian Spaulding, MD, PhD, of the European Hospital Georges Pompidou in Paris.
He reported on a polymer material used to make valves that resorb into the body after endothelialization to leave behind an endogenous leaflet (Xeltis).
In aortic applications, the material is still in preclinical studies, with good hemodynamic performance throughout 12 month follow-up in three of the five configurations tested in sheep, and no tears or perforations and “minimal thrombus.” The first human studies are likely to be done with surgical aortic valve procedures, Spaulding noted.
A first-in-man study in 12 patients with congenital heart disease using the material for right ventricular outflow tract replacement is ongoing, he noted, with preliminary results showing primary endpoint was met and no reoperations or reinterventions were needed up to 18 months.
An advantage over current animal tissue valves used is that the polymer material is scalable to any size, which should greatly expand durability for growing children and the proportion of children eligible for a transcatheter procedure, rather than repeated open-heart surgeries for cadaver tissue implantation, added Henri Justino, MD, of Baylor College of Medicine in Houston and chief medical officer for the developer, PolyVascular.
It has sufficient coaptation to carry patients from early childhood to near adolescence, then serve as a landing zone for an adult valve, he said at the TCT session.
Leaflet Laceration
Intentional laceration of the bioprosthetic or native aortic scallop during transcatheter aortic valve replacement (TAVR) for patients at high risk of coronary obstruction was associated with a 0% rate of coronary obstruction, according to preliminary results from the BASILICA early feasibility study.
All 35 leaflets targeted in 30 patients were successfully lacerated with the technique, which involves looping, lifting, and splitting the leaflet. But there were two failed attempts at traversal (chalked up to early techniques that have been updated), for a primary technical success rate of 93% on a per patient level.
All patients survived and had a successful first TAVR device implantation without any emergency surgery or intervention related to TAVR with leaflet laceration, reported Jaffar Khan, MD, of the National Heart Lung and Blood Institute (NHLBI) and Medstar Washington Hospital in Washington.
In terms of safety among the patients studied — all at high or extreme risk for surgical aortic valve implantation who were getting TAVR for native severe aortic stenosis or bioprosthetic valve failure — “hemodynamic instability was uncommon,” with a 10% rate of hypotension that resolved promptly with TAVR.
One of the patients (3%) died after multi-organ failure and two (7%) had a stroke, “which may be related to multiple catheter manipulations, leaflet calcification, and relative immaturity of the technique, or to balloon valvuloplasty and TAVR,” Khan suggested.
He concluded that the technique warrants a larger trial, performed only in centers with “appropriate proctoring and experience.”
“The true incidence of coronary obstruction does seem to be low, although the threat of coronary obstruction is high. If you think of all the cases that are out there where a guide, a wire, a stent are put in, it’s certainly a much larger denominator than those that actually obstruct,” noted co-investigator Adam Greenbaum, MD, of Emory University in Atlanta, speaking from the discussion panel at the TCT session.
“But with relatively little risk, relatively few complications as you can see in the feasibility study, the question is why wouldn’t you cut the leaflets? I think if there was any risk perceived at all” he said, adding: “There may be other benefits to getting the leaflets out of the way, sinus washout, for example. Do you really want those leaflets there? The surgeon doesn’t leave them behind, why should we?”
Embolic Protection
While the Sentinel device approved for embolic protection during TAVR covers two of the three cardiac outflow tracts, two novel devices to cover all three heart valves during TAVR were presented.
The CAPTIS device has an aortic arch deflector shield covering all three vessels, and a filter with pockets to capture debris that could head to the kidneys, reported Giora Weisz, MD, of Montefiore Medical Center in New York City. So far it has been tested in pigs.
The third generation TriGUARD device similarly has a mesh that covers all three outflow vessels, eliminating the stabilizers used in the prior generation that braced it against the opposite vessel wall, reported Tamim Nazif, MD, of the Structural Heart & Valve Center at Columbia University Medical Center in New York City.
A trial is underway, with the 258-patient phase I portion having completed enrollment for randomization to the prior-generation device or no embolic protection, and the 275-patient phase II portion still enrolling for randomization to the third-generation device or no embolic protection. Results are expected early in 2019, Nazif said.
BASILICA was sponsored by the NHLBI. The other trials were funded by the technology’s developers.
Justino disclosed relevant relationships with industry, including ownership/founder and intellectual property rights in PolyVascular.
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Marijuana stocks ‘the new Bitcoin,’ Barron’s says


Led by Tilray, the U.S.-listed grower that went public in July, the shares of Canada’s pot producers skyrocketed by Wednesday, then gave most of their gains back, Bill Alpert writes in this week’s edition of Barron’s. Comparisons between marijuana stocks and the Bitcoin bubble are apt, the report adds. Canada’s licensed marijuana producers begin recreational sales on October 17 and they have acres of greenhouses in bloom, but their stock prices have been weakly tethered to business fundamentals for months now, and last week’s blow-off was all the proof needed that the trading has become irrational, Alpert contends.
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Medtronic presents 3-year peripheral arterial disease data


Medtronic announced data that continues to reinforce the safety, durability, and consistency of the IN.PACT Admiral drug-coated balloon in real-world patients with peripheral arterial disease. Three-year real-world results from the full clinical cohort of the IN.PACT Global Study and one-year data from the Total IN.PACT pooled imaging and propensity analyses were presented at the Cardiovascular and Interventional Radiological Society of Europe annual meeting and the 30th Transcatheter Cardiovascular Therapeutics conference, the annual scientific symposium of the Cardiovascular Research Foundation, respectively. The freedom from clinically-driven target lesion revascularization rate calculated using Kaplan Meier survival estimates was 76.9% in a real-world patient cohort with a mean lesion length of 12.09 +/- 9.54 cm, 18.0% in-stent restenosis, 35.5% occluded lesions, and 39.9% diabetic subjects. Additionally, the proportion of patients undergoing repeat procedures were low through three years. Total IN.PACT combined independently adjudicated data from a total of 1,837 patients treated with IN.PACT Admiral DCB from all IN.PACT Admiral randomized clinical trials and real-world studies from 147 sites across 28 countries. The analyses presented today at TCT specifically looked at two different groups – a core laboratory-adjudicated imaging cohort and a propensity matched imaging cohort. The data showed that IN.PACT Admiral DCB demonstrated consistently superior patency and freedom from clinically-driven target lesion revascularization compared to standard PTA alone. The propensity analysis matched one PTA subject with up to four IN.PACT Admiral DCB subjects based on baseline variables. The propensity-matched analysis showed a patency rate of 90.5% for the IN.PACT Admiral DCB as compared to 53.8% for PTA and a freedom from CD-TLR rate of 96.9% compared to 80.7% for PTA. Additional safety and effectiveness outcomes from the DCB arm also included low rates of thrombosis and CD-TLR, and no occurrences of major target limb amputation at one year.
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Novartis: Positive Phase 3 data on macular degeneration med


Novartis announced a new data analysis showing that
retinal fluid was detected less often in patients treated with brolucizumab
(RTH258) 6 mg versus aflibercept over four visits between weeks 36 to 48[1].
Retinal fluid is a key marker of disease activity in neovascular age-related
macular degeneration (nAMD)[2]. The data, from pre-specified secondary endpoints
of the Phase III HAWK and HARRIER trials[1], were presented at EURETINA 2018 as
a follow-up to data presented in November 2017.
The data show that brolucizumab 6 mg had superior fluid resolution versus
aflibercept over four visits during weeks 36 to 48. The 36- to 48- week analysis
is noteworthy because it provides insight into the effect of maintenance
treatment, an important clinical focus for a chronic disease like nAMD.
Additionally, the analysis accounts for dosing interval differences between the
two medicines. Due to the unique design of the HAWK and HARRIER trials,
brolucizumab patients were dosed at various intervals, namely q12w with some
adjusted to q8w based on disease activity. Aflibercept patients were dosed at
q8w, per the label at the time of trial initiation.
In the pre-specified secondary analyses for weeks 36 to 48, patients treated
with brolucizumab 6 mg in the HAWK and HARRIER trials had significantly fewer
visits in which intraretinal fluid (IRF)/subretinal fluid (SRF) was observed. In
HAWK, 47.5% of patients treated with brolucizumab 6 mg q12w or adjusted to q8w
had no visits in which IRF/SRF was detected, compared to 42.5% of aflibercept
patients (P=0.0012, reflecting distribution across all visits during weeks 36
through 48)[1]. In HARRIER, 53% of patients treated with brolucizumab 6 mg had
no visits in which IRF/SRF was detected, compared to 45.5% of aflibercept
patients (P=0.0001, reflecting distribution across all visits during weeks 36
through 48)[1]. Importantly, more than half of brolucizumab 6 mg patients were
maintained on q12w dosing until week 48.
“Retinal fluid is an important marker of disease activity and the need for
treatment. These new data give physicians even more insight into the robustness
of the 48 week anatomical findings and support the overall impact brolucizumab
has on key measures of retinal fluid, including IRF/SRF, sub-retinal pigment
epithelial fluid and central subfield thickness,” said Dirk Sauer, Development
Unit Head, Novartis Ophthalmology. “These results were noted even while more
than half of brolucizumab 6 mg patients were receiving treatment every 12 weeks
at week 48, further reinforcing our confidence in brolucizumab’s superior fluid
resolution and supporting our goal of reimagining care for people with nAMD.”
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Companies Buy Earnings Gains by Buying Back Stock


Companies’ record stock repurchases this year are causing profits to appear stronger and fueling the stock market’s record run.
A key driver in the surge of stock buybacks was last December’s tax overhaul, which lowered companies’ tax bills and freed up funds that many companies are using for share repurchases.
S&P 500 companies bought back a record $189 billion of their own shares in the first quarter, and a similar number — if not more — is expected for the second quarter, according S&P Dow Jones Indices. By contrast, S&P 500 buybacks totaled no more than $137 billion in any of the six quarters before the tax overhaul.
Stock buybacks make profits appear better by boosting per-share earnings, a metric that investors frequently use to justify a company’s stock price. Buybacks reduce a company’s share count, spreading the profits across fewer shares. As a result, companies can report a bigger percentage increase in per-share earnings than the profit results alone may show.
Among the more aggressive companies in buying back stock, Apple Inc. repurchased 112.8 million shares in the quarter that ended in June, contributing 5 cents to its earnings of $2.34 a share. Union Pacific Corp. repurchased about 4% of its shares in the second quarter, helping earnings per share climb substantially faster than net income. Thanks to buybacks, Southwest Airlines Co.’s quarterly per-share earnings rose even though its profit fell from a year earlier.
For the S&P 500, per-share earnings in the second quarter rose about 25% from a year ago — a full 2 percentage points faster than net income, according to data from Thomson Reuters. “It would be fair to assume it is all from buybacks,” said David Aurelio, senior research analyst at Thomson Reuters.
The higher per-share earnings have helped lead investors to pay more for stocks. The S&P 500 index is trading at record highs after gaining about 10% this year.
“Investors need to realize what they’re paying a premium for,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
In all, dozens of large companies bought back 4% or more of their shares outstanding in the 12 months ended in June, according to data from S&P Dow Jones Indices. The resulting boosts to earnings might seem small in any given quarter, but they add up — Apple’s buybacks also added 8 cents a share in the March quarter, for instance. And companies also have started big new buyback programs, suggesting earnings-per-share increases will continue.
The buybacks aren’t necessarily done for the express purpose of increasing per-share earnings. Many companies say they want to return excess capital to shareholders. Others intend to offset new shares issued to employees as compensation.
The per-share earnings increases generated by stock buybacks are low quality, inflating results without underlying substance, said Gregory Milano, chief executive of Fortuna Advisors, a financial consulting firm that has examined buyback trends. “It has less value.”
Companies play down the buyback effect. They say their earnings are strong even without buybacks, and that while the buybacks add to per-share earnings, the effect is clear to investors and baked into the analyst earnings estimates that drive stock prices.
Apple pointed to its past statements that its earnings growth is accelerating and that tax reform “enables us to deploy our global cash more efficiently,” leading it to put forward plans to create 20,000 U.S. jobs and invest $350 billion in U.S. operations over the next five years.
Union Pacific’s buybacks contributed 9 cents to its second-quarter per-share earnings, helping that metric to climb 37%, while net income rose 29% from a year ago. The railroad’s finance chief, Robert Knight, said the buybacks “represent the return of excess cash to our shareholders and are consistent with guidance we provided to the financial-analyst community.”
Southwest Airlines’ second-quarter net income excluding items declined 2.1% from a year ago. On a per-share basis, however, it rose 2.4%, in part because the company has repurchased 28.3 million shares in the past year. Southwest said its per-share earnings growth “has been driven primarily by the strong financial performance of our robust network.”
As the economic cycle grinds on, Mr. Milano said, companies may find it harder to show earnings growth even as they face increased pressure from shareholders to do so–“and so buybacks start to look more attractive.”
The buyback effect adds to the earnings boost companies are already seeing because the U.S. cut its corporate tax rate to 21% from 35%. Union Pacific’s second-quarter effective rate, for example, declined to 22.1% from 37.5% a year ago, before the tax overhaul. At some companies, the tax cut has accounted for half or more of reported profits.
The benefits to per-share earnings from buybacks can help a company’s result compare more favorably to Wall Street forecasts.
In each of the past two quarters, big buybacks by Cisco Systems Inc. increased its adjusted per-share earnings by 2 cents. Each time, the networking giant’s total results surpassed analysts’ consensus expectations by a penny.
Cisco said its buybacks are incorporated into the earnings per share guidance it provides to analysts. “This is not a quality of earnings issue, and it is inaccurate to state that we would have otherwise ‘missed’ EPS targets,” a company representative said.
Experts say when companies do guide analysts on their buyback plans, the effect on estimates is imprecise. For instance, buybacks earlier in a quarter make a bigger difference in per-share earnings, because such results are calculated using average shares outstanding. Companies, though, don’t typically forecast the timing of buybacks.
In the first quarter, just after the tax overhaul, a record 78% of S&P 500 companies reported earnings above analysts’ expectations, according to FactSet. The second quarter then beat that record, with 80%.
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