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How Are Biotech ETFs Reacting to Q3 Earnings Releases?
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The Biotech sector has been in a sweet spot for quite some time now. Biotech stocks were huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to a surge in IPOs and venture capital investments. But then the stocks have been beaten down massively only to revive now. iShares Biotechnology ETF (IBB - Free Report) is up 8% past month (as of Nov 7, 2022).
Per FT, hedge funds have started buying beaten-down biotech stocks, since they believe that ultra-cheap valuations could revive M&A activity in the space. Many big pharma companies are looking to boost their drug pipelines through acquisitions.
Earnings in Focus
In early November, Amgen (AMGN - Free Report) reported third-quarter 2022 earnings of $4.70 per share, which beat the Zacks Consensus Estimate of $4.43 as well as our estimate of $4.37 per share. Earnings rose 15% year over year. Lower operating expenses and share count boosted earnings in the quarter.
Total revenues of $6.65 billion also beat the Zacks Consensus Estimate of $6.57 billion as well as our estimate of $6.61 billion. Total revenues declined 1% year over year due to lower product sales.
Total product revenues declined 1% from the year-ago quarter to $6.32 billion (U.S.: $4.46 billion; ex-U.S.: $1.77 billion). Higher volumes were offset by lower selling prices of several drugs and currency headwinds. Volumes rose 8% in the quarter, offset by a 5% lower net selling price. Foreign exchange movement hurt sales by 2% in the quarter.
In late October, Gilead Sciences (GILD - Free Report) reported better-than-expected third-quarter results, driven by continued solid demand for its HIV portfolio with further share growth for flagship therapy Biktarvy, and oncology revenues driven by cell therapy and Trodelvy. Sales of COVID-19 treatment, Veklury (remdesivir) declined but came in better than expected.
The company reported earnings of $1.90 per share in the quarter, which easily beat the Zacks Consensus Estimate and our estimate of $1.44 but were down from $2.65 in the year-ago quarter. The year-over-year decline was due to the MiroBio acquisition, as well as lower product gross margin and revenues.
Total revenues of $7 billion surpassed the Zacks Consensus Estimate and our estimate of $6.1 billion but decreased 5% primarily due to lower Veklury sales, partially offset by increased sales in HIV and oncology drugs.
Product sales are now projected between $25.9 billion and $26.2 billion (earlier projection- $24.5–$25 billion). Total product sales, excluding Veklury, are expected to be $22.5 billion to $22.8 billion (previous projection: $22–$22.5 billion). Total Veklury sales are now estimated at around $3.4 billion (earlier estimate: $2.5 billion). Adjusted earnings per share are expected in the range of $6.95-$7.15 (previous estimate: $6.35-$6.75). The Zacks Consensus Estimate for sales and earnings per share is pegged at $25.29 billion and $6.54, respectively.
In late October, Biogen (BIIB - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of $4.77, beating the Zacks Consensus Estimate of $4.13 and our model estimate of $4.30. In the year-ago quarter, Biogen had recorded earnings of $4.77 per share.
Sales came in at $2.51 billion, down 10% on a reported basis (8% on a constant-currency basis) from the year-ago quarter, hurt by lower sales of Tecfidera. Sales, however, beat the Zacks Consensus Estimate and our estimates of $2.47 billion and $2.4 billion, respectively.
The company raised its previously issued total revenues as well as adjusted earnings guidance for 2022. Total revenues are now expected in the range of $10.0 to $10.15 billion in 2022, up from $9.9-$10.1 billion expected previously. Adjusted earnings are expected in the range of $16.50 to $17.15, up from the prior expectation of $15.25-$16.75.
Biotech ETFs in Focus
We believe it is prudent to discuss a few ETFs with a relatively wider exposure to the companies discussed above in the current scenario.
Image: Bigstock
How Are Biotech ETFs Reacting to Q3 Earnings Releases?
The Biotech sector has been in a sweet spot for quite some time now. Biotech stocks were huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to a surge in IPOs and venture capital investments. But then the stocks have been beaten down massively only to revive now. iShares Biotechnology ETF (IBB - Free Report) is up 8% past month (as of Nov 7, 2022).
Per FT, hedge funds have started buying beaten-down biotech stocks, since they believe that ultra-cheap valuations could revive M&A activity in the space. Many big pharma companies are looking to boost their drug pipelines through acquisitions.
Earnings in Focus
In early November, Amgen (AMGN - Free Report) reported third-quarter 2022 earnings of $4.70 per share, which beat the Zacks Consensus Estimate of $4.43 as well as our estimate of $4.37 per share. Earnings rose 15% year over year. Lower operating expenses and share count boosted earnings in the quarter.
Total revenues of $6.65 billion also beat the Zacks Consensus Estimate of $6.57 billion as well as our estimate of $6.61 billion. Total revenues declined 1% year over year due to lower product sales.
Total product revenues declined 1% from the year-ago quarter to $6.32 billion (U.S.: $4.46 billion; ex-U.S.: $1.77 billion). Higher volumes were offset by lower selling prices of several drugs and currency headwinds. Volumes rose 8% in the quarter, offset by a 5% lower net selling price. Foreign exchange movement hurt sales by 2% in the quarter.
In late October, Gilead Sciences (GILD - Free Report) reported better-than-expected third-quarter results, driven by continued solid demand for its HIV portfolio with further share growth for flagship therapy Biktarvy, and oncology revenues driven by cell therapy and Trodelvy. Sales of COVID-19 treatment, Veklury (remdesivir) declined but came in better than expected.
The company reported earnings of $1.90 per share in the quarter, which easily beat the Zacks Consensus Estimate and our estimate of $1.44 but were down from $2.65 in the year-ago quarter. The year-over-year decline was due to the MiroBio acquisition, as well as lower product gross margin and revenues.
Total revenues of $7 billion surpassed the Zacks Consensus Estimate and our estimate of $6.1 billion but decreased 5% primarily due to lower Veklury sales, partially offset by increased sales in HIV and oncology drugs.
Product sales are now projected between $25.9 billion and $26.2 billion (earlier projection- $24.5–$25 billion). Total product sales, excluding Veklury, are expected to be $22.5 billion to $22.8 billion (previous projection: $22–$22.5 billion). Total Veklury sales are now estimated at around $3.4 billion (earlier estimate: $2.5 billion). Adjusted earnings per share are expected in the range of $6.95-$7.15 (previous estimate: $6.35-$6.75). The Zacks Consensus Estimate for sales and earnings per share is pegged at $25.29 billion and $6.54, respectively.
In late October, Biogen (BIIB - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of $4.77, beating the Zacks Consensus Estimate of $4.13 and our model estimate of $4.30. In the year-ago quarter, Biogen had recorded earnings of $4.77 per share.
Sales came in at $2.51 billion, down 10% on a reported basis (8% on a constant-currency basis) from the year-ago quarter, hurt by lower sales of Tecfidera. Sales, however, beat the Zacks Consensus Estimate and our estimates of $2.47 billion and $2.4 billion, respectively.
The company raised its previously issued total revenues as well as adjusted earnings guidance for 2022. Total revenues are now expected in the range of $10.0 to $10.15 billion in 2022, up from $9.9-$10.1 billion expected previously. Adjusted earnings are expected in the range of $16.50 to $17.15, up from the prior expectation of $15.25-$16.75.
Biotech ETFs in Focus
We believe it is prudent to discuss a few ETFs with a relatively wider exposure to the companies discussed above in the current scenario.
iShares Biotechnology ETF (IBB - Free Report)
It comprises about 375 holdings, with the companies mentioned above taking about 20% of the fund. It charges 44 bps in fees.
VanEck Biotech ETF (BBH - Free Report)
It holds about 25 securities in its basket, with the concerned companies having about 25% weight in the fund. IT charges 35 bps in fees.
SPDR S&P Biotech ETF (XBI - Free Report)
It holds about 150 securities in its basket and puts some weight in-focus companies. The fund charges 35 bps in fees.