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How Are Biotech ETFs Reacting to Q4 Earnings Releases?

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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.The Fed has been hiking rates since last year. Since biotech sector is high-growth in nature, the Fed’s policy tightening is going against the sector.

As per a recent article from Wall Street Journal after years of easy money and healthy growth, the biotech industry is feeling the pinch of funding crunch. Biotechs have cut thousands of jobs lately. The ebbing pandemic resulted in lower demand for Covid-19 vaccines and treatments. The sector has underperformed due to research failures, slowing M&A and rising interest rates

Some are discontinuing development of their most advanced drugs while some companies are looking for alternate options. Also, the diplomatic tensions between the United States and China wreaking havoc on biotech.

With the industry finding itself in a funding crunch, the latest earnings from some of the big players came in at mixed. Let’s take a look at some big biotechnological earnings releases.

Earnings in Focus

In late January, Amgen (AMGN - Free Report) reported fourth-quarter 2022 earnings of $4.09 per share, which beat the Zacks Consensus Estimate of $4.04. Earnings declined 7% year over year due to a lower operating margin.

Total revenues of $6.84 billion also beat the Zacks Consensus Estimate of $6.74 billion as well as our estimate of $6.66 billion. Total revenues were flat year over year as higher product sales were offset by lower Other revenues.

Total product revenues increased 4% from the year-ago quarter to $6.55 billion (U.S.: $4.79 billion; ex-U.S.: $1.78 billion). Higher volumes were offset by lower selling prices of several drugs and currency headwinds. Volumes rose 10% in the quarter, offset by a 3% lower net selling price. Foreign exchange movement hurt sales by 2% in the quarter.

Amgen offered its financial guidance for 2023 that excluded any contribution from the pending acquisition of Horizon Therapeutics . Revenues are expected in the range of 26.0 billion to $27.2 billion, which fell short of the Zacks Consensus Estimate of $28.46 billion.

Earnings are expected in the range of $17.40 to $18.60 per share. The Zacks Consensus Estimate stands at $18.43 per share.

In late January, In early February, Gilead Sciences (GILD - Free Report) reported better-than-expected fourth-quarter results, driven by continued solid demand for its HIV portfolio with further share growth for flagship therapy Biktarvy and oncology revenues driven by the cell therapy franchise and Trodelvy. The upbeat guidance for 2023 also boosted investor sentiment.

The company reported earnings of $1.67 per share in the quarter, which easily beat the Zacks Consensus Estimate of $1.50 and our estimate of $1.40 and was up from 69 cents in the year-ago quarter.

Total revenues of $7.4 billion surpassed the Zacks Consensus Estimate of $6.6 billion and our estimate of $6.4 billion and increased 2%, primarily due to increased sales in HIV and oncology drugs.

Product sales are projected to be between $26.0 billion and $26.5 billion. Total product sales, excluding Veklury, are expected to be $24 billion to $24.5 billion. Adjusted earnings per share are expected in the range of $6.60-$7. The Zacks Consensus Estimate for sales and earnings per share is pegged at $25.43 billion and $6.77, respectively.

In mid-February, Biogen (BIIB - Free Report) reported fourth-quarter 2022 adjusted earnings per share (EPS) of $4.05, beating the Zacks Consensus Estimate of $3.51. Earnings rose 19% year over year, driven by lower costs.

Sales came in at $2.54 billion, down 7% on a reported basis (4% on a constant-currency basis) from the year-ago quarter, hurt by lower sales of multiple sclerosis (MS) drugs like Tecfidera. However, sales of spinal muscular atrophy (SMA) drug, Spinraza improved in the quarter. Sales beat the Zacks Consensus Estimate and our estimate of $2.44 billion and $2.43 billion, respectively.

Product sales in the quarter were $1.91 billion, down 13% year over year. Revenues from anti-CD20 therapeutic programs rose 8% from the year-ago period to $448 million.

Total revenues are expected to decline at a mid-single-digit percentage in 2023 from the 2022 level. Adjusted earnings are expected in the range of $15.00 to $16.00. The Zacks Consensus Estimate is pegged at $15.77 per share.

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 275 holdings, with the companies mentioned above taking about 18% of the fund. It charges 44 bps in fees. It is down 2.14% in the past month

VanEck Biotech ETF (BBH - Free Report)

It holds about 25 securities in its basket, with the concerned companies having about 24% weight in the fund. IT charges 35 bps in fees. It is down 2.82% since the past month.

SPDR S&P Biotech ETF (XBI - Free Report)

It holds about 150 securities in its basket and puts some weight in-focus companies. XBI is down 0.07% past month. The fund charges 35 bps in fees.

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