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Despite M&A Spree, Biotech ETFs Slide on Mixed Earnings

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This year, biotech stocks have seen their best-ever start to a year since 2012. A solid merger-and-acquisition momentum has been instrumental in this rally. However, the momentum slackened of late on mixed earnings for the fourth quarter (read: What's Behind the Biotech ETF Rally to Start 2019?).

In the past few days, biotech giants such as Amgen Inc. (AMGN - Free Report) , Gilead Sciences (GILD - Free Report) , Biogen Inc. (BIIB - Free Report) and Alexion Pharmaceuticals (ALXN - Free Report) have come up with earnings results, of which some offered downbeat guidance while some failed to top estimates on both lines.

Earnings in Focus

In late Jan, Amgen reported fourth-quarter 2018 earnings of $3.42 per share, which beat the Zacks Consensus Estimate of $3.26. Earnings increased 18% year over year driven by higher revenues, lower tax rate and reduced share count. Total revenues of $6.23 billion in the quarter surpassed the Zacks Consensus Estimate of $5.88 billion and increased 7% year over year.

Amgen issued its sales and earnings guidance for 2019, which indicates a decline from 2018 levels. The company expects revenues in the range of $21.8-$22.9 billion, indicating a decline from 2018 levels. The Zacks Consensus Estimate is currently at $22.87 billion. Adjusted earnings per share are anticipated in the range of $13.10-$14.30 in 2019, lower than the current Zacks Consensus Estimate of $14.45. The guided range indicates a decline from 2018.

In early-Feb, Gilead Sciences reported mixed results for the fourth quarter, wherein earnings missed expectations but revenues beat on the same. Gilead reported earnings of $1.44 per share in the fourth quarter, down from $1.78 in the year-ago quarter and missing the Zacks Consensus Estimate of $1.70. Total revenues of $5.79 billion beat the Zacks Consensus Estimate of $5.53 billion but declined 2.6% year over year.

Gilead expects net product sales of $21.3-$21.8 billion compared to the Zacks Consensus Estimate of $22.01 billion. For the first quarter of 2019, Gilead expects product sales to decline sequentially by 12-14%, primarily owing to the U.S. seasonal inventory patterns and buying patterns of public payers that negatively impact payer mix.

In early-Feb, Alexion Pharmaceuticals posted fourth-quarter 2018 adjusted earnings of $2.14 per share, which increased 45% from the year-ago quarter’s $1.48. Earnings also beat the Zacks Consensus Estimate of $1.83. Strong product revenues drove the bottom line in the quarter.

Revenues rose 24% year over year to $1.128 billion and exceeded the Zacks Consensus Estimate of $1.060 billion. Revenues were driven by increased sales of Soliris, Strensiq and Kanuma. For 2019, Alexion projects revenues of $4.63-$4.70 billion in 2019. The Zacks Consensus Estimate for earnings in 2019 is pegged at $8.78, while for sales it is $4.76 billion. Revenues for Soliris and Ultomiris are expected in the $3.97-$4.02 billion range.

In late January,Biogen reported fourth-quarter 2018 earnings per share of $6.99, which beat the Zacks Consensus Estimate of $6.72. Earnings rose 32.9% year over year, backed by higher revenues. Sales came in at $3.53 billion, up 7% from the year-ago quarter. Moreover, sales beat the Zacks Consensus Estimate of $3.39 billion.

For 2019,the company expects revenues of $ 13.6-$13.8 billion. Earnings per share are expected between $28.00 and $29.00.The Zacks Consensus Estimate for revenues and earnings is $13.65 billion and $28.20 per share, respectively.

Biotech ETFs, iShares Nasdaq Biotechnology ETF (IBB - Free Report) , VanEck Vectors Biotech ETF (BBH - Free Report) and First Trust Amex Biotechnology Index (FBT - Free Report) all dipped in the past 10 trading days — period dotted with biotech releases.

Below, we have highlighted these popular ETFs with high exposure to the above-mentioned companies (see all Health Care ETFs here):

IBB

This fund tracks the NASDAQ biotechnology index. It has 223 holdings with 29.11% weight age to the mentioned four companies. It has an AUM of $8.0 billion and an expense ratio of 0.47%.

BBH

The fund tracks the MVIS US Listed Biotech 25 Index. It has a pool of 25 stocks with 25.19% weight to the mentioned four companies. It has an AUM of $403.1 million and an expense ratio 0.35%.

FBT

It tracks the equal-weighted NYSE Arca Biotechnology Index. There are 30 holdings in the basket with FBT holding 12.9%. AUM is $2.73 billion, while expense ratio is 0.56%.

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