Vertex Pharmaceuticals (VRTX) is the exception to worries for biotech companies heading into the second-quarter earnings season, an analyst said Friday.
Historically, the second quarter represents a rebound for commercial-stage biotech companies, Raymond James analyst Laura Chico said. But this year likely will be marked by politics wrought by Dow Jones component Pfizer (PFE).
She calls for «somewhat more mixed reporting» in the second quarter. Pfizer recently said it would defer raising prices on its drugs. But it’s now in a standoff with President Donald Trump, awaiting either Trump’s blueprint on health care to come to fruition or the end of the year to raise prices.
«Pfizer’s recent move to postpone price increases keeps drug pricing in the headlines as November elections draw closer,» she said in a report. «While biotech capital markets activity remains strong and large-cap valuations are inexpensive, forward catalyst flow appears light.»
Chico is cautious on large-cap biotech companies, but calls Vertex stock the exception. She has an outperform rating and a 193 price target on Vertex stock. At the closing bell on the stock market today, Vertex lifted 1.3%, to 180.50. Shares broke out of a cup with a buy point at 178.35.
Vertex is set to report its earnings on July 25. Chico notes Vertex’s launch of Symdeko, another of its treatments for cystic fibrosis, is still unfolding in the U.S. She sees results that are in line with analyst estimates that see 71 cents a share in earnings on $675 million in sales.
On a year-over-year basis, adjusted income would nearly double from 39 cents last year. This time last year, Vertex reported adjusted sales of $516.9 million and total revenue of $544.1 million. Vertex works primarily on treatments for cystic fibrosis, including a potential triple-pill regimen.
«For the triple-combo development efforts, we anticipate more progress updates, and with data from competitor Galapagos (GLPG) appearing to offer limited (effectiveness), we see few roadblocks ahead,» she said.
Price Target Changes
Chico cut her price target on Alexion Pharmaceuticals (ALXN) to 139 from 141, noting Alexion’s second-quarter report «may be uneventful.» Its blood disease drug, ALXN1210, is still facing regulatory review.
But she’s more bullish on BioMarin Pharmaceuticals (BMRN), boosting the stock’s price target to 110 from 101. That follows the addition of a gene therapy to Chico’s model for BioMarin. The company is working on a treatment for hemophilia A.
For BioMarin, she has a bullish second-quarter outlook for $363 million in sales, north of the consensus at $357 million. Longer term, though, Chico says her estimates may have been overly aggressive and she moderated her expectations for 2019.
Biogen In Alzheimer’s
Earnings may matter less for Biogen (BIIB) this quarter following a surprising update for its Alzheimer’s treatment with Eisai, Chico said. The drug met its goals in a Phase 2 study. Biogen is set later this month to offer more specific data for the drug known as BAN2401.
«Nevertheless, we anticipate investors will remain focused on (spinal muscular atrophy drug) Spinraza uptake,» she said. «On that front, we are trimming our second-quarter Spinraza revenue estimate to $385 million as we wonder if U.S. adoption will further slow.»
Analyst consensus is $389 million for Spinraza sales. Patients using Spinraza initially receive a series of loading doses before moving to maintenance therapy. That means upfront sales of Spinraza are higher and then they slow as patients move to maintenance dosing.
Celgene ‘High Point’
For Celgene (CELG), the second quarter generally tends to be a «high point.» But Chico sees a mixed period with revenue coming in below views and earnings slightly ahead. She calls for sales of blockbuster cancer drug Revlimid to come in short, though arthritis drug Otezla could be in line.
«Amid Pfizer’s recent delay on price increases, our sensitivity analysis on Celgene pricing suggests a roughly 4% negative impact to our Celgene valuation if we remove all our future U.S.-based price increases from our current market models,» she said.
J&J Leads Pharmas
Among pharmaceutical companies, Credit Suisse analyst Vamil Divan notes the season kicks off with Dow Jones component Johnson & Johnson (JNJ) set to report Tuesday. He expects the usual interest in uptake of key launches and development updates for later-stage drugs in testing.
«We expect significant focus on the conference calls to be on the outcome of strategic reviews and reorganization announcements at various companies,» he said in a note to clients. Business development in light of U.S. tax reform will also play into the quarter, he added.
Divan’s views for J&J are slightly above the consensus. He models the pharma reporting adjusted profit of $2.07 per share on $20.46 billion in sales. He has an outperform rating and 151 price target on J&J stock, but says it underperformed the broader group in the period.
«We look to next week’s earnings release and conference call for more visibility on J&J’s current growth drivers and its outlook for the rest of 2018 and into 2019 when the pharma segment will likely face some additional top-line pressures,» he said.
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