(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
Did Biogen Inc. (BIIB) just sink the fate of the biotechnology sector? Shares fell more than 3 percent in early afternoon trading to $306 after the company reported third-quarter results. The group as a whole has come under a tremendous amount of pressure over the last week, with the Nasdaq Biotech ETF trading lower by nearly 3 percent since October 18. Meanwhile, the S&P 500 is up by almost 25 basis points over the same time. The sector is need of some good news, and with significant earnings announcements this week, it could be a make-or-break week for biotech.
Biogen's 3Q results beat on both the top and bottom line, but sales of its lead multiple sclerosis drug, Tecfidera, fell by 4 percent, to $1.070 billion sequentially, which is pushing the stock lower. Sales of the blockbuster drug were helped during the 3Q by inventory buildup in the channel of $40 million to $50 million.
The weight to help left the biotech sector will have to fall on the shoulders of Amgen Inc. (AMGN), Gilead Science Inc. (GILD), and Celgene Corp. (CELG). But Celgene has had its problems of late, with the stock falling by nearly 15 percent over the past month. (See: Celgene's Sharp Sell-Off Is Likely Overdone.)
Four Stocks Carry A Heavy Load
The biotech sector as measured by the Nasdaq Biotech ETF is up about 23.5 percent so far in 2017, and its fate may now rest in the hands of Gilead and Amgen. Sure, there are plenty more stocks that make up the ETF, but these are the four big stocks that comprise about 32 percent of the ETF among them. So either the group is going to need new leadership to step up from the next tier of leaders, or the sector is going to struggle.
Amgen is expected to report its results on October 25 after the close of the trading. Analyst consensus estimates are looking for revenue to fall by about 1 percent from the same period last year, to $5.751 billion, while EPS is expected to grow by 2.8 percent to $3.10. Celgene reports its earnings on the morning of October 26, with revenue expected to grow by about 14.5 percent to $3.417 billion, while EPS is projected to rise 18.5 percent from last year, to $1.87.
Gilead gets its turn on October 26 after the close, where estimates show expectations for a decline in revenue of 14.7 percent, to $6.397 billion, and an EPS decline of 22.5 percent to $2.13.
If these three drug giants can't rally the troops, the next tier of companies like Regneron Pharmaceuticals Inc. (REGN), Illumina Inc. (ILMN), Alexion Pharmaceuticals Inc. (ALXN) and Vertex Pharmaceuticals (VRTX) will have to step in to pick up the slack.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.