Biotech Earnings Seen Higher
Apr 8 2:29pm ET
By Deena Beasley
LOS ANGELES (Reuters) - Earnings growth may have slowed at some big biotech companies in the first quarter, but a limping U.S. economy is not to blame -- the reason is mainly higher spending ahead of new drug launches, analysts said.
"This market is very different from tech stocks. Most of these companies are getting ready to launch very exciting products," said Matt Geller, an analyst at CIBC World Markets.
As of Friday, the American Stock Exchange Biotech Index <.BTK>, comprised of 16 large and small firms, had fallen 29 percent to 448 from 634 as of the end of last year. The technology-rich Nasdaq Composite Index , meanwhile, was down 30 percent to 1720 from its year-end level of 2471.
Geller termed the biotech stock downturn "highly irrational", citing the traditional theory that tech stocks tend to sell off during an economic downturn, while healthcare stocks are seen as "safe havens" since prescription drugs are unlikely to be sacrificed even in hard times.
But, like some high-flying tech stocks, earnings are often not the story in biotechnology, where scientific breakthroughs take years to translate into revenue.
"The real story is about pipeline progress. A lot of biotechs are going from one-product companies to multiple products," Geller said.
Drug pipelines can be a double-edged sword. Shares of Immunex Inc. were pummeled last month after its popular arthritis drug Enbrel failed to prove effective as a treatment for chronic heart failure. The company also reported disappointing trial results for Nuvance, its experimental asthma drug.
Immunex, which has also said it will not be able to make enough Enbrel to meet demand for the drug this year, is expected to see flat first-quarter earnings.
The Seattle company is in the process of doubling production capacity for Enbrel, which saw sales of $652 million last year, but said it will only be able to meet demand for up to $750 million in Enbrel sales this year.
AMGEN, GENENTECH GEAR UP FOR NEW DRUG LAUNCHES
Other companies, like Amgen Inc. and Genentech Inc. , are expected to see higher earnings, but at somewhat slower rates of growth, as they invest money in new products.
"The Amgen story is not about earnings in the first quarter. It's about getting Aranesp on the market," said Craig West, an analyst at A.G. Edwards.
Although U.S. Food and Drug Administration (FDA) approval is still pending, Amgen aims to launch Aranesp, a longer-lasting version of the company's blockbuster anemia treatment Epogen, in the first half of this year.
Amgen is banking that Aranesp, for which it retained all marketing rights, will capture certain markets now served by Johnson & Johnson . New Jersey-based J&J has the rights to the European market for the drug as well as the non-dialysis market in the United States. J&J's sales of the drug totaled $2.5 billion last year, compared with Amgen's $1.96 billion.
Aranesp was given preliminary approval in Europe last month.
Amgen has also filed for regulatory approval in the United States of its prostate cancer treatment abarelix.
Another California-based biotech giant, Genentech Inc. , is awaiting FDA approval for its allergy and asthma treatment Xolair. The company also has promising development-stage treatments for acute heart failure and psoriasis.
Genentech said in January that earnings-per-share growth would slip below its 25-percent target rate this year due to spending for Xolair and rising research and development investment.
Biogen Inc. , based in Cambridge, Mass., warned last month that its product royalties for 2001 will fall to between $85 million and $95 million due to patent expirations, other patent-related events and an ongoing dispute with U.S. drug maker Schering-Plough Corp. on its royalty obligations. That compares with $164 million in 2000.
But the company, which makes the multiple sclerosis drug Avonex, also reaffirmed its previous estimates for first-quarter earnings of 45 cents to 46 cents a share, which was slightly short of the analysts' consensus estimate of 47 cents from Thomson Financial/First Call.
CHIRON EARNINGS SEEN DOWN VS ROBUST Q1 2000
Analysts noted that first-quarter results at Chiron Corp. are likely to be clouded by the dilutive impact of the company's $700-million acquisition last year of Pathogenesis.
Chiron's earnings are also likely to suffer with comparison to first-quarter 2000, when the company saw a one-time boost from a tender in the United Kingdom for the company's meningitis vaccine.
"You only vaccinate an entire population once. There are some other tenders, but none of that size," West said.
Chiron is awaiting regulatory approval for a new system for testing blood serum that can identify viruses, rather than antibodies, and is expected to reduce the amount of plasma infected with viruses like HIV and hepatitis infected blood that makes its way into the blood supply.
West said the projection is now for a third-quarter launch of the Procleix blood testing system, which is "a little later than what people had thought."
He added that Chiron's earnings are traditionally "lumpy," and the company's stock does not trade at the lofty valuations that shares of a company like Amgen do.
Lehman Brothers early this month cut its ratings on profitable large U.S. biotech firms, saying there was a risk of a "20 percent to 30 percent correction" for profitable biotechnology companies in the next nine months and, therefore, did not consider it prudent to keep "strong buy" ratings on such big firms.
Lehman analyst Rachel Leheny said she was cutting her ratings from "strong buy" to "buy" on Genentech Inc., Biogen Inc. and MedImmune Inc. , which makes Synagis, a treatment for a common childhood respiratory tract infection.
2001 EST. 2000 ACTUAL
Amgen $0.27 $0.25
Biogen $0.46 $0.41
Chiron $0.17 $0.21
Genentech $0.17 $0.14
Genzyme General $0.50 $0.53
Immunex $0.06 $0.06
Medimmune $0.36 $0.27 |
