Strong 3Q Seen For Many Biotechs,
Despite Amgen's Problems
By MICHAEL RAPOPORT
Dow Jones Newswires
NEW YORK -- The biotechnology industry may have grown up a little in
the third quarter.
In years past, the kinds of things that happened to a couple of biotech
companies this quarter could have shaken investor confidence in the whole
sector. Amgen Inc. (AMGN), usually the industry's bellwether, scaled
back earnings expectations, and Interneuron Pharmaceuticals Inc. (IPIC)
faced a major scare involving heart problems linked to its now-withdrawn
Redux antiobesity drug.
But this quarter, analysts said, investors seemed more willing to deal with
biotechs individually, rather than punishing the entire industry after
something went wrong with one or two firms. Good thing, too: Analysts
said many major biotechs other than Amgen had a strong third quarter.
"I think the industry and the people who invest in it are maturing, so that
people don't throw the baby out with the bath water anymore," said
Douglas Lind, an analyst with Morgan Stanley, Dean Witter, Discover &
Co.
Except for Amgen, earnings momentum among biotechs is "quite strong,"
said David Crossen, an analyst for NationsBank Montgomery Securities
Inc. "The sentiment seems to be doing better." The Redux scare was "so
unusual" that the rest of the industry wasn't punished for it, he said.
Analysts said some companies' pipelines are picking up, with companies
pumping more money into research and development. Analysts also are
looking forward to biotechs' traditional rally in the fall, when scientific
meetings and the related announcements of clinical data and other
developments typically create more news in the industry. The analysts see
especially strong third-quarter performance for companies such as
Centocor Inc. (CNTO) and Agouron Pharmaceuticals Corp. (AGPH).
For Amgen, however, "the third quarter isn't going to be anything too
pretty," said Jay Silverman, an analyst for Robertson Stephens & Co. The
company's two major drugs, the red-blood-cell booster Epogen and the
white-blood-cell booster Neupogen, are facing maturing markets, and
Epogen is facing new federal guidelines that limit reimbursement to
kidney-dialysis providers for the drug's use.
Amgen cited slowing sales growth for the drugs as a major reason for
damping earnings expectations in August, when it said it was no longer
comfortable with previous estimates of $2.80 to $2.85 a share for the year.
The company still sees earnings rising at a double-digit rate for the year,
which would make 1997 net at least $2.67 a share, up from $2.42 a share
in 1996.
Analysts also see a weak drug pipeline for Amgen, and some are especially
dubious about Leptin, Amgen's drug in development for obesity, which
they say wasn't either hurt or helped by the recent obesity-drug scare.
"I think Leptin is a doubtful product," Crossen said. "Whenever you deal
with weight loss, you're dealing with imponderables."
Silverman sees Amgen posting third-quarter operating earnings of 65 cents
a share, 2 cents below First Call Inc.'s consensus estimate but inching up
from 64 cents a share a year ago. The estimate for the latest quarter
excludes a charge of 35 cents a share Amgen plans to take for a one-time
payment to Johnson & Johnson (JNJ) because of an arbitrator's ruling
over allocation of Epogen sales.
The analysts are bullish on Centocor because of a steady performance by
ReoPro, its anticlotting drug. Normally, ReoPro sales would have a
seasonal slump in the summer months, but Jon Alsenas, an analyst for
Furman Selz Inc., said ReoPro had a strong second half of August, and
"we expect ReoPro to continue to grow sequentially from the second
quarter to the third quarter, which is a first."
There had been concern last quarter that ReoPro sales growth was
slowing, but new indications for the drug that regulators are expected to
approve by the end of the year should take care of that, analysts said.
NationsBank Montgomery's Crossen sees ReoPro third-quarter sales of
$64 million to Eli Lilly & Co. (LLY), Centocor's marketing partner, which
splits the proceeds with Centocor.
And analysts are eagerly awaiting regulatory approval of cA2, Centocor's
drug for the inflammatory bowel disorder Crohn's disease, which is
expected to be launched next year and also has potential in treating
rheumatoid arthritis. "I think it's going to be a billion-dollar drug for them
for Crohn's alone," Crossen said.
"The Crohn's patients, the advanced patients, really have nothing right
now," Alsenas said. "For a relatively long time, there's nothing else on the
horizon for these patients." He sees approval of cA2 for Crohn's in
mid-1998 and data on its efficacy against rheumatoid arthritis later in that
year.
Alsenas sees Centocor earning 8 cents a share in the third quarter, in line
with First Call's consensus estimate and a reversal from a loss of 2 cents a
share in the year-ago quarter.
For the first quarter ended Sept. 30, Agouron Pharmaceuticals is expected
to announce its first-ever profit, after posting its first operating profit in the
quarter that ended in June. Lind of Morgan Stanley Dean Witter sees
Agouron posting earnings of 6 cents a share in the period, compared with
a year-ago loss of $1.15 a share, before adjusting for a recent 2-for-1
stock split.
The strength comes from Viracept, the company's protease inhibitor used
to treat AIDS patients, sales of which have topped all projections. Agouron
now sees 1998 Viracept sales exceeding $250 million, and Crossen put
sales of the drug at about $64 million in the latest quarter.
"We know that drug is growing like gangbusters," Robertson Stephens
analyst Silverman said.
The company's unusually early earnings announcement - on Tuesday after
the market closes, just seven days after the end of the quarter - could be an
indication that Agouron is eager to get good news out there, according to
some analysts. "I think these guys are really excited about what's going on
and there's going to be some nice surprises on Tuesday," Lind said.
But Alsenas cautioned that in the wake of competition from Crixivan,
Merck & Co.'s (MRK) protease inhibitor, "it'll be interesting to see if
(Agouron) can maintain the really strong adoption rate for their products."
Even with some biotech companies that may not do as well this quarter,
some analysts said, the problems may not be as troubling as they appear.
Take Biogen Inc. (BGEN), whose multiple sclerosis drug Avonex hasn't
yet turned out to be quite the blockbuster some analysts thought it would
be and is now under pressure from competitors, including Teva
Pharmaceutical Industries Ltd. (TEVIY), Schering AG and Ares-Serono
SA. "They're busy cannibalizing each other," Furman Selz analyst Alsenas
said.
But, others said to be patient. "It's a little early to say Avonex is slowing
down," said Crossen of NationsBank Montgomery, who sees a steady
third quarter and an improving fourth quarter for Biogen. Avonex, he said,
is still the dominant product in the MS-drug market; "it's definitely
growing, it's just not growing 100% a year anymore."
Lind of Morgan Stanley Dean Witter agreed. "I don't think it's quite as bad
as people think." Still, his estimate for Biogen's third-quarter earnings is
25 cents a share, 3 cents below the First Call consensus estimate and down
from $1.21 a share a year ago, when earnings were helped by one-time
gains.
Chiron Corp. (CHIR), the maker of Betaseron, a multiple sclerosis drug
that has lost ground to Avonex, is expected to post third-quarter earnings
of 9 cents a share, according to First Call, compared with 7 cents a share a
year ago. "There's not much in the way of strong growth right now,"
Robertson Stephens analyst Silverman said.
Among other major biotech companies, BioChem Pharma Inc. (BCHE)
continues to look strong, thanks to 3TC, its AIDS drug that is a foundation
of the drug "cocktail" that has helped AIDS patients since last year. "3TC
is a mainstay right now, there's no question," Alsenas said.
But to keep growing, he said, the drug must be successful against hepatitis
B, as well, an area in which it has shown promise. BioChem Pharma
already has filed for marketing approval in China to use a version of 3TC
against hepatitis B, and expects to file for approval in other countries over
the next year.
Silverman, the Robertson Stephens analyst, expects Laval, Quebec-based
BioChem Pharma to post third-quarter per-share earnings of 16 cents, or
22 cents Canadian, in line with the First Call estimate, compared with 14
cents Canadian a year ago.
As for Genzyme Corp. (GENZ), Alsenas said Ceredase, one of the
company's drugs for the enzyme disorder Gaucher's disease, is "growing
nicely," and that its pipeline looks strong. The First Call consensus
estimate for Genzyme is for third-quarter earnings of 31 cents a share, up
from operating net of 29 cents a share a year ago. |
