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3 Big Drug/Biotech Stocks Set to Beat Q3 Earnings Estimates

Kinjel Shah

The third-quarter earnings season for the pharma sector begins next week with J&J set to report earnings on Oct 15.

The first half of the year was a mixed bag for big drug and biotech companies as far as earnings performance is concerned. While big names like Pfizer, Bristol-Myers and Lilly performed relatively poorly, Amgen, AstraZeneca, AbbVie, Sanofi and Merck delivered decent earnings and sales growth. The focus now shifts to the second half of the year. It is to be seen if the ones who did not do well in the first half recover in the second half and the ones that did well continue to deliver solid earnings and sales performance.

Overall, relatively newer drugs have been driving the top line of most of the big shots backed by higher demand - a trend we expect to have benefited third-quarter sales. However, mature products of some of these companies face an array of generic/biosimilar as well as branded competition, which might have put pressure on sales and margins in the to-be-reported quarter. Meanwhile, greater pricing pressure in the United States and negative currency impacts are some other top-line headwinds that the companies might have faced.

Here we have highlighted three bigshot drug/biotech companies, which are expected to deliver positive earnings surprise in the upcoming quarterly earnings.

By means of the Zacks Stock Screener, we have zeroed in on three drug/biotech stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. These are valuable tools for investors looking for stocks with high potential to outpace estimates in the upcoming announcements. Moreover, stocks with a favorable Zacks Rank and a positive ESP have 70% chance to deliver a positive surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Our Picks

Amgen AMGN

Amgen has an Earnings ESP of +2.31% and a Zacks Rank of 2. The Zacks Consensus Estimate for third-quarter earnings is pegged at $3.47 per share. The company is scheduled to release results on Oct 29.

Amgen’s performance has been impressive, with the company delivering a positive earnings surprise in each of the trailing four quarters with the average being 6.72%.

Higher sales of products like Prolia, Xgeva, Kyprolis and Blincyto should make up for lower sales of Amgen’s mature drugs like Enbrel, Aranesp, Epogen, Neupogen, Neulasta and Sensipar, which are facing an array of branded and generic competitors. Though Repatha sales are gaining due to higher unit demand, it is being partially offset by lower prices.

Sales of Prolia, Xgeva, Blincyto, Parsabiv, Kyprolis and Nplate should continue to be driven by higher demand. Biosimilars could once again be an important contributor to top-line growth.

Amgen’s new migraine drug, Aimovig recorded sequentially improved sales in the second quarter driven by an increase in the percentage of paid volume with improvement in conversion of free-to-paid patients. We expect the positive trend to be reflected in third-quarter results.

Alexion Pharmaceuticals ALXN

Alexion has an Earnings ESP of +8.14% and a Zacks Rank #2. The company is scheduled to release results on Oct 23. The Zacks Consensus Estimate for third-quarter earnings is pegged at $2.49 per share. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alexion’s earnings performance has been impressive, with the company delivering a positive surprise in each of the trailing four quarters with the average being 13.34%.

Alexion’s sales should continue to be driven by its blockbuster rare disease drug Soliris whose underlying growth has been robust for both approved indications —  paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).  The label expansion of the drug for the treatment of refractory generalized myasthenia gravis (gMG) also boosted sales. We expect the positive trend to have contributed to its third-quarter performance.

Alexion’s other medicines like Strensiq and Kanuma should also contribute to the top line. Its new medicine, Ultomiris, was approved to treat PNH in the United States in December last year and is off to a strong start, recording sales of $78.8 million in the first half. Ultomiris should bring in higher sales in the third quarter as it was approved in Japan in June and in Europe in July.

Lilly LLY

Lilly has an Earnings ESP of +1.22% and a Zacks Rank #2. The company is scheduled to release results on Oct 23. The Zacks Consensus Estimate for third-quarter earnings is pegged at $1.43 per share.

Lilly’s earnings performance has been mixed. Its earnings beat expectations in three of the last four quarters, with the average positive surprise being 0.69%.

The impact of pricing pressure in the United States due to rebates and legislated increases in Medicare Part D cost sharing, price cuts in some international markets and currency headwinds are expected to be reflected in third-quarter 2019 results.

However, Like the previous few quarters, strong demand trends of new products namely Trulicity, Taltz, Jardiance, Basaglar, Olumiant and Verzenio as well as new migraine drug, Emgality should make up for the decline in sales of established products like Cialis due to loss of exclusivity and the impact of Lartruvo’s impending product withdrawal. Lilly has suspended promotion of its advanced soft tissue sarcoma drug Lartruvo due to the failure of the ANNOUNCE confirmatory study.

Among the new drugs, in August, Taltz gained FDA approval for its third indication — active ankylosing spondylitis, which expanded the drug’s eligible patient population and might have driven sales in the third quarter.

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