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Biotech ETFs in Focus on Impressive Q3 Earnings Results

Sweta Jaiswal, FRM

The year 2019 has been pretty decent for the biotechnology market so far, with the NASDAQ Biotechnology Index returning 13.3%. Increasing M&A deals, growing AI dominance and favorable regulatory tidings continue to work in favor of the biotech market. The sector has been benefitting from a flurry of positive news, including trial results and deal activities. For instance, the mega-merger deal between Bristol-Myers BMY and Celgene CELG that was announced at the beginning of 2019 created quite a stir in the sector. Also, Biogen’s progress with the approval of aducanumab, a treatment for early Alzheimer’s diseases, after the drug met the primary endpoint of a Phase 3 Emerge study has raised optimism among investors (read: Biotech ETFs Surge on a Flurry of Positive News).

Alexion Pharmaceuticals also joined the M&A wave in the pharma/biotech sector. The company agreed to acquire a clinical-stage biopharmaceutical company Achillion Pharmaceuticals for $930 million in a move to expand its pipeline of rare disease treatments. The transaction is expected to close in the first half of 2020, subject to approvals, even from Achillion shareholders.

Let’s take a look at some big biotechnological earnings releases and see if these will impact ETFs exposed to the space.

Earnings in Focus

On Oct 29, Amgen AMGN reported third-quarter 2019 earnings of $3.66 per share, which surpassed the Zacks Consensus Estimate of $3.51. Earnings declined 1% year over year due to lower revenues and operating profits. Total revenues of $5.74 billion in the quarter outpaced the Zacks Consensus Estimate of $5.63 billion. However, total revenues declined 3% year over year.

The company slightly raised its previously issued sales guidance while lifting the earnings range significantly. Amgen expects revenues in the range of $22.8-$23 billion versus $22.4-$22.9 billion expected previously. Adjusted earnings per share are anticipated in the range of $14.20-$14.45 versus $13.75-$14.30 expected previously. The guidance excludes the impact of the Otezla acquisition. Shares rose about 4.3% since the earnings release (as of Nov 1, 2019).

On Oct 24, Gilead Sciences GILD reported mixed results for the third quarter of 2019 as earnings missed expectations while sales managed to surpass the same by a slight margin. The company reported earnings of $1.75 per share in the third quarter, down from $1.84 a year ago and missing the Zacks Consensus Estimate by a penny. Total revenues of $5.60 billion outpaced the Zacks Consensus Estimate by 0.1% and were almost flat year over year (see all Health Care ETFs here).

Gilead now expects sales of $21.8-$22.1 billion compared with the previous guidance of $21.6-$22.1 billion. Adjusted R&D and adjusted SG&A expenses are projected to be $3.7-$3.8 billion and $4.0-4.1 billion, respectively. Adjusted product gross margin is anticipated to be 85-87%. Moreover, the stock has slipped 2% since reporting earnings (as of Nov 1).

On Oct 22, Biogen BIIB reported third-quarter 2019 earnings per share of $9.17, which surpassed the Zacks Consensus Estimate of $8.28. Earnings increased 24% year over year on higher revenues, lower tax rate and a lower share count. Sales of this neuroscience-focused biotech came in at $3.6 billion, up 5% from the year-ago quarter. Sales also beat the Zacks Consensus Estimate of $3.53 billion. Sales growth was primarily led by higher sales of its key multiple sclerosis drugs and continued global launch of spinal muscular atrophy (SMA) drug, Spinraza. The stock has gained 33.9% since the earnings release on Nov 1.

On Oct 23, Alexion Pharmaceuticals ALXN posted third-quarter 2019 adjusted earnings per share of $2.79, which rose 38% from the year-ago quarter’s $2.02. Earnings also outpaced the Zacks Consensus Estimate of $2.49. Revenues were up 23% year over year to $1.26 billion and surpassed the Zacks Consensus Estimate of $1.24 billion. Revenues were led by higher sales of Soliris, Strensiq, Kanuma and the uptake of Ultomiris.

Alexion raised its revenue and earnings view for 2019. The company expects adjusted earnings per share of $10.25-$10.40, up from the previous guidance of $9.65-$9.85. Alexion projects revenues of $4.86-$4.89 billion against the prior outlook of $4.75-$4.80 billion. Combined revenues from Soliris and Ultomiris are expected at $4.18-$4.20 billion, up from $4.10-$4.13 billion guided previously. The stock has gained 10.2% since the earnings release on Nov 1.

Biotech ETFs in Focus

In the current scenario, we believe it is prudent to discuss a few ETFs which have a relatively wide exposure to the companies discussed.

iSharesNasdaq Biotechnology ETF IBB

This fund seeks to provide exposure to U.S. biotechnology stocks and tracks the NASDAQ Biotechnology Index. It comprises 218 holdings with the above-mentioned companies taking about 24% of the fund. It has AUM of $7.04 billion and charges a fee of 47 basis points a year. The fund carries a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Global X Launches GNOM ETF to Tap Booming Genomics Space).

VanEck Vectors Biotech ETF BBH

The underlying MVIS US Listed Biotech 25 Index tracks the overall performance of companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment. It holds about 25 securities in its basket, with the concerned companies having 28% weight in the fund. Its AUM is $343.8 million and expense ratio is 0.35%. The fund carries a Zacks ETF Rank #2 with a High risk outlook.

SPDR S&P Biotech ETF XBI

The fund seeks daily investment results, before fees and expenses, which match the S&P Biotechnology Select Industry Index. It holds about 117 securities in its basket and puts about 7% weight in the in-focus companies. Its AUM is $3.85 billion and expense ratio is 0.35%. The fund carries a Zacks ETF Rank #2 with a High risk outlook (read: Healthcare ETFs Win in October: Here's Why).

First Trust Amex Biotechnology Index FBT

The fund measures the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. It holds about 31 securities in its basket with the concerned companies having 14.3% weight in the fund. Its AUM is around $1.67 billion and expense ratio is 0.57%. The fund carries a Zacks ETF Rank #3 (Hold) with a High risk outlook.

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Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
 
First Trust NYSE Arca Biotechnology Index Fund (FBT): ETF Research Reports
 
iShares Nasdaq Biotechnology ETF (IBB): ETF Research Reports
 
SPDR S&P Biotech ETF (XBI): ETF Research Reports
 
VanEck Vectors Biotech ETF (BBH): ETF Research Reports
 
Amgen Inc. (AMGN) : Free Stock Analysis Report
 
Biogen Inc. (BIIB) : Free Stock Analysis Report
 
Celgene Corporation (CELG) : Free Stock Analysis Report
 
Alexion Pharmaceuticals, Inc. (ALXN) : Free Stock Analysis Report
 
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
 
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