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Can Biotech ETFs Gain on Mixed Q4 Earnings Results?

Sweta Jaiswal, FRM

The biotechnology market kept its promise for decent returns with the NASDAQ Biotechnology Index returning 13.2% in the past year. Increasing M&A deals, growing AI dominance and favorable regulatory tidings continue to work in favor of the biotech market. The sector has been benefiting from a flurry of positive news, including trial results and deal activities.

The fast-spreading coronavirus has sparked a race among biotech companies. The fatality count in China has crossed 1000, with around 42,638 confirmed cases. Moreover, new cases confirming coronavirus infections are being reported from different parts of the world. Biotech players are dedicatedly working on creating vaccines that can help contain the virus. As such, these stocks could see some gains owing to elevated demand for drugs or vaccinations (read: Can Biotech ETFs Continue to Soar in 2020?).

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 Jan 30, Amgen AMGN reported fourth-quarter 2019 earnings of $3.64 per share, which surpassed the Zacks Consensus Estimate of $3.44. Earnings increased 6% year over year as lower revenues and higher R&D costs were offset by a lower share count. Total revenues of $6.2 billion in the quarter outpaced the Zacks Consensus Estimate of $6 billion. However, total revenues edged down 1% year over year.

Amgen issued its financial guidance for 2020. In the year, it expects revenues in the range of $25billion to $25.6 billion, which indicates an increase from the 2019 levels. In 2020, Amgen’s base business, excluding Otezla, is expected to be stable. Adjusted earnings per share are anticipated in the $14.85-$15.60 band. Shares have been up 0.6% since the earnings release (as of Feb 10, 2010).

On Feb 4, Gilead Sciences GILD reported mixed results for the fourth quarter, as earnings missed expectations, while sales managed to beat the same. The company reported earnings of $1.30 per share in the December-end quarter, down from the prior year’s $1.44 and missing the Zacks Consensus Estimate of $1.68. Total revenues of $5.88 billion outpaced the Zacks Consensus Estimate by 2.7% and rose 1.4% year over year.  

Gilead expects sales of $21.8-$22.2 billion for 2020. Adjusted product gross margin is anticipated to be 86-87%. Adjusted earnings per share are expected between $6.05 and $6.45. Including stock-based compensation expenses, earnings for the ongoing year are expected to be $6.13.  Moreover, the stock has gained 2.4% since reporting earnings (as of Feb 10).

On Jan 30, Biogen BIIB reported fourth-quarter 2019 earnings per share of $8.34, which surpassed the Zacks Consensus Estimate of $8. Earnings increased 19% year over year on higher revenues and lower operating expenses. Sales of this neuroscience-focused biotech came in at $3.67 billion, up 4% from the year-ago quarter. Sales also beat the Zacks Consensus Estimate of $3.54 billion. Sales growth was primarily led by higher sales of its key multiple sclerosis drugs, continued global growth of spinal muscular atrophy drug, Spinraza, and expansion of its biosimilar business. The stock has gained around 20% since the earnings release as on Feb 10.

On Jan 30, Alexion Pharmaceuticals ALXN posted fourth-quarter adjusted earnings per share of $2.71, which rose 26.6% from the year-ago quarter’s $2.14. Earnings also outpaced the Zacks Consensus Estimate of $2.37. Revenues were up 22.6% year over year to $1.38 billion and surpassed the Zacks Consensus Estimate of $1.32 billion. Revenues were led by higher sales of Soliris, Strensiq, Kanuma and Ultomiris.

Alexion expects adjusted earnings per share of $10.65-$10.85. The company projects revenues of $5.50-$5.56 billion. Combined revenues from Soliris and Ultomiris are expected to be $4.76-$4.80 billion. The stock has lost 5.5% since the earnings release as on Feb 10.

Biotech ETFs in Focus

In the current scenario, we believe it is prudent to discuss a few ETFs which have a relatively wider 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 215 holdings with the above-mentioned companies taking about 25.9% of the fund. It has AUM of $7.43 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: Top ETF Areas for 2020).

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 24 securities in its basket, with the concerned companies having 28.6% weight in the fund. Its AUM is $357.2 million and expense ratio is 0.35%. The fund currently carries a Zacks ETF Rank #2, with a High risk outlook (see all Health Care ETFs here).

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 123 securities in its basket and puts about 7.1% weight in the in-focus companies. Its AUM is $4.41 billion and expense ratio is 0.35%. The fund carries a Zacks ETF Rank #2 with a High risk outlook (read: 5 ETFs to Protect Your Portfolio From Coronavirus Threat).

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 Biogen and Gilead Sciences together having 7.6% weight in the fund. Its AUM is around $1.79 billion and expense ratio is 0.57%. The fund carries a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: A Guide to Biotech ETF Investing).

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Biogen Inc. (BIIB) : Free Stock Analysis Report
 
Alexion Pharmaceuticals, Inc. (ALXN) : Free Stock Analysis Report
 
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
 
Amgen Inc. (AMGN) : Free Stock Analysis Report
 
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
 
First Trust NYSE Arca Biotechnology ETF (FBT): ETF Research Reports
 
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