In a research note published Friday, Bank of America analysts updated its expectations for pharmaceutical firms, including Amgen (NASDAQ: AMGN), AbbVie (NYSE: ABBV) and BioMarin (NASDAQ: BMRN) ahead of second-quarter earnings.
The pharma industry, and biotech, in particular, can be notoriously volatile. On the plus side, volatile investments can lead to market-beating returns.
Volatility is a hallmark of smaller biotech firms, which are inherently risky propositions. That’s because they are in business specifically to develop unproven treatments. Often, investors in these startup firms have the goal of exiting with a sale to a larger firm.
Often, new products will never even make it to market, if clinical trials are disappointing. That adds uncertainty for investors. If that weren’t enough, pharma and biotech are highly regulated businesses, which adds challenges, and the products themselves can be very complex to understand.
If that seems like a lot for an individual investor with no particular expertise in pharmaceutical development (that’s most of us, by the way), it might help to know that even institutional investors have mixed track records with these stocks.
In its note Bank of America pointed out some potential challenges to the industry, but said, “Despite a modest 2Q rebound, Pharma ... and Biotech ... lag the broader market YTD (S&P500 +16%) based on an incrementally better macro backdrop. Though 1Q earnings disappointed on broader pandemic headwinds we’d argue the sector is well-positioned now with several key headwinds diminishing including little risk of major drug pricing or M&A reforms.”
Amgen reports its second-quarter on August 3, with analysts expecting earnings of $3.95 per share on revenue of $6.43 billion.
Bank of America has a rating of “buy” on the stock. Analysts’ consensus price target is $256.19, a 3.32% upside.
Amgen reported a 12% year-over-year earnings decline in the first quarter, coming in at $3.70 per share. B of A termed that result “disappointing,” but added, “We expect a rebound in the form of 2Q21 earnings results with favorable y/y comps and improving volumes from COVID-19 recovery.”
However, Bo of A noted that it expects Amgen’s Otezela and Repatha meds to post strong sales in the quarter.
Shares closed Friday at $247.96, up $2.76, or 1.13%. Chart action has been sloppy lately, with wide price swings. It’s currently forming a flat base, holding above key moving averages.
AbbVie reports its second-quarter on July 30. Wall Street pegged earnings at $3.07 per share on revenue of $13.63 billion. Both would mark significant year-over-year gains.
Bank of America estimates revenue of $13.684 billion, slightly above consensus estimates, based on anticipations for strong sales of Botox and other brand-name pharmaceuticals. Although B of A sees strong sales for AbbVie’s rheumatoid arthritis med, Rinvoq, but its estimate for that product is below the consensus.
“We forecast a FY21 topline miss, fueled largely by our below-consensus expectations for Skyrizi and Rinvoq,” Bank of America wrote.
AbbVie has a lower beta than Amgen, meaning its stock has been less volatile, relative to the broader market. For the past year, the stock has been breaking out of bases, yet failing to rally more than 20% following the breakout.
Nonetheless, that stutter-step pattern of moving higher has propelled the stock 13.30% year-to-date and 22.68% over the past year. Those lag the S&P 500’s returns of 15.20% year-to-date and 34.57% in the past year.
BioMarin, with a market cap of $14.41 billion, is smaller than Amgen or AbbVie. This stock also sports some volatile trade. In August 2020, the stock plummeted 35.28% in one session, as the FDA said it needed more information before it could approve BioMarin’s hemophilia treatment.
In January, the company announced positive results in a phase-three clinical trial of the drug. In other words, the company is continuing to gather data.
Bank of America noted several headwinds for the company, including sales driven by foreign government orders, which can be unpredictable. The analysts’ note also cited BioMarin’s treatments for “orphan diseases,” or very rare diseases, as a possible driver of revenue volatility.
The company reports its second quarter on July 28, with the consensus estimate calling for earnings per share of $0.05 on revenue of $448.79 million. That would mark a steep decline in earnings, but growth on the top line.
The stock has been unable to gain any upside traction. Despite the estimates for increased revenue growth, the stock is not one to consider buying at this time.
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