Biotech companies have been taking a beating as the presidential debates rage on and candidates target the companies for their pricing on specialty pharmaceuticals. Cowen and Company’s Biotechnology Team thinks the third quarter earnings season is “shaping up” to be “a critical period” for the sector as a whole.
Investors appear to be taking their advice positively today, as shares of the firm’s favorite biotech stocks are on the rise, pretty much across the board. Indeed, this has been a strong year for the biotech sector, as in March, it became the first sector to outperform for five consecutive years.
Biotech should keep impressing
They said the current outlook for earnings across the biotech sector is “as good as ever” thanks to solid trends in demand and the “favorable” pricing environment in the U.S. They expect both of these positive factors to offset currency headwinds, which they view as “relatively minor.”
The Cowen team also expects the third quarter earnings season to highlight the sector’s earnings growth and boost confidents in “financially driven” stocks like those in the biotech sector.
To own or not to own?
The analysts note that many Wall Street generalists seem to be questioning whether they should even have any holdings in the biotech sector, particularly as presidential candidates debate drug pricing. However, they expect the sector to keep impressing. In fact, they think the third quarter earnings season might demonstrate investors that there’s a risk in not owning anything in the biotech sector, which they said is currently going through a time of innovation and growth.
The Cowen team believes that management of companies across the biotech sector will use their earnings calls to highlight their research and development efforts, their service and efforts to get patients access to their medications, and the benefits their new drugs offer. Management commentary might help balance some of the concerns about the political debate over drug pricing.
Many signs of growth across biotech
The analysts do note that a couple of the big biotech products have slowed down, like Gilead Sciences’ HCV franchise in the U.S., there are many others that are continuing to gain. Also biotech companies are continuing to launch new products. Data from IMS Health suggests that volumes for almost every major franchise in biotech are growing.
The Cowen team suggests that investors might be underestimating the impacts of Obamacare and the aging population of the U.S. are having on biotech. Further, they note that biotech companies have raised prices on many of their top brands recently, possibly because of the upcoming election year.
The analysts also say that on a seasonal basis, the third quarter is usually a solid one for biotech companies as there are more selling days on the calendar than there are during the first quarter and fewer big holidays than the fourth quarter. They see the strength of the U.S. dollar as possibly being the only negative macro trend but add that the euro and many of the world’s other major currencies have finally stabilized. As a result, they see greater risk of currency headwinds for companies with “substantial un-hedged ex-U.S. sales,” like Alexion, BioMarin, and Vertex.
Biotech stocks rise today
The Cowen team’s top picks in the biotech sector this earnings season include Celgene, Gilead Sciences, Amgen, Alexion Pharmaceuticals, Emergent Biosolutions, Incyte, PDL BioPharma, and Regeneron Pharmaceuticals, as they expect all of them to exceed consensus estimates. The stocks of all these companies rose during regular trading hours today.
The analysts expect Ariad Pharmaceuticals, Biogen, BioMarin Pharmaceutical, Medivation, United Therapeutics, Vertex, and XenoPort to perform in line with expectations. They believe Aegerion Pharmaceuticals and Anacor Pharmaceuticals might disappoint.
Shares of the biotech industry have been climbing pretty much across the board over the last couple of trading sessions due to a lack of new comments from the last Democratic presidential debate.
