Mohamad Faizal Bin Ramli
Investors will keep a close eye on some of the leading drugmakers this week as the healthcare earnings season gets into high gear for Big Pharma, with market sentiment on the sector rising after a decline for much of the last year.
VanEck Pharmaceutical ETF (PPH), which represents 25 of the major drug companies in the world, has added ~5% over the past 30 days, compared to the ~2% rise in the S&P 500 (SP500). However, despite a late rally, PPH ended only ~5% higher last year compared to a ~24% rise in the broader market.
“U.S. Biopharma enters the 4Q23 earnings season after a seismic positive shift in sentiment from last autumn,” Barclays said in its earnings preview last week, keeping its positive rating on the industry unchanged.
Analyst Carter Gould attributes recent outperformance to various factors: a broader rotation into healthcare, a supportive macro environment, and a recent spike in deal-making.
Industry bellwether Johnson & Johnson (JNJ) beat expectations with its Q4 2023 results last Tuesday thanks to the outperformance of its pharmaceutical and MedTech segments.
“Despite broadly higher expectations into 4Q prints and ’24 guides, we think most of the group is still set for continued momentum,” Gould added. Ahead of the earnings season, he picked commercially strong biopharma names with upside potential versus more narrative-driven stocks.
However, given the recently announced M&A transactions, the acquired in-process research and development (IPR&D) charges could still cloud expectations, Barclays argues. Bristol Myers Squibb (BMY) and Regeneron (NASDAQ:REGN) were some of the notable big pharma that recently cited IPR&D’s impact on earnings outlook.
Barclays argues that heading into the earnings season, Eli Lilly (NYSE:LLY), AbbVie (NYSE:ABBV), Merck (NYSE:MRK), Regeneron (REGN), and Neurocrine Biosciences (NBIX) are the most favorably positioned stocks in its coverage. With Overweight ratings, Gould raised their price targets to $680, $175, $135, $1,020, and $150 from $630, $170, $130, $935, and $145 per share, respectively.
He has Equal Weight ratings on Biogen (BIIB), Bristol-Myers (BMY), Gilead (GILD), and Pfizer (PFE) and an Underweight rating on Amgen (AMGN), with price targets at $255, $51, $85 (increased from $82), $28, and $230 per share, respectively.
Meanwhile, UBS notes that large-cap biotech stocks are off to a solid start in 2024, with companies such as Amgen (AMGN), Regeneron (REGN), and Vertex Pharmaceuticals (VRTX) all up nearly 9% this year. In its earnings preview for U.S. biotech, analyst Colin Bristow highlights Regeneron (REGN) and Vertex (VRTX).
With a Buy rating, UBS raised its price target on Vertex (VRTX) to $513 from $443, and despite a Neutral rating, the firm raised its target on Amgen (AMGN) to $315 from $268 per share.
Noting that 2024 guidance is not a significant issue for VRTX, Bristow looks forward to updates from its key programs, including its non-opioid pain therapy VX-548 in acute pain, which the management previously guided to a topline readout in Q1 2024.
Other highlights include a Phase 3 study for a three-drug combination regimen targeted at cystic fibrosis, from which a topline readout is expected in early 2024. “All studies from both programs have been completed by early Jan guidance,” the analyst added.
Despite its below-consensus estimates for Amgen (AMGN), UBS argues that the company’s potential against obesity can offset any guidance-driven weakness. A Phase 2 trial for AMGN’s weight loss therapy, AMG 133, is ongoing, with topline data expected in 2024.
