Q1 2014 Biotech Earnings Preview

Big Biotech Earnings Week

  • 6 of the top 10 Biotech names report earnings this week
  • EPS estimates have evolved over last 90 days
  • Pfizer - Astra-zeneca Rumor could fuel biotechs
  • Video included below

Video Earnings Preview

60% of the IBB Reports This Week

60% of the IBB (by market cap weighting) reports earnings this week. The names reporting earnings this week include: Gilead Sciences (NASDAQ:GILD), Amgen (NASDAQ:AMGN( Mylan (NASDAQ:MYL), Biogen-Idec (NASDAQ:BIIB), Celgene (NASDAQ:CELG) and Alexion (NASDAQ:ALXN).

Here are consensus Revenue and EPS estimates for these names (data as reported by Yahoo Finance - click to enlarge):

 

Consensus Biotech EPS updates over time

Over the last 90 days, even during the recent biotech sell-off analysts have been updating their models regarding biotech earnings. The cahrt below shows the change in consensus EPS over time for the top-10 biotech names. (data as reported by Yahoo Finance - click to enlarge)

Notice the 50% jump in estimated EPS for ALXN and the 30% increase for GILD. About half of the top-10 IBB names had upward EPS estimate revisions in the last 3 months. It would appear that some of the top-10 IBB names were priced to perfection - at least before the recent selloff.

The cumulative effect of these revisions on teh the totl EPS of the top 10 biotech names is as follows (click to enlarge):

Pfizer Wants Astra-Zeneca

Possibly adding fuel to the fire this week is the news we learned today that Pfizer (NYSE:PFE) may have approached Astra-Zeneca (NYSE:AZN) with an unsolicited offer to merge at $101B. Some have speculated that PFE would find AZN's immune-oncology progrm of interest - even though it is several years behind leaders such as Bristol Myers (NYSE:BMY). Acquisition of a foreign firm makes sense for Pfizer due to approximately $70 Billion that the firm has in cash in off-shore subsidiaries. re-patriating that cash to the US would involve an huge tax hit without creating additional shareholder value.

A deal to acquire AZN at $101B would be accretive to PFE according to analysis by ISI Group analyst Mark Schoenbaum.

Deal May Fuel Biotech

A potential large merger deal may fuel biotech names right ahead of earnings season. Last year, when Onyx was being pursued for an acquisition, several other biotech names benefited from speculation that the unsuccessful bidders may seek to do a deal elsewhere. The recent pullback in biotech has put the 10 largest biotech names trading at-par or below large cap pharmaceutical names on a forward price-to-earnigns basis. This means a deal in the biotech space is not unreasonable for an acquirer who finds value in a large-cap pharma name at the present time.

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