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Biotech ETFs Sink on Mixed Q1 Results

Since the second half of 2015, the biotech sector has been experiencing weakness due to industry specific headwinds. The bear run was triggered by a "price gouging" tweet from Democratic Presidential candidate Hillary Clinton. Additionally, strained balance sheets and macro-economic factors are adding to investors’ anxiety (read: Biotech ETFs Hit 52-Week Lows: Time to Buy?).
 
To deepen its woes, the sector has failed to gain investor confidence so far in the first quarter as well. Although well-known biotech industry player Amgen Inc. (AMGN) easily managed to beat estimates on both earnings and revenues, several other companies including Biogen (BIIB), Celgene Corporation (CELG), Gilead (GILD) and Alexion Pharmaceuticals (ALXN) reported disappointing or mixed results.
 
Quite expectedly, investors will keep an eye on biotech earnings for the rest of this season to assess whether the sector can pull off another turnaround supported by strong pipelines, innovative treatments, growing demand for drugs, especially for rare-to-treat diseases, an aging population and increased health care spending (read: What Lies Ahead for Biotech ETFs in 2016?).
 
Biotech Earnings in Detail
 
Gilead reported disappointing first-quarter results as both earnings and revenues lagged the respective Zacks Consensus Estimate. The biotech giant’s first-quarter earnings (including stock-based compensation expenses) of $2.98 per share missed the Zacks Consensus Estimate of $3.03. Reported earnings were, however, higher than the year-ago figure of $2.90 per share.
 
Quarterly revenues were up 2.6% to $7.79 billion driven by strong product sales. However, the revenue figure fell short the Zacks Consensus Estimate of $8.13 billion. Meanwhile, the company maintained its 2016 product sales guidance. The company expects product sales in the range of $30–$31 billion. The stock has fallen 9.1% since reporting earnings (as of April 29, 2016).
 
Another biotech behemoth, Amgen beat both earnings and revenue estimates in the first quarter. The company’s first-quarter 2016 earnings of $2.90 per share surpassed the Zacks Consensus Estimate of $2.56 and improved from the year-ago earnings of $2.48. Also, total revenues grew 10% to $5.527 billion, which beat the Zacks Consensus Estimate of $5.362 billion. Foreign exchange translation negatively impacted first quarter sales by five percentage points.
 
Based on an improved revenue outlook and a lower tax rate, the company upgraded its outlook for 2016 earnings to $10.85–$11.20 per share from $10.60–$11.00 per share. The company also pushed up its revenue guidance to $22.2–$22.6 billion from $22.0–$22.5 billion. However, the stock has lost 1.4% since releasing earnings.
 
Meanwhile, Biogen managed to beat on earnings, while it missed revenues marginally. The company’s earnings per share of $4.79 were well above the Zacks Consensus Estimate of $4.48. Earnings grew about 25% year over year while revenues increased 7%. Revenues came in at $2.7 billion, missing the Zacks Consensus Estimate of $2.8 billion. The stock gained 3.4% since it reported earnings.
 
Similarly, Celgene reported mixed results with earnings of $1.18 per share (including stock-based compensation expenses) beating the Zacks Consensus Estimate of $1.05 and revenues of $2.51 billion missing the Zacks Consensus Estimate slightly. However, both earnings and revenues rose year on year in the reported quarter. Net sales of the drug Revlimid, the backbone of Celgene, saw a year-over-year rise of 17.2%. The company has narrowed its 2016 outlook. The company now anticipates earnings in the range of $5.60–$5.70 per share as compared to the old guidance: $5.50–$5.70 per share. The stock is down 2.9% post its earnings release.
 
On the other hand, Alexion came up with out-and-out disappointing first-quarter results with both earnings and revenues missing estimates. First-quarter 2016 earnings (including stock-based compensation expense) of 87 cents per share missed the Zacks Consensus Estimate of 91 cents. Earnings were also below the year-ago figure of $1.08 per share. Nevertheless, Alexion’s revenues climbed 16.8% year over year in the first quarter to $701 million. Revenues, however, missed the Zacks Consensus Estimate of $712 million.
 
Alexion has revised its outlook for 2016. The company expects adjusted earnings per share and revenues to be at the low end of the previous projections of $5.00–$5.20 and $3.05–$3.1 billion, respectively. Shares have lost a whopping 7.6% in the last two trading sessions.
 
ETFs in Focus
 
Thanks to mixed results, biotech ETFs with considerable exposure to the five stocks above were all in the red in the last 10 trading sessions (as of April 29, 2016). This has put the spotlight on biotech ETFs. Below we discuss four of these ETFs having a sizeable exposure to the above stocks (see all Healthcare ETFs here).
 
iShares Nasdaq Biotechnology (IBB)
 
This top player in the biotech ETF space tracks the NASDAQ Biotechnology Index, holding 189 securities in the basket. Celgene, Amgen, Gilead Sciences, Biogen and Alexion are placed among the top 10 holdings with a combined exposure of about 36.3% in the fund. The fund has an asset base of more than $7.6 billion and trades in an average volume of nearly 2.3 million shares a day. It has an expense ratio of 0.47% and lost 4.5% in the above mentioned timeframe. IBB currently has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Generic ETF in Focus as Biotech Lose Charm)
 
Market Vectors Biotech ETF (BBH)
 
This fund follows the Market Vectors U.S. Listed Biotech 25 Index and holds 26 securities in its basket. Gilead Sciences (12.5%), Amgen (12.2%), Celgene (9.6%) and Biogen (5.9%) take the top four spots in the fund while Alexion (4.3%) takes the eleventh place. The fund has amassed nearly $545.8 million in its asset base and trades in moderate volumes of roughly 103,000 shares a day. The product charges an annual fee of 35 bps per year and lost almost 4% in the said timeframe. It currently carries a Zacks ETF Rank #2 (Buy) with a High risk outlook.
 
PowerShares Dynamic Biotech & Genome ETF (PBE)
 
The fund tracks the Dynamic Biotech & Genome Intellidex Index. The top 4 holdings include Amgen (5%), Biogen (4.9%), Alexion (4.7%) and Gilead (4.7%). Total assets of the fund are $274.4 million representing 31 holdings. The fund’s expense ratio is 0.57%. The trading volume is roughly 52,000 shares per day. The fund has lost 4.5% in the past 10 trading sessions. It currently carries a Zacks ETF Rank #4 (Sell) with a High risk outlook.
 
First Trust NYSE Arca Biotech ETF (FBT)
 
FBT tracks the NYSE Arca Biotechnology Index and holds 30 securities in the basket. The fund is well diversified with no stock holding more than 4% weight. Biogen, Amgen, Celgene, Alexion and Gilead have a combined exposure of about 16.5% in the fund. Total assets of the fund are $884.5 million. The fund’s expense ratio is 0.58%. The trading volume is roughly 443,000 shares per day. It currently carries a Zacks ETF Rank #2 with a High risk outlook. The fund has lost 3.4% in the last 10 trading sessions (read: Biotech Regain Health: ETFs to Prescribe).
 

 
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AMGEN INC (AMGN): Free Stock Analysis Report
 
BIOGEN INC (BIIB): Free Stock Analysis Report
 
ALEXION PHARMA (ALXN): Free Stock Analysis Report
 
CELGENE CORP (CELG): Free Stock Analysis Report
 
GILEAD SCIENCES (GILD): Free Stock Analysis Report
 
ISHARES NDQ BIO (IBB): ETF Research Reports
 
FT-AMEX BIOTEC (FBT): ETF Research Reports
 
PWRSH-DYN BIO (PBE): ETF Research Reports
 
MKT VEC-BIOTECH (BBH): ETF Research Reports
 
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