Dmitry Dzhimidovich
As investors prepare for another challenging quarter when earnings season begins in the biopharmaceutical business later this month, Barclays has picked Eli Lilly (New York Stock Exchange: LLY) and Merck (New York Stock Exchange: MRK) as two of the best large companies Pharmaceutical companies are heading into the second quarter earnings season.
The preview of Barclays’ second-quarter 2023 earnings in biopharmaceuticals comes at a time when healthcare has become a notable lag in the S&P 500 this year: Pharmaceutical companies in the benchmark index have lost about 5% year-to-date.
Barclays analyst Carter Gould argues that with challenging backdrops even for companies that have the potential to post quarterly strikes, the sector’s recovery will be more of a case of macro factors than in the upcoming earnings season.
Below is a summary of his comments on individual stocks.
Eli Lilly: Despite an overweight rating and $500 stock target on Lilly (LLY), Gould argues that the company, which recently became the most valuable drugmaker in the United States, has a difficult valuation setup.
The analyst expects LLY to beat forecasts for Mounjaro’s diabetes treatment and awaits updates on supply issues and the company’s near-term plans to expand its obesity rating, which he said will help reduce risks to the company’s 2024 estimates for the drug.
Despite the odds of LLY having Alzheimer’s disease, the analyst isn’t looking forward to second-quarter updates on donanemab, a late-stage candidate for the memory-stealing disease. A major medical meeting will conclude where LLY is scheduled to publish Phase 2 results for the drug by the time it releases its earnings.
Merck: Gould expects Merck (MRK) to post a clean cadence in the second quarter, driven by its best-selling products Gardasil and Keytruda. However, it does cite concerns about potential profit loss due to fees related to the company’s $11 billion deal to acquire Prometheus Biosciences (RXDX).
The analyst wonders if Prometheus’ previous earnings win was enough to pique investors’ interest, given Merck’s (MRK)’s seemingly calm stimulus outlook in H2. Barclays has an overweight rating and a target of $130 per share on Merck (MRK).
Neurobiological Sciences: Movement disorder remedy maker Ingrezza is also in a positive position for earnings season, Barclays argues, with an overweight rating and $125 price target. Gould predicts the occurrence of neurodeafness (Nasdaq: NBIX) to beat Wall Street expectations for Ingrezza and issue increased guidance for the full year.
Despite uncertainty related to an expected linear reading for crinecerfont, NBIX candidate for the rare genetic disorder congenital adrenal hyperplasia, in the early fourth quarter, with stocks trading in the mid-1990s, “we believe this presents a favorable risk/reward in print,” Gould Books.
Barclays also points to notable pre-earnings setups at other big pharma companies: Regeneron (REGN), Pfizer (PFE), Gilead (GILD), and Amgen (AMGN).
Regeneron: Barclays expects Regeneron (REGN) to underestimate Street for its popular eye disease treatment Eylea amid competition from Roche’s (OTCQX:RHHBY) (OTCQX:RHHBF) injectable rival, Vabysmo. Even so, the company maintains its $888 per share target and an Overweight rating.
In the wake of the FDA’s recent refusal to release a high-dose Eylea, the analyst is keen to see if REGN, with its second-quarter release, will include updates on its schedule for reintroducing a marketing application.
Amgen: Anticipating Q2 failures for Enbrel Arthritis, Otezla, and Barclays, with an Underweight rating on the stock, and a lower-than-expected Amgen (AMGN) revenue and earnings forecast.
With the company facing antitrust concerns over its $28 billion bid to acquire Horizon Therapeutics (HZNP), the analyst cuts his price target on AMGN to $210 from $225, citing the importance of Horizon Tepezza’s sales of the stock.
Gilead: As the impact of the pandemic wanes, Gould warns that Gilead (GILD) will lower its full-year sales estimate of $2 billion for a chlorine COVID treatment and raises concerns about where the treatment will end up in the company’s pipeline. With an equal weight rating, Gold lowers its price target on GILD to $81 from $84.
Pfizer: Despite posting a first quarter thanks to the COVID concession in May, the analyst expects Pfizer (PFE) to report weak sales across its portfolio in the second quarter. Because of this data and given how the pandemic is evolving in H2, he expects the New York drug giant to issue an indicative cut. With an equal weight rating on PFE, Gold trimmed the price target to $38 from $40 per share.
The analyst also commented on biopharmaceutical stocks with equal weight in his coverage. Notable forecasts include direct sales estimates for AbbVie’s leading arthritis remedy (ABBV) in the US and comparable quarterly performance from Bristol Myers (BMY).
Biogen: With the launch of its recently approved Alzheimer’s treatment, Leqembi Barclays looks forward to receiving updates on the launch, progress on the company’s cost-cutting initiatives, and management’s feedback on the depression treatment zuranolone.
Developed by Biogen (BIIB) and Sage Therapeutics (SAGE), zuranolone is currently under FDA priority review with a target action date of August 5.