Healthcare Business

Reality Check: Big Biotech and Big Pharma Are Becoming Identical

AbbVie Inc. (NYSE: ABBV) also saw its shares drop down on earnings in recent days. Looking ahead to 2019, the company expects to see EPS in the range of $8.65 to $8.75 and the consensus estimates at that time were calling for $8.71 in EPS and $33.6 billion in revenue for the year. At $76.60, AbbVie is now just valued at less than 9 times expected earnings.

Bristol-Myers Squibb Co. (NYSE: BMY) reported its fourth quarter results last Thursday as $0.94 EPS on $5.97 billion in revenue. That compared to consensus estimates of $0.85 in EPS and $5.99 billion in revenue, as well as the $0.68 per share and $5.45 billion posted in the fourth quarter of 2017. While that should have been good enough, BMS also announced that it has withdrawn its application with the FDA for a combination of its blockbuster cancer immunotherapy drugs Opdivo and Yervoy as an initial treatment for advanced lung cancer. The withdrawal raised questions and the post-earnings reaction kept shares around the $50 mark when its 52-week range is $44.30 to $70.05.

Still, Bristol-Myers Squibb did see some areas of growth. In terms of its prioritized brands, the firm reported that Opdivo grew 33% year over year to $1.80 billion while Eliquis increased 25% to $1.71 billion. Also worth noting: Yervoy increased 43% to $384 million; Orencia grew by 10% to $731 million; and Sprycel grew by 2% to $536 million.

Looking ahead to the 2019 fiscal full year, the company gave guidance of $4.10 to $4.20 EPS with worldwide revenues increasing in the mid-single digits. Consensus estimates call for $4.14 in EPS and $24.2 billion in revenue for the year. That isn’t huge growth but this is now just valuing Bristol-Myers Squibb as about 12 times forward earnings. And that was before more recent trading took shares down closer to $48.00.

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Gilead Sciences, Inc. (NASDAQ: GILD) is another biotech giant that has seen its shares go into a state of hibernation despite a 2.8% gain to $69.75 on Tuesday with a market cap of $90 billion. Its earnings are not due until next week and the consensus was last seen at $1.64 EPS versus $1.60 a year earlier.

The driver for Gilead shares on Tuesday was actually after Citigroup reiterated its Buy rating and $106 price target. If that happens, Gilead will be back in the $100 billion market cap club. Unfortunately, Gilead has also had no real growth in recent years after its Hep-C treatment cured so many patients.

The Citi positive view on Gilead is based around the analyst seeing more drug trial data on its selonsertib treatment for nonalcoholic steatohepatitis (NASH) later in the quarter. Gilead has best been know for Hep-C and HIV drugs, and for cancer studies after its big Kite acquisition, but the company has been developing NASH treatments for years. The firm sees Gilead’s NASH business potentially taking 65% of the NASH market with peak sales of more than $4 billion as an offset to the decline in Hep-C prescriptions.

With shares at $69.75, the 52-week range of $60.32 to $88.33 doesn’t add up to much on first look. Still, its consensus analyst target price of $84.49 implies upside of just over 20% before considering its 3.3% dividend yield. Gilead’s consensus 2019 earnings per share estimate of $6.77 implies that it is barely valued at $10 times future earnings. That said, its $6.93 EPS expected for 2018 implied declining metrics as sales are called to be down less than 1% to $21.75 billion in 2019 after an expected 16% drop in 2018 from 2017.

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The most recent short interest data showed a mixed bag in Big Pharma short interest versus Big Biotech short interest activities. If you would have gone back a decade ago, and eliminated the great recession from the mix, would you have guessed that the three top biotech giants would be valued at lower multiples than their Big Pharma rivals? Sometimes the world looks like it has turned upside down if you only look at snapshots in time.