How are biotech ETFs reacting to Q2 earnings releases? – August 18, 2022

The biotechnology sector has been in an ideal position for some time now. Biotech stocks have been huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to increased IPOs and venture capital investments. But then stocks took a massive dive to rebound now. iShares Biotechnology ETF (IBB Free Report) increased by 7.6% last month (as of August 15, 2022).

According to the FT, hedge funds have started buying downed biotech stocks as they believe ultra-low valuations could revive M&A activity in the space. Many big pharma companies are looking to boost their drug pipelines through acquisitions (read: Should you buy battered biotech stocks and ETFs?).

Let’s take a look at some big biotech earnings releases to see if they will have an impact on space-exposed ETFs.

Benefits in a nutshell

Early August, Amgen (AMGN Free Report) reported Q2 2022 earnings of $4.65 per share, which beat Zacks’ consensus estimate of $4.40. In the prior year quarter, earnings were $1.77 per share. Lower operating expenses and lower share counts boosted earnings in the quarter.

Total revenue of $6.59 billion topped Zacks’ consensus estimate of $6.54 billion. Total revenue increased 1% year-over-year, driven by product sales growth, which offset the impact of lower other revenue.

Total product revenue increased 3% from the prior year quarter to $6.28 billion (US: $4.45 billion; non-US: 1.84 billion dollars). The increase in volumes was offset by lower selling prices for several drugs and currency headwinds. Volumes increased 10% in the quarter, offset by a net selling price decline of 6%. Currency movements hurt sales by 2% in the quarter.

Other revenue was $313 million in the quarter, down 24% year-over-year, primarily due to lower revenue from the COVID-19 antibody manufacturing collaboration by compared to the second quarter of last year. Amgen tightened its previously released revenue guidance while maintaining its adjusted earnings guidance range.

Early August, Gilead Sciences (BROWN Free Report) announced strong second quarter results, driven by continued strong demand for its HIV portfolio with further market share growth for lead treatment Biktarvy, and oncology revenues driven by cell therapy and Trodelvy . Sales of the COVID-19 treatment Veklury (remdesivir) declined as expected, but were better than expected.

The company reported earnings of $1.58 per share in the quarter, which topped Zacks’ consensus estimate of $1.51, but was down from $1.81 in the 2019 quarter. ‘last year. Total product sales were flat at $6.1 billion in the quarter under review. Excluding Veklury, product sales increased 7% year-over-year to $5.7 billion due to growth in HIV, cell therapy and Trodelvy (sacituzumab govitecan-hziy) businesses.

Product sales are now projected between $24.5 billion and $25.0 billion (previous projection – $23.8 billion to $24.3 billion). Total product sales, excluding Veklury, are expected to be between $22.0 billion and $22.5 billion (previous projection: $21.8 billion to $22.3 billion).

End of July, biogenic (IBIB Free Report) reported earnings per share (EPS) of $5.25 in the second quarter of 2022, which significantly exceeded Zacks’ consensus estimate of $4.10. In the year-ago quarter, Biogen reported earnings of $5.25 per share.

Sales were $2.59 billion, down 7% as reported (5% in constant currency) from the prior year quarter, hurt by lower Tecfidera and Spinraza sales. Sales, however, topped Zacks’ consensus estimate of $2.47 billion.

Product sales in the quarter were $2.05 billion, down 8.1% year-over-year. Royalty sales from Roche’s Ocrevus (RHHBY) were $291.9 million in the quarter, up 13.6% year-over-year.

Focus on biotech ETFs

We believe it is prudent to discuss a few ETFs with relatively larger exposure to the companies discussed above in the current scenario.

iShares Biotechnology ETF (IBB Free report)

It comprises around 375 holdings, with the companies mentioned above owning around 20% of the fund. It charges 44 basis points of fees.

VanEck Biotech ETF (BBH Free report)

He holds around 25 stocks in his basket, with the companies involved having a weighting of around 25% in the fund. IT charges 35 basis point fees. It gained 5.4% last month.

SPDR S&P Biotech ETF (XBI Free report)

He holds about 150 stocks in his basket and gives some weighting to targeted companies. XBI is up 12.6% last month. The fund charges 35 basis points in fees.

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