ETF Impact On Biotech Earnings [Celgene Corporation, Alexion Pharmaceuticals, Inc., Amgen, Inc., Biogen Idec Inc]

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July 31, 2014 4:23pm NASDAQ:BIB NASDAQ:IBB

biotechnologyThe Q2 earnings season has so far been great for biotech companies with most of them giving solid quarterly updates. Biotech giant Gilead Sciences (GILD) continued with its exceptional performance in this quarter as well, beating the Zacks Consensus Estimate

on both revenues and earnings.

The company’s blockbuster drug – Sovaldi (drug to treat hepatitis C) – was a hit yet again leading the company’s earning per share to jump by a massive 383% year over year to $2.32 per share. Earnings crushed the Zacks Consensus Estimate of $1.61.

Other top players in the space including Celgene (CELG), Biogen Idec (BIIB) and Alexion Pharmaceuticals (ALXN) also managed to either beat or at least meet earnings expectations.

In line with the winning streak, the world’s largest biotech firm, Amgen (AMGN), surprised this season by beating the Zacks Consensus Estimate for earnings as well as revenues and also announced some restructuring plans to improve its cost structure.

AMGN Earnings in Focus

The company reported adjusted earnings per share of $2.37 for the second quarter of 2014, easily outpacing the Zacks Consensus Estimate by 19% and the year-ago earnings by 25%. Strong sales of the company’s blockbuster drug, Enbrel (arthritis and psoriasis), led to the upbeat results.

Moreover, total revenues for the reported quarter came in at $5.2 billion, increasing 11% year over year and beating our estimates by around 6%. The firm witnessed solid sales of most of its drugs, including Enbrel, Kyprolis and Prolia.

The company also raised its earnings forecast for 2014 to a range of $8.20 to $8.40 per share from its January forecast of $7.90 to $8.20 per share.  It now expects revenues to be in the range of $19.5 billion to $19.7 billion, up from $19.2 billion to $19.6 billion earlier.

Also, the company announced that it would trim its work force by 12% to 15% and also close sites in Colorado and Washington (see: Pharma ETFs—A Safe Haven from the Biotech Stock Slump?).

Market Impact

Given the solid results and bright outlook, Amgen shares jumped 4% to $127.8 in after market hours, after closing at $123.31. Other stocks including Gilead and Biogen have also seen a surge in their shares following encouraging results.

Investors should keep a close eye on the top Biotech ETFs having a sizable exposure to Biotech companies of the likes of Gilead, Amgen and Biogen and grab any opportunity from a rise in their price. On the other hand, they should avoid the funds if the stocks drag those down. We have thus highlighted three ETFs that could be in focus in the coming days based on these results and the decent outlooks:

Market Vectors Biotech ETF (BBH)

This fund tracks the Market Vectors US Listed Biotech 25 Index, holding 26 securities in the basket with a tilt toward large cap and growth stocks. The product has so far amassed $488 million in its asset base and sees moderate trading volumes of roughly 80,000 shares a day.

Gilead, Amgen and Celgene occupy the top three spots in the fund, while Biogen and Alexion also score in the top holdings. The five companies combined occupy half of the fund assets.

The fund has gained 2.9% in the past one week and is up 11% since the start of the year. It has a Zacks ETF Rank of 3 with a Medium risk outlook (see: all the Healthcare ETFs here).

iShares Nasdaq Biotechnology ETF (IBB)

This fund provides exposure to 123 firms by tracking the Nasdaq Biotechnology Index. IBB is one of the most popular funds in the biotech space with AUM of $5.3 billion and an average trading volume of 1.2 million shares.

The fund is also quite heavily invested in its top 10 assets, which form more than half of the fund’s holdings. The ETF has gained around 8% in the past one week and is up 35% in the past one year. Celgene, Gilead, Amgen, Biogen and Alexion are the top five holdings of the firms having a total allocation of 40%.

The fund has gained 0.4% in the past one week and is up 12.4% since the start of the year. IBB currently has a Zacks ETF Rank #3 or Hold rating.

PowerShares Dynamic Pharmaceuticals Portfolio (PJP)

The fund tracks the Dynamic Pharmaceutical Intellidex Index by holding a small basket of 28 stocks. The index includes companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action and value.

Gilead occupies the top spot with 5.7% allocation, with Amgen and Biogen occupying the third and fourth positions (read: 3 ETFs to Cash in on Aging Global Population).

PJP manages AUM of $1.1 billion and charges 63 basis points as expenses. It has a Zacks ETF Rank of 3 with a Medium risk outlook.

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