If there’s one thing investors have relearned about pharmaceutical stocks in the wake of third quarter’s earnings results, it’s that no two of these are cut from the same cloth. Oh, Amgen (AMGN), Bristol-Myers Squibb (BMY), Eli Lilly (LLY), and all the other pharmaceutical stocks are in the same business — they all create and market drugs. But, these companies are as different from one another as their drug portfolios are. They’re best handicapped on a case-by-case basis, and Q3′s earnings reports underscore much of what traders need to know.
BMY was the most recent of the major pharmaceutical stocks to post last quarter’s numbers, telling us on Wednesday it earned 46 cents per share, which topped estimates by a couple of pennies. That was a 12% improvement on the per-share earnings total from a year earlier. BMY reported a 9% improvement in revenue, driven almost entirely by overseas sales.
What investors need to know: While Bristol-Myers Squibb put up great overall numbers, the loss of the patent on blood-thinner Plavix in early 2012 continues to take a toll on BMY. Sales fell another 34% on a year-over-year basis, down to $42 million. Newly approved Eliquis, for aerial fibrillation patients, saw an anemic $41 million in sales, well shy of the potential annual sales of $5 billion BMY was touting around the time is was approved. Fortunately, its key cancer drugs in addition to its schizophrenia drug Abilify more than made up for the decline in Plavix and weak sales of Eliquis.
While Eli Lilly wasn’t a poor performer within the world of pharmaceutical stocks last quarter, its reasonably good results in the third quarter were overshadowed by the disaster expected in 2014. In Q3, LLY banked $1.11 per share, up from 79 cents per share a year earlier, easily topping estimates of $1.04. Sales were up 6.0%, led by antidepressant Cymbalta, which generated revenue of $1.37 billion for LLY in the third quarter.
What investors need to know: While Cymbalta may be a homerun right now, analysts believe that LLY earnings could fall as much as 25% in the coming year, as Cymbalta will lose its patent protection in December of this year. The patent for osteoporosis drug Evista will expire in March of 2014, jeopardizing another $1 billion of annual revenue for LLY.
Amgen could arguably be the big winner so far among the pharmaceutical stocks that have reported Q3 earnings, posting a 24% increase in profits fueled by a 10% bump-up in revenue. AMGN posted operating income of $1.94 per share, versus expectations of $1.76.
What investors need to know: To say that AMGN is firing on all cylinders and is one of the market’s top pharmaceutical stocks would an understatement. Six of its drug saw double-digit sales growth in Q3, and revenue is about to get considerably stronger, too. In addition to newly developed joint ventures that will sell one drug in China and eventually several in Japan, the recent acquisition of Onyx Pharmaceuticals will begin to boost the top and bottom line for AMGN as of the current quarter. Onyx only generated $362 million in sales last year, but AMGN expects its blood cancer drug Kyprolis to be a multi-billion dollar blockbuster.
A couple of other key pharmaceutical stocks released their third quarter numbers early on in the current earnings season: Baxter International (BAX), and Johnson & Johnson (JNJ). While both are waist-deep in non-pharma businesses, they’re still worth a close look through the same pharmaceutical lens.
Last quarter, BAX earned $1.19 per share in operating income, meeting estimates, and topping the $1.14 earned in Q3 2012. Revenues grew by 9%, thanks largely to the acquisition of Gambro — a deal that BAX completed during the quarter to help it compete against the other pharmaceutical stocks on this list.
What investors need to know: Although overall sales were up for BAX due to strong sales of its hemophilia treatment Advate (one of its best-selling drugs); the hemophilia division accounts for about 22% of total revenue. Those sales are in jeopardy now that Biogen Idec (BIIB) has filed for approval of two hemophilia treatments of its own. The FDA should have a decision on those two Biogen drugs in the first half of the coming year.
Johnson & Johnson
JNJ posted a profit of $1.35 per share, topping the year-ago figure of $1.25 and beating estimates of $1.32. Revenue grew by 3.0% on a year-over-year basis. While those results may be tepid in comparison to other pharmaceutical stocks, considering JNJ is the world’s largest healthcare company, the revenue and earnings improvements are impressive.
What investors need to know: Sales of newly-launched drugs (or drugs approved for new indications) are driving the lion’s share of the growth for JNJ. Sales of cancer drug Zytiga, for instance, were up 75% compared to the year-ago total, and Xarelto sales almost tripled last quarter compared to the Q3-2012 figure. Meanwhile, the consumer products and medical device divisions at JNJ are hitting a wall, showing little to no growth in the third quarter.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.