Are Biotech ETFs in Trouble as Coronavirus Dims Guidance?

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The coronavirus has infected more than three million people across the globe. The death toll has surpassed 269,000 worldwide, according to Johns Hopkins University. In such a scenario, the desperation for a vaccine or treatment is rising by the hour. The race to introduce vaccine and treatment for coronavirus is opening up opportunities, making the biotech sector a prospective space for investments. From positive news related to Gilead Sciences’ remdesivir to progress in development of cell therapies for the treatment of COVID-19, these developments have kept the sector surging.

Although the coronavirus outbreak seems to be opening up opportunities for biotech companies, it is dampening their guidance as well. Despite delivering impressive results, most of the following biotech companies have been seeing declining share prices since the earnings releases largely due to coronavirus-hit outlooks. Let’s take a look at some big biotechnological earnings releases to see if these will impact ETFs exposed to the space.

Earnings in Focus

On Apr 30, Amgen AMGN reported first-quarter 2020 earnings of $4.17 per share, which surpassed the Zacks Consensus Estimate of $3.70. Earnings increased 17% year over year, largely on the back of higher revenues and share count. Total revenues of $6.16 billion in the quarter outpaced the Zacks Consensus Estimate of $6 billion. However, total revenues increased 11% year over year.

Amgen re-affirmed its financial guidance for 2020. It expects revenues in the range of $25.0-$25.6 billion, which indicates an increase from 2019 levels. Adjusted earnings per share are anticipated in the range of $14.85-$15.60. However, shares have been down 2.5% since the earnings release (as of May 7, 2020).

On Apr 30, Gilead Sciences GILD reported impressive results for the first quarter, as both earnings and sales beat estimates. The company reported earnings of $1.68 per share in the March-end quarter, increasing a cent from the year-ago quarter’s reported figure and beating the Zacks Consensus Estimate of $1.58. Total revenues of $5.55 billion outpaced the Zacks Consensus Estimate of $5.41 billion and rose 5.1% year over year.

Gilead expects COVID-19 impacts on its business in the short term as fewer patients are accessing treatments for conditions like HIV and HCV. However, the magnitude of the anticipated impact is uncertain. Moreover, Gilead began advancing remdesivir and rapidly expanding its manufacturing production. The company expects to update its outlook on the second-quarter 2020 earnings call.  Moreover, the stock has lost 7.6% since reporting earnings (as of May 7).

On Apr 22, Biogen BIIB reported first-quarter 2020 earnings per share of $9.14, which surpassed the Zacks Consensus Estimate of $7.74. Earnings increased 31% year over year on higher revenues. Sales of this neuroscience-focused biotech came in at $3.53 billion, up 1% from the year-ago quarter. Sales also surpassed the Zacks Consensus Estimate of $3.42 billion. Sales growth was primarily led by higher sales of its multiple sclerosis (MS) drugs, spinal muscular atrophy (SMA) drug Spinraza as well as biosimilar products. However, total revenues declined 4% on a sequential basis. The stock has lost around 4.6% since the earnings release (as of May 7).

On May 6, Alexion Pharmaceuticals ALXN posted first-quarter adjusted earnings of $3.22 per share, which rose from the year-ago quarter’s $2.39. Earnings also outpaced the Zacks Consensus Estimate of $2.70. Revenues were up 27% year over year to $1.44 billion and surpassed the Zacks Consensus Estimate of $1.35 billion on higher sales of Soliris, Strensiq, Kanuma and Ultomiris.

Alexion now expects adjusted earnings per share of $10.45-$10.75 (previous guidance: $10.65-$10.85). The company projects revenues of $5.23-$5.33 billion (previous guidance: $5.50-$5.56 billion). The guidance was lowered due to the ongoing coronavirus crisis. The stock has lost 1.4% since the earnings release (as of May 7).

Biotech ETFs in Focus

In the current scenario, we believe it is prudent to discuss a few ETFs which have a relatively wider exposure to the companies discussed.

iSharesNasdaq Biotechnology ETF IBB

This fund seeks to provide exposure to U.S. biotechnology stocks and tracks the Nasdaq Biotechnology Index. It comprises 210 holdings with the above-mentioned companies taking about 25.1% of the fund. It has AUM of $8.14 billion and charges a fee of 47 basis points a year. The fund carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: Biotech ETFs Gain on New Positive Data for Gilead’s Remdesivir).

VanEck Vectors Biotech ETF BBH

The underlying MVIS US Listed Biotech 25 Index tracks the overall performance of companies involved in the development and production, marketing and sales of drugs based on genetic analysis and diagnostic equipment. It holds about 25 securities in its basket, with the concerned companies having 29.9% weight in the fund. Its AUM is $399.4 million and expense ratio is 0.35%. The fund currently carries a Zacks ETF Rank #2, with a High-risk outlook (see all Health Care ETFs here).

SPDR S&P Biotech ETF XBI

The fund seeks daily investment results, before fees and expenses, which match the S&P Biotechnology Select Industry Index. It holds about 122 securities in its basket and puts about 6.5% weight in the in-focus companies. Its AUM is $4.62 billion and expense ratio is 0.35%. The fund carries a Zacks ETF Rank #2, with a High-risk outlook (read: Biotech ETFs Poised to Benefit From Coronavirus).

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Biogen Inc (BIIB) : Free Stock Analysis Report
 
Alexion Pharmaceuticals Inc (ALXN) : Free Stock Analysis Report
 
Gilead Sciences Inc (GILD) : Free Stock Analysis Report
 
Amgen Inc (AMGN) : Free Stock Analysis Report
 
iShares Nasdaq Biotechnology ETF (IBB): ETF Research Reports
 
SPDR SP Biotech ETF (XBI): ETF Research Reports
 
VanEck Vectors Biotech ETF (BBH): ETF Research Reports
 
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