Beginning this week, pharmaceutical executives will be on the spot as they reveal their companies’ earnings for the first time since major drug pricing legislation was enacted in the U.S.
The law was a significant defeat for the industry, but its impact will be varied, hitting some drugmakers harder than others when its central provision first takes effect in 2026. Analysts are likely to quiz company CEOs on how the law affects their sales forecasts, as well as their research and development plans.
Closer on the horizon for Eli Lilly and Roche are Alzheimer’s study readouts that will be closely watched following the trial success of a similar drug developed by Eisai and Biogen. Expectations around Lilly’s drug, in particular, have extended a stock surge for the Indianapolis company.
Dealmaking, too, is a perennial topic, especially as some companies sit on large (and growing) cash stockpiles. Here are five storylines to watch as companies begin to report third quarter earnings:
How has an unexpected clinical victory affected investors’ views on Alzheimer’s drugs?
Alzheimer’s disease has for decades bedeviled the brightest scientific minds and most deep-pocketed drug companies. So, late last month, when an experimental treatment developed by partners Eisai and Biogen succeeded in a large trial, it was a surprising outcome.
The placebo-controlled trial enrolled almost 1,800 participants with early Alzheimer’s, and used a scoring system to evaluate their cognition and function over 18 months. Patients in both the placebo and drug arms still declined, but those in the latter group dropped almost a half a point less, reflecting a 27% slower trajectory.
Not only did the findings offer further support for Eisai and Biogen’s drug — which is called lecanemab and is currently being evaluated by the Food and Drug Administration — they also appeared to buoy optimism around two rival treatments that work in similar ways.
Lilly, for example, has its own Alzheimer’s therapy, donanemab, under FDA review. The company’s share price rose 8% following the lecanemab news. Shares ticked up, too, for Swiss pharmaceutical giant Roche, which has an Alzheimer’s medicine named gantenerumab that should soon produce results in a late-stage trial.
Heading into third quarter earnings, analysts plan to keep a close eye on all three drugs.
“[W]e think upcoming Roche gantenerumab data are unlikely to live up to the high bar lecanemab recently set, and we think there’s a meaningful commercial role for lecanemab even if [Lilly’s] donanemab succeeds,” wrote Paul Matteis, an analyst at the investment bank Stifel, in a recent note to clients. Matteis covers Biogen, and currently has a “Buy” rating for the company’s stock.
Lecanemab, gantererumab and donanemab each target various forms of amyloid beta, an aberrant protein that has long been at the center of Alzheimer’s research efforts. Almost every drug designed to block or break down amyloid beta has suffered major setbacks in clinical testing, although one, which was also developed by Eisai and Biogen, last year became the first medicine U.S. regulators approved for what’s believed to be an underlying cause of Alzheimer’s.
That medicine, known as Aduhelm, has struggled commercially as doctors and insurers questioned its purported benefits and the data supporting its approval.
What will CEOs say about the new drug pricing law?
Third quarter earnings will be the first time pharmaceutical companies will publicly discuss their results and future prospects since the Inflation Reduction Act and its drug price restraints were signed into law.
While the law’s impact will be more limited than many in the industry feared — and could get rolled back further by Congress — analysts are likely to question how its provisions will affect big drugmakers’ outlook on future sales.
The first indications could come as soon as Tuesday, when Johnson & Johnson reports quarterly results. Two drugs J&J owns or co-owns — the blood cancer medicine Imbruvica and the schizophrenia treatment Invega Sustenna — could be among the first subjected to Medicare price negotiations because of how much the program spends on them, according to analysts from Morgan Stanley. Price negotiations are set to start in 2023 and will be first applied in 2026.
Pfizer, Bristol Myers Squibb and Lilly also might be affected due to the sizable impact some of their drugs have on Medicare’s budget, Morgan Stanley writes. Those four companies have seven of the 10 drugs the analysts expect Medicare to target.
Investors may also be interested in any lobbying counteroffensives the industry might be planning. Stephen Ubl, the CEO of PhRMA, has pledged to “mitigate the harmful impacts from the unprecedented government price setting system,” while Republican senators have already introduced a bill to repeal the price negotiation measures.
Will Pfizer continue to shoulder big pharma’s deal expectations?
Analysts had predicted more biopharma mergers and acquisitions following a dip in activity last year. After all, many large companies may soon need new, lucrative products to offset expected declines when some of their top sellers lose patent protection. And amid a historic downturn in the biotech stock market, the thinking was that smaller, innovative drug developers could be bought for less.
So far, the number of deals has increased, though their collective value is roughly on par with last year’s. From the start of January through mid-October, there have been 32 biopharma M&A deals worth $50 million or more, reflecting a total value of $39 billion, according to data compiled by BioPharma Dive. The same period in 2021 saw 25 deals with a cumulative worth of $42 billion.
The five largest biotech company buyouts this year
|Acquirer||Company acquired||Date of deal||Total deal value|
|Pfizer||Global Blood Therapeutics||8/8/22||$5.4B|
|Bristol Myers||Turning Point Therapeutics||6/3/22||$4.1B|
SOURCE: BioPharma Dive data
However, this year’s dealmaking activity would be substantially less if not for Pfizer.
Flush with cash from the sale of its coronavirus vaccine and, to a lesser extent, its pill for COVID-19, the big pharma is responsible for just under half of the sum spent this year. It agreed to pay as much as $525 million on ReViral in April, $11.6 billion on Biohaven Pharmaceutical in May, and another $5.4 billion on Global Blood Therapeutics in August. These acquisitions outfitted Pfizer with marketed medicines for migraines and sickle cell disease, as well as experimental treatments for respiratory syncytial virus.
As earnings presentations kick off, Wall Street will likely be interested in whether other would-be buyers plan to ramp up dealmaking, especially given how much cash some of them have to spend. Pfizer and J&J each had more than $30 billion in cash and equivalents by the end of June, while Novartis had around $20 billion and Bristol Myers roughly $13 billion. AbbVie, BioNTech, Merck & Co. and Vertex each held approximately $10 billion.
“Looking ahead, many large-cap biopharmas are facing slowing growth prospects,” analysts at SVB Securities wrote in a recent report, adding that the majority have “strong balance sheets, and we expect these companies to utilize both M&A and collaborative partnerships to fill these growth gaps.”
Can Lilly shares keep rising?
Earlier this year, for the first time in more than two decades, Lilly eclipsed Pfizer in market value. The gap has widened in recent months, to the point the Indianapolis company is now worth over $60 billion more than Pfizer, according to data from the market research firm Koyfin.
At about $313 billion, Lilly’s market capitalization is more than double that of Bristol Myers, and second only to J&J in the U.S. pharmaceutical industry.
The stock surge reflects growing investor confidence in drugs the company is developing for Alzheimer’s disease, weight loss, cancer and eczema.
Lilly shares surge higher, as peers fall back
In Alzheimer’s, Lilly received a boost from lecenamab’s unexpectedly positive clinical trial data. Results from a large study of Lilly’s medicine, which works similarly, are due early next year.
Lilly’s new diabetes drug Mounjaro, meanwhile, has also proven strikingly effective at lowering weight among adults who are obese or overwight with other health conditions. While the company still needs it to succeed in a second study, the Food and Drug Administration agreed to accept a rolling approval application while waiting for that additional data, expected in April 2023.
Unlike some of its peers, Lilly doesn’t have an overly large warchest of cash from which to make acquisitions and typically prefers smaller, early-stage deals when it does. Its stock market ascension is therefore more dependent on internal research and development. By next year, investors will have a better sense of whether Lilly’s drug candidates might match their bullish forecasts.
Is the market for COVID drugs shrinking?
The pandemic drove shares in the makers of COVID-19 vaccines and treatments to new heights. Thanks in part to their medicines, the outlook in the U.S. and Europe is much different now than one year ago.
President Joe Biden has called the pandemic “over,” death and hospitalization rates are lower than they’ve been in previous surges, and vaccination rates have fallen considerably from an April 2021 peak. Uptake of the new omicron-targeting booster shots has been particularly slow.
A major question hanging over COVID-19 vaccine makers is whether they will lower their revenue forecasts. Pfizer projected $32 billion in vaccine revenue in 2022 after recording $22 billion in the first half of the year. Moderna, meanwhile, estimated $21 billion in full-year vaccine sales after bringing in $10 billion through the first two quarters.
Pfizer previously said 75% of its second-half sales would come in the fourth quarter, so given its strong first-half performance, a number as low as $2.5 billion between July and September would hit its mark.
Pfizer investors are also watching the sales trajectory of the company’s COVID-19 antiviral Paxlovid. New infections and hospitalizations from COVID-19 are at their lowest point in six months, according to data from the Centers for Disease Control and Prevention. Should downward trends continue, demand for Pfizer’s drug could abate and with it, revenue that topped $8 billion in the second quarter alone. COVID-19 treatments from Gilead Sciences, Lilly and Merck could also face sales declines.