Q1 Earnings Preview: Gilead, Merck, Pfizer, Allergan
While there have been virtually no deals announced during this busy earnings season so far, investors in two companies are hoping Tuesday could change that. Both Gilead and Pfizer are set to report on May 2, and each of these companies have significant stores of cash in their coffers, not to mention the need to fill sparse pipelines.
After curing hepatitis C, Gilead has been forced to change directions as its uber-blockbuster drugs begin to decline (even though they are still pulling in billions in sales). Investors have been pressing the company for months now to spend some cash on deals that could fill out a largely underwhelming pipeline.
Meanwhile, the dearth of M&A isn't for lack of trying on Pfizer's part. The big pharma has been attempting to conduct a mega-merger for the better part of the last three years, but a changing tax environment led to a failure of its deal with Allergan, while major restructuring within AstraZeneca played a significant role in Pfizer's failure to acquire. While Pfizer was able to pick up Medivation last year for $14 billion, the drug giant still needs other buys to flesh out a still-weak pipeline.
Here's a closer look at what to expect from first quarter earnings for some of the many biotech pharmas that will report this week:
Gilead (May 2)
While industry watchers had expected a steady decline in revenues from Gilead’s flagship hep C drugs Harvoni and Sovaldi, the big biotech still surprised in January by dramatically slashing its sales forecast for 2017.
Combined sales of Harvoni and Sovaldi are estimated at between $7.5 billion to $9 billion for the year, significantly less than the $14.8 billion Gilead earned from the two in 2016.
Still, the newer combo drug Epclusa, plus lifecycle management for Harvoni and Sovaldi, will likely keep Gilead’s hepatitis C franchise a profitable market leader. But the 2017 guidance made clear that the focus for future growth will now be on HIV and pipeline candidates.
Gilead’s suite of HIV drugs has done well, yet its pipeline has mostly disappointed, with a foray into oncology now largely a bust. NASH, a liver disease flagged as a potential epidemic in waiting, could be one area of opportunity.
Investors will likely press company leadership on M&A plans. Gilead has an enviable $32 billion in cash and marketable securities at its disposal, yet has largely steered clear of major acquisitions. As hepatitis C revenues wane, the pressure to change that will only grow more intense.
Merck (May 2)
Keytruda (pembrolizaumb) will continue to be front and center, as investors look for signs that Merck’s checkpoint inhibitor is gaining ground (financially) on Bristol-Myers Squibb’s Opdivo (nivolumab).
While Keytruda has an edge in first-line lung cancer, its sales have not yet matched Opdivo’s still impressive pace overall. With looming competition in that indication from Roche, Bristol-Myers and AstraZeneca, Merck has a limited window to rack up sales and build a strong market share in patients expressing high PD-L1 levels.
The drugmaker hopes to build on that lead, and is looking at combination therapies to broaden patient population potentially treatable with Keytruda. Merck surprised many by announcing in January that the Food and Drug Administration accepted its application for approval of a combo pairing Keytruda with chemotherapy.
While no new details on that combo are likely to emerge before the scheduled approval date of May 10, any comments from Merck on how it sees its market position in first-line lung evolving will draw attention.
Pfizer (May 2)
Analysts think there's a good likelihood that Pfizer is going to miss expectations for first quarter sales, with the big pharma coming in below the anticipated $13 billion, potentially due to weaker sales of its top-selling Prevnar franchise.
Pfizer is expected to lose exclusivity on some of its bigger legacy products in the next two years, meaning erosion to some of its biggest brands, including the erectile dysfunction drug Viagra (sildenafil) and the pain drug Lyrica (pregabalin).
With those competitive threats in mind, investors and analysts are looking for Pfizer to start doing some more M&A. The company failed to make two very large acquisitions in the past — AstraZeneca and Allergan —but large deals aren't necessarily off the table. Jefferies analyst Jeffrey Holford is predicting Bristol-Myers Squibb will be the next big target — at least once its position in lung cancer has been cleared up. In the meantime, expect Pfizer to do some small bolt-on deals or product-specific business development to flesh out its pipeline.
Allergan (May 9)
In a word, or rather three, Allergan's first quarter was mergers and acquisitions.
A $2.5 billion deal to take control of aesthetics business Zeltiq and its CoolSculpting technology, a $90 million transaction to license up to five investigational eye disease drugs from Editas Medicine, and a couple other collaborations in areas such as microbiome and liver illness underscored Allergan's fervor to expand.
Things were a little bit more of a mixed bag in the clinic, however.
Allergan's acne medication sarecycline outperformed placebo in a Phase 3 trial, and a New Drug Application submission is anticipated for the second half of 2017. Last year, Allergan anticipated peak annual sales of $300 million for sarecycline.
Conversely, Botox (onabotulinumtoxin A), the company's highly-recognized aesthetic drug, missed the mark in a mid-stage study as a treatment for patients with major depressive disorder. Allergan tried to put a positive spin on the failure and is pushing Botox into a Phase 3 study for the indication.
With so many cogs and therapies turning, Allergan leadership may discuss how it plans to juggle its pipeline and portfolio going forward.