Q1 kicks off with J&J, Novartis, Glaxo results
So far, 2018 has lived up to the pharmaceutical industry's expectations, delivering on the M&A front with several relatively big-ticket transactions. Big pharma investors, though, will be looking for evidence of further dealmaking and will expect companies to shed light on potential areas of interest when earnings season kicks off for the first quarter next week.
Potentially as a prelude to M&A, large pharma companies have shown interest in divesting business units. Most recently GlaxoSmithKline plc acquired Novartis AG's stake in its consumer business, handing over $13 billion that the Swiss drugmaker promptly used to buy AveXis Inc. Elsewhere, Pfizer Inc. is still working to unload its own consumer holdings, while Eli Lilly & Co. has explored strategic options for its Elanco animal health unit.
Elsewhere, macro issues like drug pricing, looming biosimilar competition and scrutiny into pharma's hand in the opioid crisis persist as topics of investor interest.
Johnson & Johnson always kicks off the pharma earnings season, often serving as a bellwether for its peers. Here's a look at what to expect from the first companies reporting, including J&J, Novartis, Biogen Inc., Lilly, Amgen Inc. and GlaxoSmithKline:
Johnson & Johnson (April 17)
Last year, pharmaceutical segment sales at Johnson & Johnson were $36.3 billion, representing an increase of 8.3% from 2016, while U.S. pharma sales grew at a rate of 6.7%.
J&J's strongest sales performance was in oncology, driven by continued fast uptake of multiple myeloma drug Darzalex (daratumumab) and of blood cancer med Imbruvica (ibrutinib).
The sales success of Darzalex could continue, as applications were recently submitted to the Food and Drug Administration and European Medicines Agency to expand the drug's indication for use in combination.
Elsewhere in the portfolio, sales in immunology face challenges as blockbuster Remicade (infliximab) begins to see increased competition. Expect J&J execs to discuss lifecycle management for its best-selling drug, as well as the immunology drugs it has waiting in the wings.
Growth in J&J's new pulmonary/hypertension space — a therapeutic area J&J leaped into in June 2017 with a $30 billion acquisition of Actelion Pharmaceuticals Ltd. — is expected to help offset losses.
Novartis (April 19)
Three months into the job, CEO Vas Narasimhan has already made his mark on the Swiss drugmaker, swapping a stake in GlaxoSmithKline's consumer health unit for a $8.7 billion bet on gene therapy.
Novartis' acquisition in early April of AveXis Inc. adds a submission-ready drug candidate to the pharma's pipeline. The gene replacement therapy, called AVXS-101, looks to be a potential rival of Biogen Inc.'s Spinraza (nusinersen) and is marked by analysts as a future blockbuster.
Novartis is paying a nearly 90% premium to access the still-early gene therapy. For the deal to pay off, the acquisition will also have to give it a competitive advantage in the manufacturing of the viral vectors needed to deliver gene therapy.
Excitement over M&A aside, investors will want to see continued strength from drugs like Cosentyx (secukinumab) and Entresto (sacubitril/valsartan). Both drugs are vital to Novartis' aim of returning to growth in 2018 after three years of sliding profits.
Biogen (April 24)
It was kind of a rocky first quarter for Biogen. There were setbacks for three of the big biotech's multiple sclerosis drugs: Tysabri (natalizumab), Avonex (interferon beta-1a) and Zinbryta (daclizumab).
Such challenges weigh heavier on Biogen than other drugmakers, given that close to 90% of its revenue comes from MS drugs. Unfortunately for the big biotech, the headwinds are likely to continue throughout the year as competitors like Roche and its blockbuster-to-be Ocrevus (ocrelizumab) wrestle away market share.
To that end, Biogen's chief financial officer has said the company expects total MS revenue for 2018 to be "roughly flat."
A point of growth for Biogen in recent quarters has been its spinal muscular atrophy (SMA) treatment Spinraza (nusinersen), which notched more than $880 million in 2017 sales. But even that drug isn't sitting pretty.
Novartis earlier this month acquired AveXis Inc., giving it an investigational gene therapy for two types of SMA. While Biogen has its own gene therapy for SMA potentially headed into the clinic this year, analysts cautioned that AveXis' candidate is a much scarier threat now that it has the Swiss pharma's backing. Management will have some explaining to do.
Eli Lilly (April 24)
Almost exactly a year after Eli Lilly and partner Incyte Corp. received a complete response letter for rheumatoid arthritis drug baricitinib, the FDA is expected to host an advisory panel on the drug's resbumission. Regardless of the outcome, expect Lilly management to discuss the results when it reports first quarter earnings a day later on April 24.
On the cancer front, investors will be focused on market uptake of breast cancer drug Verzenio (abemaciclib) following its latest approval in February, which is forecast to further extend the drug's reach. Lilly also has multiple Phase 3 readouts in 2018 that could expand the use of Cyramza (ramucirumab).
Lilly is betting heavily on the potential of its migraine candidate galcanezumab — a monoclonal antibody that targets the calcitonin gene-related peptide (CGRP).
But the candidate will likely face stiff competition, including a similar CGRP inhibitor from Amgen and Novartis — the pair's Aimovig (erenumab) has a user fee action date set for May 17, ahead of Lilly.
Bigger picture, the company has lagged on the M&A front and investors will be looking for chatter related to larger dealmaking than the smaller acquisitions the company has purused.
Amgen (April 25)
Amgen's total revenue decreased about $150 million between 2016 and 2017; the California-based biotech hadn't had a year-over-year total revenue loss since at least 1991, according to regulatory filings.
Key to the loss were weaker performances across several of Amgen's most important brands, including anti-inflammatory drug Enbrel (etanercept), cancer medication Neulasta (pegfilgrastim) and blockbuster kidney disease drug Aranesp (darbepoetin alfa). Amgen expects those problems to carry on in 2018.
Looking to restore some shareholder confidence, expect company leadership to focus on new growth drivers. The CGRP migraine treatment Aimovig (erenumab) will be a highlight, as Amgen and Novartis expect a decision on approval in the next month or so.
Investment bank Jefferies also floated the potential for M&A. In an April 6 note, analyst Michael Yee acknowledged bullish investors have identified Neurocrine Biosciences Inc. and Alexion Pharmaceuticals Inc. as potential acquisition targets for Amgen. Such deals "would be accretive ... and could get [a] slightly higher ‘multiple' on incremental diversification and higher" earnings per share, Yee wrote.
GlaxoSmithKline (April 25)
GlaxoSmithKline has tied its near-term future to the success of three recently approved drugs: the shingles vaccine Shingrix, a doublet HIV regimen and a new three-in-one asthma treatment.
First-quarter results from the British drugmaker will be a key marker for how those launches are progressing. Strong competition from Gilead Sciences Inc. and a crowded respiratory market could check sales out of the gate for Juluca (dolutegravir/rilpivirine) and Trelegy (fluticasone furoate/umeclidinium/vilanterol), respectively. But early signs suggest broad uptakeof Shingrix.
Slower-than-expected sales, on the other hand, would raise pressure on GSK as it faces inbound generic competition to its flagship Advair franchise. While rejections of potential rivals have so far spared GSK the worst, 2018 earnings will hinge on the timing of generic market entry.
Investors will also likely press CEO Emma Walmsley for details on how GSK's $13 billion buy of Novartis' stake in its consumer health unit will help further its strategic goals.