Eli Lilly, Merck among top pharma picks in Barclays Q2 preview
Dzmitry Dzemidovich
While investors are bracing for yet another challenging quarter when earnings season kicks off for commercial-stage biopharma later this month, Barclays has picked Eli Lilly (NYSE:LLY) and Merck (NYSE:MRK) as two of the most favorably positioned big pharma stocks heading into the Q2 earnings season.
Barclays Q2 2023 earnings preview on biopharma comes at a time when healthcare has become a notable laggard in the S&P 500 this year: Pharmaceutical companies in the benchmark index have lost ~5% YTD.
With challenging backdrops even for companies with the potential to post quarterly beats, a sector rebound will be more of a case of macro factors than the upcoming earnings season, Barclays analyst Carter Gould argues.
Here is a summary of his comments on individual stocks.
Eli Lilly: Despite an Overweight rating and a $500 per share target on Lilly (LLY), Gould argues that the company, which recently became the most valuable drugmaker in the U.S., has a difficult valuation setup.
The analyst expects LLY to exceed forecasts for diabetes therapy Mounjaro and awaits updates on its supply issues and the company's near-term plans to expand its label for obesity, which he said will help de-risk the firm's 2024 estimates for the drug.
Despite LLY's prospects in Alzheimer's, the analyst does not look forward to Q2 updates on donanemab, its late-stage candidate for the memory-robbing disease. A key medical meeting where LLY is scheduled to post Phase 2 results for the drug will be over by the time of its earnings release.
Merck:  Gould expects Merck (MRK) to post a clean topline beat in Q2, driven by its best-selling products Gardasil and Keytruda. However, he cites concerns about a potential earnings miss due to a charge related to the company's $11B deal to acquire Prometheus Biosciences (RXDX).
The analyst questions whether even an ex-Prometheus earnings beat will be enough to spark investor interest, given a seemingly quiet catalyst outlook for Merck (MRK) in H2. Barclays has an Overweight rating and a $130 per share target on Merck (MRK).
Neurocrine Biosciences: The maker of movement disorder therapy, Ingrezza, is also favorably positioned into the earnings season, Barclays argues, with an Overweight rating and a $125 price target. Gould expects Neurocrine (NASDAQ:NBIX) to surpass Wall Street forecasts for Ingrezza and issue a full-year guidance raise.
Notwithstanding the uncertainty related to a topline readout expected for crinecerfont, NBIX's candidate for the rare genetic disorder congenital adrenal hyperplasia, in early Q4, with shares trading at mid-$90s, "we think that's a favorable risk/reward into the print," Gould wrote.
Barclays also points to notable pre-earnings setups in other major drugmakers: Regeneron (REGN), Pfizer (PFE), Gilead (GILD), and Amgen (AMGN).
Regeneron: Barclays expects Regeneron (REGN) to fall short of Street estimates for its blockbuster eye disease therapy Eylea amid competition from Roche's (OTCQX:RHHBY) (OTCQX:RHHBF) rival injection, Vabysmo. However, the firm maintains its $888 per share target and Overweight rating.
In the wake of the recent FDA rejection of a high-dose version of Eylea, the analyst is keen to see if REGN, with its Q2 release, will include updates regarding its timeline to resubmit a marketing application.
Amgen: Forecasting Q2 misses for arthritis therapies Enbrel and Otezla, Barclays, with an Underweight rating on the stock, projects lower than expected revenue and earnings from Amgen (AMGN).
With the company facing antitrust concerns over its $28B bid to acquire Horizon Therapeutics (HZNP), the analyst lowers his price target on AMGN to $210 from $225, citing the importance of Horizon's Tepezza sales for the stock.
Gilead: With the pandemic's impact waning, Gould warns that Gilead (GILD) will lower its $2B full-year sales estimate for COVID therapy Veklury and raises concerns over where the treatment will end up in the company's pipeline. With an Equal Weight rating, Gould lowers his price target on GILD to $81 from $84.
Pfizer: Despite posting a Q1 beat thanks mainly to its COVID franchise in May, the analyst expects Pfizer (PFE) to report weak sales across its portfolio for Q2. Due to this data and given how the pandemic evolves in H2, he anticipates the New York-based pharma giant to issue a guidance cut. With an Equal Weight rating on PFE, Gould trims his price target to $38 from $40 per share.
The analyst also commented on Equal Weight-rated biopharma stocks in his coverage. Notable projections include in-line sales estimates for AbbVie's (ABBV) blockbuster arthritis therapy Humira in the U.S. and an in-line quarterly performance from Bristol Myers (BMY).
Biogen: As it rolls out the recently approved Alzheimer's therapy, Leqembi Barclays looks forward to updates on the launch, progress on the company's cost-cutting initiatives, and management's comments on the depression therapy zuranolone.
Developed by Biogen (BIIB) and Sage Therapeutics (SAGE), zuranolone is currently under FDA priority review with a target action date of Aug. 5.
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