NEW YORK—Wall Street expects most biotechnology companies will meet fourth-quarter financial expectations, despite concerns over stymied growth for several large-cap players.
Several of the largest companies in the sector offered a sneak-peak of their results last week, setting the stage for higher-than-anticipated results. Biogen Idec Inc. said it expects profit to beat prior guidance of $1.84 to $1.94 per share on higher sales of its cancer and multiple sclerosis drugs.
Meanwhile, Amgen Inc., the world's largest biotech company, expects cost-cutting measures to push profit above expectations to about $4.30 per share. Genzyme predicts revenue growth of 21 percent, topping Wall Street estimates, while analysts forecast Gilead Sciences Inc. will report strong profit on sales of its HIV treatments.
Also, several of the larger companies, such as Gilead and Genzyme, will again see a slight profit boost from beneficial foreign exchange rates, as the dollar remains weak.
Still, sales growth concerns have overshadowed the sector, which underperformed the broader market indices in 2007. Sales of Amgen's anemia drugs, Aranesp and Epogen, continue to slow due to stricter Food and Drug Administration safety warnings and lower federal reimbursement levels.
Meanwhile, Wall Street remains concerned over Genentech Inc.'s growth prospects, with sales of its cancer drug Avastin slowing down. The company is staking a large part of its future growth on expanded approval for Avastin in breast cancer, though that is unlikely to occur given a recent Food and Drug Administration review panel's narrow recommendation against the new use. Also, Genentech is among several larger biotech companies finding it harder to increase revenue as the company itself becomes bigger and more mature.
"Large-cap biotechs are more or less stuck in maturing product growth cycles resembling pharmaceutical companies rather than innovative research and development enterprises," said Wachovia Securities analyst George Farmer, in a note to investors Jan. 8.
Meanwhile, medium-sized biotech companies have more room for continued growth, several analysts say. Many of these companies have young products on the market, with more potential for revenue growth. Also, the pipelines of many medium-sized companies are ripe with late-stage programs, leading to the possibility for near-term revenue growth with new product launches.
Cubist Pharmaceuticals Inc., for example, already announced that sales during the fourth quarter rose by nearly 50 percent on strong demand for the antibiotic Cubicin. The pharmaceutical company posted revenue of $83.9 million last quarter, up 48.8 percent from $56.4 million in the year-ago period.
Jefferies & Co. analyst Eun K. Yan expects Cubist to top Wall Street expectations by posting profit of 25 cents per share, excluding the recent buyout of privately-held Illumigen Biosciences Inc. Analysts polled by Thomson Financial, on average, expect profit of 17 cents per share.
Alexion Pharmaceuticals Inc., which launched its first product in 2007, will likely come in just below expectations with a loss of 50 cents per share, compared with Wall Street's estimate for a loss of 48 cents per share, said Credit Suisse analyst Dr. Michael Aberman. But the stock, which jumped 86 percent in 2007, still has room to grow on sales of the company's blood disorder drug Soliris.
