Big Biotech Nears Pivotal Juncture

Throughout the next couple of weeks, Wall Street will see quarterly results from some of the leading companies in biotech, starting Tuesday afternoon with Genentech (DNA).

Genzyme (GENZ) will report July 12, and the following week, on July 20, Gilead Sciences (GILD) and Amgen (AMGN) will release their results.

Big things are expected out of the big names. While earnings per share growth is only anticipated to rise 0.6% in the quarter for the biotech industry, the four stocks mentioned above are projected to sharply exceed the broader sector.

Genentech is expected to see earnings growth of 57% and a revenue increase of 39%, while at Genzyme, earnings are forecast to advance 24% on sales growth of 16%. Gilead should post a 29% profit increase and a 33% sales improvement, and Amgen's earnings are expected to climb 7% on a 10% top-line expansion.

If these companies deliver, confidence may be restored and a meaningful rally may ensue, lifting the entire group. However, significant misses may send investors who already have sustained a great deal of pain in 2006 scurrying for the exits.

Genentech's Potential

I wouldn't be surprised if Genentech's numbers come in higher than the consensus. Cancer-fighter Avastin is expected to bring in roughly $440 million in sales during the quarter, with a range of $417 million to $480 million. However, analysts often use prescription data from sources that aren't particularly accurate.

For example, over the past five quarters, NDC, a drug sales-tracking service, only captured 82.4% of Avastin sales. Adding a June monthly Avastin sales estimate of $152.3 million from Friedman Billings Ramsey to the April and May estimates by NDC, the projection for Avastin sales in the quarter is $438 million. However, assuming NDC again accounts for only 82.4% of Avastin's sales, it's probably a good bet that the drug's revenue comes in near the top of the range.

The FBR June estimate assumes a 3% decline in sales because of stocking issues. Genentech said some orders in April were pushed out into May. If the drug sold faster than expected, June's numbers should be better than the consensus.