As the quarterly earnings season starts in earnest this week, what can you say about a company whose stock is up 138% for the year?
If you're an analyst following
, you're practically viewing the company's third-quarter earnings report, due Oct. 8, as an anticlimax. Instead, you're focusing on several new drugs that could be approved by the Food and Drug Administration and launched in the next two years.
There isn't too much divergence in Wall Street's opinion of the San Francisco-based biotechnology company. According to Thomson First Call, the earnings consensus of 25 cents a share among 30 brokers is framed in a cluster of predictions ranging from 23 cents to 28 cents. Sixteen analysts have buy ratings, 11 have hold ratings and only one recommends selling the stock. And considering the way shares have soared this year, a stock split wouldn't be shocking.
The stock closed Monday at $78.80, down 1.3%, or $1.02. The stock hit a 52-week high of $88 in intraday trading Sept. 19.
"We expect another solid quarter," said John S. Sonnier of Prudential Financial, focusing on the present -- strong sales from the non-Hodgkin's leukemia drug Rituxan -- as well as the future, which includes the recently FDA-approved asthma drug Xolair and the experimental colorectal cancer drug Avastin, under review by the FDA. Avastin could be approved by year-end, Sonnier said in a Friday earnings preview for clients.
Xolair was developed by the Houston-based biotechnology company
with Genentech and the Swiss drug giant
. Genentech recently licensed the non-U.S. rights of Avastin to another Swiss drug giant,
, which will work with Genentech to develop the drug for cancers of the kidney, lung and breast.
Sonnier, who is neutral on the stock, expects third-quarter revenue of $814 million, earnings of $127 million and earnings per share of 24 cents. He doesn't own shares; his firm doesn't have an investment banking relationship with Genentech.
"It's the comments that matter most," said J.P. Morgan analyst David Molowa in a Monday report to clients. "We believe there will be less focus from investors on this quarter's results and that any forward-looking comments Genentech makes, particularly with regard to Avastin, will be more important for the stock."
Molowa said he believes Genentech will try to address "what they view as overly optimistic expectations of an Avastin launch earlier than the beginning of 2004." Conservative guidance on Wednesday could push the stock down a bit, said Molowa, who has a neutral rating because he believes the stock's price is more than reflected in the company's "strong fundamental picture." He doesn't own shares; his firm has had an investment banking relationship within the last 12 months.
A bigger fan is Eric Ende of Merrill Lynch, who has a buy rating. He told clients Monday that his third-quarter earnings per share estimate of 27 cents is higher than the consensus because he believes Rituxan will have a better-than-anticipated quarter.
"Despite the big run
in stock price Genentech has experienced this year, we believe that a multitude of catalysts between now and 2004 could continue to push the stock higher," Ende said in a research report.
His investment thesis over the next six months includes the launch of Raptiva, a psoriasis drug -- developed with
-- which is expected to gain FDA approval later this month; FDA approval of Avastin; and favorable late-stage clinical test results for Tarceva as a second- or third-line treatment for an advanced form of lung cancer.
Last week, Genentech reported that clinical trials of Tarceva plus chemotherapy failed to achieve the study's goal of improving survival as a first-line treatment of patients with advanced lung cancer. But Genentech, which along with Roche and Tarceva's developer,
, said the results weren't a surprise.
"The key driver for the stock is Avastin for cancer, which could be approved faster than the six-month expected review time," said Ende, who doesn't own shares of Genentech. His firm is a market maker in the stock, and it has had an investment banking relationship with Genentech in the last 12 months.
Another cheer comes from Michael King of Banc of America Securities, who told clients Monday that he retains his buy rating because Genentech "has rapidly become the most compelling new product story in biotechnology."
Favorable test results for the colon cancer drug Avastin lead King to believe that the drug could be approved by the FDA and launched by year-end or early 2004. Considering the large size of the colorectal cancer market and the prospects that doctors will use Avastin for other cancer treatments, "we believe Avastin has multibillion-dollar sales potential," King wrote in a research report Monday.