Earnings season is far from over, but at this point, put the large-cap biotech companies in with those that have come in with impressive numbers.On Thursday, ImClone ( IMCL), Amgen ( AMGN) and Gilead Sciences ( GILD) all reported better-than-expected quarterly results. For its part, ImClone earned 42 cents a share on revenue of $149.9 million in the quarter, surpassing consensus estimates of 38 cents on sales of $142.5 million. However, the big question on investors' minds -- whether ImClone will be sold -- wasn't answered. In fact, on ImClone's conference call, management told analysts they wouldn't comment on their strategic-alternatives initiatives, meaning the attempt to sell the company. The analysts did the whipped-dog thing, dropped the matter and turned to congratulating management on a great quarter. While U.S Erbitux sales of $173 million were well above the consensus of $147 million, it's hard to imagine the stock getting much of a bid until the future is a bit clearer. ImClone, which receives a roughly 40% royalty on Erbitux, the cancer drug that's sold by Bristol Myers Squibb ( BMY), began exploring a sale in January. Its deadline of late June was extended to mid-July, presumably to show off the stellar earnings, as I
Patent MattersMeanwhile, Amgen reported earnings of $1.05 a share, excluding charges and stock-based compensation costs, on $3.6 billion in revenue, vs. expectations of 94 cents and $3.5 billion. Sales of Aranesp and Enbrel came in well above the consensus, but Epogen was a mild disappointment. Amgen raised its guidance for 2006 to between $3.75 and $3.85 a share, above the Thomson Financial consensus of $3.67.
Looking ExpensiveGilead, on the other hand, seems priced for perfection.
The company also beat estimates with earnings of 56 cents on revenue of $685.3 million. Truvada sales exploded 143% higher, and Gilead's HIV franchise grew 38% year over year.Gilead raised its revenue guidance to a range of $1.95 billion to $2 billion from $1.825 billion to $1.875 billion. However, that's mainly because of recognizing the Sustiva portion of its new Atripla drug for HIV. Atripla incorporates two Gilead drugs, Viread and Emtriva, combined with Bristol-Myers' Sustiva. Gilead will pay royalties on Sustiva, which will lower gross margins by roughly 100 basis points. Nevertheless, big things are expected from Atripla, a once-a-day pill that will make taking medication more convenient for HIV patients. Though Atripla will likely cannibalize sales from Gilead's existing HIV drugs, it's also expected to grab a large percentage of new patients. Because patients are living longer with the disease, the drug should be a consistent revenue stream once it's widely adopted. The company doesn't have the most robust pipeline in the industry, but it took a step to correct that this week when it acquired privately held Corus. The acquisition gives Gilead access to Corus' Cayston antibiotic for patients with cystic fibrosis. Phase III results are expected later this year. Earlier-stage trials already showed strong results. Gilead is moving in the right direction. My only concern is its valuation. Of the $3 billion-plus-market-cap biotech stocks expected to earn profits this year, 13 of them trade below 30 times earnings. If you remove outliers Celgene ( CELG) and Medimmume ( MEDI), which trade at 94 and 85 times earnings, respectively, the average P/E for the group is 21. Gilead sports a 27 price-to-earnings ratio. I don't disagree that Gilead deserves a premium, but I do believe investors would be better off waiting for a lower price than current levels.