Biotech stocks started the year off on a tear but have moved lower lately in dramatic fashion. For instance, the iShares Nasdaq Biotech Index (IBB 1.82%) is now down over 2% for the year, after gaining double digits at one point in early February. Pundits and prognosticators alike have generally attributed this recent weakness among biotechs to two issues: conservative 2014 guidance by leading names such as Celgene (CELG) and Gilead Sciences (GILD 0.76%), and political pressure on drug pricing stemming from Gilead's hepatitis C drug Sovaldi. Investors are particularly worried that the pricing debate that started with Sovaldi could spread to the entire industry, putting significant pressure on forward earnings.

Looking ahead, one school of thought is that this pullback is ephemeral and first-quarter earnings will reignite the rally among biotech stocks. Given that several top biotech names are set to report earnings this week, this hypothesis will certainly be put to the test. Here is a quick rundown of some of the key names to keep tabs on this week:

  • Amgen (AMGN 0.42%) -- reports Tuesday, April 22, after the bell
  • Biogen (BIIB 0.55%) -- reports Wednesday, April 23, before the bell
  • Celgene -- reports Thursday, April 24, before the bell
  • Gilead -- reports Tuesday, April 22, after the bell

Will earnings matter?
Although I'm throwing in with the optimists in that we will see a number of significant beats on earnings this week, I'm not sure it will matter, and here's why. First off, we've known that Sovaldi prescriptions were off the chart for some time, but this has done nothing to shore up Gilead's share price. 

So I don't think even significant earnings beats among these four top biotechs will matter, unless we hear two statements this week. First, I believe the market wants to hear that Sovaldi's price will remain roughly the same for the foreseeable future, calming concerns over a general debate on drug pricing. My view is that the market appears to not care much about what has already transpired in terms of sales (shown by the lack of a reaction to Sovaldi prescription numbers during the quarter) and wants to know more about what revenues will look like going forward. And that leads into the second outstanding issue.

My personal belief is that the market wants to hear some of these top names and their analysts up their guidance for 2014, especially Celgene and Gilead after their anemic guidance earlier in the year. If you recall, Gilead didn't even include Sovaldi sales in its 2014 guidance.

If we don't get positive news on these outstanding issues this week, my view is that this moody market will drag biotechs down further, regardless of how amazing first-quarter earnings turn out to be. To illustrate my point, let's consider some of the growth coming out of these top names in biotech, in light of the recent industrywide downturn.  

Biotechs are growing earnings by double digits
Biotechs have been growing earnings at a truly astounding pace -- potentially justifying their two year-long-plus rally. Gilead, for example, could grow earnings by 100% year over year in 2014 based on Sovaldi sales! Growth like that is typically found in only small-cap companies transitioning from a developmental to a commercial operation, so this situation is truly unique, in my opinion.

Moreover, Amgen has consistently been beating earnings estimates based on double-digit sales growth for both Xgeva and Prolia. And a regulatory approval for its experimental cholesterol drug evolocumab would add even more fuel to this proverbial fire. Like Amgen, Biogen also has a series of earnings beats on the line come Wednesday, propelled mainly by its multiple sclerosis drug Tecfidera. What you should bear in mind is that year-over-year earnings growth is expected to come in at a stately 24% for Biogen. Finally, Celgene is projected to report year-over-year top-line growth of over 17% on Thursday, based on growing sales of both Abraxane and Revlimid. In sum, these top biotechs are all generating substantial growth that's hard to find in other industries, so the overall downtrend is, at least partly, related to emotional factors over uncertainty, not fundamentals. 

Foolish wrap-up
Looking into the mind's eye of Mr. Market, my belief is that he wants to be reassured that such strong growth is actually possible from large-cap companies. Put another way, we are facing a test of sentiment come first-quarter earnings. To date, Mr. Market has been unsure when it comes to the projections for 2014 earnings from top names like Celgene and Gilead, punishing their share prices in the process. So it's up to the management of these bellwether companies, in my opinion, to assuage these fears moving forward.