How Will Biotech Fare the Rest of the Year?

Now that first-quarter earnings are in the books, biotech investors are starting to get a better picture of how 2014 will play out.

May 23, 2014 at 6:30PM

Biotech has had a fairly volatile year thus far. Shares of the closely watched iShares Nasdaq Biotech Index (NASDAQ:IBB), for instance, have swung from double-digit gains to high single-digit losses at one point this year. With the index now roughly flat for the year, how will biotech perform for the rest of 2014? With first-quarter earnings mostly behind us and annual guidance in the bag, let's take a closer look at the top two biotechs in the Nasdaq Biotech Index, namely Gilead Sciences (NASDAQ:GILD)and Celgene Corp. (NASDAQ:CELG), for clues on the industry's performance moving forward.   

IBB Chart

IBB data by YCharts

As Gilead goes, so goes biotech?
Because Gilead occupies the pole position in the Nasdaq Biotech index -- composing about 9% of the index -- I think it's fair to say that the biotech index's fortunes will heavily depend on Gilead's performance moving ahead. Fortunately, Gilead's first-quarter earnings were a barn-burner, blowing away consensus for both earnings and revenue. In the first quarter, Gilead reported product sales of $4.87 billion, with $2.27 billion of these sales coming from its newly launched hepatitis C drug Sovaldi. Shares have subsequently climbed over 16% since the company released its first quarter earnings, reversing its recent slump and pushing the index higher as well.

Looking ahead, Gilead looks like it has even more goodies up its sleeve that should keep the trend moving upward. Before the end of the year, we will hopefully see regulatory approvals for its once-daily fixed-dose combo of ledipasvir and Sovaldi as a treatment for hepatitis C genotype 1 infection in adults, as well as idelalisib indicated for the treatment of relapsed chronic lymphocytic leukemia.

Perhaps even more importantly, Gilead announced recently that it has increased its share buyback program by $5 billion, giving the company $7.9 billion in total to repurchase shares. Given that Gilead could have used this cash to make an acquisition or increase its own R&D efforts speaks volumes, in my opinion. 

The one area of concern is potential competition hurting Sovaldi's record-breaking sales, as more companies seek approval for their own hepatitis C therapies. Indeed, I suspect this is the main reason Gilead declined to give annual guidance for Sovaldi sales, making it an issue that investors should pay close attention to moving forward.    

Celgene starting to heat up again
Celgene is the second largest component of the Nasdaq Biotech index, making up about 8.5% of the index. What's noteworthy is that its shares have been a poster child for the volatility that has spread across almost all biotechs this year.

CELG Chart

CELG data by YCharts

Like Gilead, however, Celgene's beat on first-quarter earnings and revenue have helped to turn the tide. Despite being down over 12% year to date, Celgene's shares have now climbed a little over 3% since reporting first-quarter earnings. 

Celgene's woes began when the company provided a weaker-than-expected outlook for 2014 and were compounded by the ongoing patent litigation issues over Revlimid, the company's flagship cancer drug. Last week, we saw the first substantial hearing in the patent litigation process, called a "Markman hearing." According to most accounts of the hearing, Celgene may have the upper hand, which could help to stave off potential generic rivals for the next 10 years -- but stay tuned for more information. 

With Celgene's earnings expected to grow close to 25% next year, a large share buyback program under way, and hopefully some better news incoming on the patent front, you might want to get this top biotech on your watch list. 

Foolish wrap-up
The sunny optimism for biotech heading into the year hasn't panned out so far. That said, these top two names in the industry should give you reason to be hopeful going forward. We are seeing stellar earnings, and these companies remain committed to creating long-term value for their shareholders through increased share buyback programs, additional regulatory filings, and maintaining their competitive edges in the marketplace. Overall, my view is that the worst is probably behind us in terms of the prevailing negative sentiment that washed over the industry earlier this year. After all, it's hard to find companies growing revenues by double digits in any industry, and we're seeing that in both of these top names. 

Will this stock be your next multibagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with amazing potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303%! You don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

 

George Budwell owns shares of Gilead Sciences. The Motley Fool recommends Celgene and Gilead Sciences and owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers