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Beat and Raise: Big Biotechs' Outstanding Quarter

Brian Orelli
October 31, 2012

For most biotechs, earnings season is nothing more than a chance to update investors on their pipeline and how much cash they still have. Revenue, if they have any, is often payments from partners amortized over the life of the deal, which makes the net loss kind of useless.

But with multiple drugs to sell, earnings season actually matters for the four big biotechs: Amgen (Nasdaq: AMGN  ) , Gilead Sciences (Nasdaq: GILD  ) , Biogen Idec (Nasdaq: BIIB  ) , and Celgene (Nasdaq: CELG  ) . For the most part, they got it done in the third quarter. All four companies beat analysts' expectations and raised their guidance for the year.


Revenue Growth

Non-GAAP EPS Growth (Decline)













Source: Company releases.

Growing the bottom line
Amgen, Biogen, and Celgene all grew profits substantially faster than they grew revenue. Like their big pharma brethren, the large biotechs are increasing cash flow and earnings by cutting costs. Getting more efficient is certainly the right thing to do, but don't expect it to go on forever; there's only so much fat that can be cut.

EPS can also increase faster than revenue if a company has fewer shares outstanding after repurchasing shares over the last year. Amgen especially has been a prolific share repurchaser; there were nearly 14% fewer outstanding shares in the third quarter compared to the same period in 2011.

The glaring exception
That 2% decrease in Gilead's earnings sure does stick out like a sore thumb. But investors shouldn't be all that upset. Gross margins actually increased year over