Biotech ETFs Slide As Stocks Report Mixed Q4 Results

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Includes: ALXN, AMGN, BBH, BIIB, CELG, FBT, GILD, IBB, PBE
by: Zacks Funds

Since the beginning of the year, the biotech sector has been experiencing some weakness due to industry specific headwinds like pricing concerns and global factors like weak emerging market currencies and a strong U.S. dollar. To deepen its woes, the sector has failed to gain investor confidence so far in the fourth quarter earnings season. Although several well-known biotech industry players like Amgen Inc. (NASDAQ:AMGN), Biogen (NASDAQ:BIIB) and Gilead (NASDAQ:GILD) easily managed to beat estimates on both earnings and revenues, other companies including Alexion Pharmaceuticals (NASDAQ:ALXN) and Celgene Corporation (NASDAQ:CELG) reported disappointing or mixed results.

Quite expectedly, investors will keep an eye on biotech earnings for the rest of this season to assess whether the sector can pull off another turnaround supported by strong pipelines, innovative treatments, growing demand for drugs, especially for rare-to-treat diseases, an aging population and increased health care spending (read: What Lies Ahead for Biotech ETFs in 2016?).

Biotech Earnings in Detail

Gilead reported impressive fourth-quarter results as both earnings and revenues outdid the respective Zacks Consensus Estimate. The biotech giant's fourth-quarter earnings (including stock-based compensation expenses) of $3.27 per share beat the Zacks Consensus Estimate of $2.91. Reported earnings were significantly higher than the year-ago figure of $2.38 per share.

Quarterly revenues surged 16.3% to $8.5 billion driven by strong product sales. The revenue figure breezed past the Zacks Consensus Estimate of $8.1 billion. Meanwhile, the company provided 2016 product sales guidance. The company expects product sales in the range of $30-$31 billion. The stock has added 2.9% since reporting earnings (as of February 5, 2016).

Another biotech behemoth, Amgen also beat both earnings and revenue estimates in the fourth quarter. The company's fourth-quarter 2015 earnings of $2.61 per share surpassed the Zacks Consensus Estimate of $2.27 and improved from the year-ago earnings of $2.16. Also, total revenues grew 4% to $5.536 billion, which beat the Zacks Consensus Estimate of $5.532 billion. Foreign exchange translation negatively impacted fourth quarter sales by two percentage points.

Based on an improved revenue outlook, the company upgraded its outlook for 2016 earnings to $10.60-$11.00 per share from $10.35-$10.75 per share. The company also pushed up its revenue guidance to $22.0-$22.5 billion from $21.7-$22.3 billion. The stock has lost 2.2% since releasing earnings (as of February 5, 2016).

Biogen also beat on earnings and revenues. The company's earnings per share of $4.50 were well above the Zacks Consensus Estimate of $4.07. Earnings grew about 10% year over year while revenues increased 7.5%. Revenues came in at $2.8 billion, beating the Zacks Consensus Estimate of $2.7 billion. This biotech firm also provided revenue and earnings guidance for 2016. The company expects to earn $18.30-$18.60 per share on revenues of $11.1-$11.3 billion. The stock gained 1.5% since it reported earnings (as of February 5, 2016).

On the other hand, Celgene reported mixed results with earnings of $1.00 per share (including stock-based compensation expenses) falling short of the Zacks Consensus Estimate of $1.02 and revenues of $2.6 billion beating the Zacks Consensus Estimate slightly. However, both earnings and revenues rose year on year in the reported quarter. Net sales of the drug Revlimid, the backbone of Celgene, saw a year-over-year rise of 18%. The company has kept its 2016 outlook intact. The stock is down 4.3% (as of February 5, 2016).

Alexion also came up with disappointing fourth-quarter results with both earnings and revenues missing estimates. Fourth-quarter 2015 earnings (including stock-based compensation expense) of 84 cents per share missed the Zacks Consensus Estimate of 88 cents. Earnings were also below the year-ago figure of $1.14 per share. Nevertheless, Alexion's revenues climbed 16.9% year over year in the fourth quarter to $700.1 million. Revenues, however, missed the Zacks Consensus Estimate of $706 million.

Alexion has provided its outlook for 2016. The company expects adjusted earnings per share in the range of $5.00 to $5.20 on revenues of $3.05-$3.1 billion. Foreign exchange translations are expected to negatively impact revenues by $120 million and earnings by 31 cents. Shares gained 3.6% post earnings (as of February 5, 2016).

ETFs in Focus

Thanks to mixed results, biotech ETFs with considerable exposure to the five stocks above were all in the red in the last 10 trading sessions (as of February 5, 2016). This has put the spotlight on biotech ETFs. Below we discuss four of these ETFs having a sizeable exposure to the above stocks (see all Healthcare ETFs here).

iShares Nasdaq Biotechnology ETF (NASDAQ:IBB)

This top player in the biotech ETF space tracks the NASDAQ Biotechnology Index, holding 190 securities in the basket. Celgene, Amgen, Gilead Sciences, Biogen and Alexion are placed among the top 10 holdings with a combined exposure of about 41% in the fund. The fund has an asset base of more than $7.5 billion and trades in an average volume of nearly 2.7 million shares a day. It has an expense ratio of 0.48% and lost 11% in the above mentioned timeframe. IBB currently has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Market Vectors Biotech ETF (NYSEARCA:BBH)

This fund follows the Market Vectors US Listed Biotech 25 Index and holds 25 securities in its basket. Gilead Sciences (13.2%), Amgen (12.9%), Celgene (10.3%) and Biogen (6.5%) take the top four spots in the fund while Alexion (4.8%) takes the sixth place. The fund has amassed nearly $529.8 million in its asset base and trades in moderate volumes of roughly 151,000 shares a day. The product charges an annual fee of 35 bps per year and lost 10.6% in the said timeframe. It currently carries a Zacks ETF Rank #2 with a High risk outlook.

PowerShares Dynamic Biotechnology & Genome Portfolio ETF (NYSEARCA:PBE)

The fund tracks the Dynamic Biotech & Genome Intellidex Index. The top 4 holdings include Amgen (6.42%), Biogen (6.4%), Alexion (5.49%) and Gilead (5.28%). Total assets of the fund are $275.5 million representing 30 holdings. The fund's expense ratio is 0.57%. The trading volume is roughly 83,000 shares per day. The fund has lost 10.6% in the past 10 trading sessions. It currently carries a Zacks ETF Rank #3 (Hold) with a High risk outlook.

First Trust NYSE Arca Biotechnology Index ETF (NYSEARCA:FBT)

FBT tracks the NYSE Arca Biotechnology Index and holds 30 securities in the basket. The fund is well diversified with no stock holding more than 4.1% weight. Biogen, Amgen, Celgene and Gilead are placed among the top 10 holdings with a combined exposure of about 14.8% in the fund. Total assets of the fund are $1.8 billion. The fund's expense ratio is 0.58. The trading volume is roughly 475,000 shares per day. It currently carries a Zacks ETF Rank #4 (Sell) with a High risk outlook. The fund has lost 14.4% in the last 10 trading sessions.

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