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Biotech: More Upside In 2015?

|Includes: CELG, Gilead Sciences, Inc. (GILD), MDVN

Biotech: More Upside in 2015?

By Ben Levisohn

Bernstein's Geoffrey Porges and Wen Shi are bullish on biotech companies like Gilead Sciences (NASDAQ:GILD), Celgene (NASDAQ:CELG) and Medivation (NASDAQ:MDVN) heading into 2015. The reason: The first biotech conference of the year. They explain:

Porges and Shi also look ahead to earnings from Celgene, Gilead and Medivation:

As we noted last year, the previous practice of pre-announcing Q4 results and providing initial guidance in the second week of January appears to have mostly fallen by the wayside. Of the large cap companies in our coverage, only Celgene (CELG) continues this practice, typically providing both key elements of Q4 results as well as highlights of their financial outlook for the next few years (typically through 2017) in their cornerstone opening presentation slot in the second week of January. We expect Celgene to increase their 2017 guidance slightly in early January, from last year's estimate of $7.50 (vs. consensus of $7.76 and our estimates of $9.76) to around $8.00; more importantly the company is also likely to provide their first long term guidance for 2019, which is likely to initially be viewed with skepticism by investors…

Compared to current consensus estimates for 2015, we see the most upside for Medivation and Gilead. Our 2015 forecast for Medivation's total revenue is 38% above consensus while our EPS estimate is 34% above, driven by more aggressive expectations for uptake of Xtandi in the pre-chemo setting. Our forecast for Gilead total revenue is 6% above consensus and our EPS estimate 16% above consensus.

We reviewed the performance of the large biotech companies in our coverage in the last seven years (2008-2014), assessing performance relative to the market leading into the conference, during the conference, between the conference and earnings, and just after earnings. For each of the periods examined, large cap biotech stocks tended to outperform the market in a slight majority of the instances reviewed, and median returns were slightly above the broader market. Median outperformance was greatest during the conference itself, during which returns on large biotech companies outperformed the S&P by nearly 2.5%.

Disclosure: The author is long GILD.