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Biopharma expects solid core Q4'19 earnings despite pricing, competition shadows


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Biopharma expects solid core Q4'19 earnings despite pricing, competition shadows

Biopharma companies will begin reporting 2019 fourth-quarter and full-year earnings this week with the world's largest drugmaker Johnson & Johnson scheduled to host a call with investors and analysts Jan. 22.

Cowen analyst Steve Scala said in a Jan. 17 note that the industry's core would likely remain strong in 2020 but might not achieve the market status of years past.

"Similar to 2019, we think pharma stocks will gain momentum as 2020 unfolds, as concerns ease and solid fundamentals show through," Scala said in a Jan. 17 note. "But it's hard to envision a scenario in which pharma substantially outperforms the S&P 500 in 2020."

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Drug pricing remains one of the big question marks for the industry in 2020, experts say, as several bills in Congress aimed at regulating price increases await action.

"Pricing pressure will continue," J&J's Worldwide Chairman of Pharmaceuticals Jennifer Taubert said in a Jan. 14 presentation at the J.P. Morgan Healthcare Conference. "The company's growth is 100% driven on volume that puts us in a better position in this environment where pricing is going to be hot."

Among issues facing the industry are competitive challenges as major drugs lose market exclusivity. Opioid and product quality litigation also continues for some companies and as a reputation risk for the industry as a whole.

Cowen's Scala said companies with the highest visibility and the lowest risk could be industry leaders, including AstraZeneca PLC, Novartis AG, Eli Lilly and Co. and Roche Holding AG, as well as drugmakers with "special situations" like AbbVie Inc. — expected to acquire Allergan PLC early in the year — and Pfizer Inc., which is divesting its off-brand unit in a merger with Mylan NV.

Cowen also expects animal health companies Elanco Animal Health Inc. and Zoetis Inc. to outperform the sector.

Executives and experts at the J.P. Morgan conference agreed that major growth areas for the industry in 2020 and beyond would be the oncology space and the embrace of digital health as a means to make drug development more efficient and patient outcomes more predictable.

M&A activity is also expected to remain a catalyst in biopharma, although smaller deals might prevail as the merger of choice rather than the large ones seen in 2019.