- Jonathan Poyer
Pick The Winners but Avoid the Losers in Biotech
The S&P 500 continues to trade above its 200 day moving average as earnings season paints a mixed picture.
Over the past 90 days, S&P 500 consensus forward year EPS estimates have been revised down ~5% while the index is up ~5%. Remarkably, Intel (INTC) reported its worst quarterly guidance in recent memory by projecting 1Q 2023 revenue will come in at levels the company has not seen since 2010.
In contrast, the S&P Select Biotechnology Index is up ~5% on the year with strong operational performance from leading therapeutics companies.
Johnson & Johnson (JNJ) provided encouraging 2023 guidance, with low to mid single digit operational sales growth ex-COVID 19 vaccine. Abbvie (ABBV) reported strong 4Q22 numbers, with each of their top 10 drugs beating analyst expectations. ABBV even raised 2023 EPS guidance despite the pending exclusivity loss for the flagship Humira franchise.
Fundamental updates continued to move individual SMID caps reinforcing the importance of stock picking. Aurinia Pharmaceuticals (AUPH) rallied upon announcing the allowance of a new method of use patent for LUPKYNIS in lupus nephritis, which has the potential to provide additional exclusivity protection through 2037.
Cassava Sciences (SAVA) fell as Phase 2 data for simufilam, an oral drug candidate for Alzheimer's disease dementia, failed to meet analysts expectations. Likewise, F-Star therapeutics (FSTX) traded sharply lower on headlines that the Committee on Foreign Investment in the United States (CFIUS) was unlikely to agree to the pending merger with a Hong Kong listed foreign entity.
FSTX faces near term bankruptcy risk should the deal not be consummated, highlighting the importance of extensive diligence for life sciences arbitrage trades.