Q2 pharma earnings preview: new CEOs at Biogen and Bayer focus on profits, growth

Quarterly earnings kick off in earnest this week, with a handful of the largest biopharma companies set to report how they’re doing midway through 2023.

While investors and analysts will be closely watching some CEOs settle into new roles with new strategies, last week’s earnings from Johnson & Johnson and Novartis also serve as a reminder of a simple lesson: investors want beat-and-raise quarters with no surprises.

J&J and Novartis both reported solid sales growth and raised 2023 guidance. After the results, Novartis’ stock climbed 7% last week, while J&J saw a 6% day-of boost after reporting second-quarter results, adding about $30 billion to its market capitalization.

“When’s the last time J&J had a quarter like that, with a 6% move?” Jefferies analyst Akash Tewari said on a July 21 earnings preview call with investors, noting pharma earnings were coming in relatively strong to start the season.

There’s also the question of the broader economy: Economists, investors and policymakers are watching across industries for signs that the US will avoid a recession and manage a “soft landing,” helping interest rates to stabilize and potentially giving markets a tailwind.

Activity will ramp up this week, with Biogen — and its new CEO Chris Viehbacher — reporting Tuesday, GSK on Wednesday, and a slew of large pharmas on Thursday, including Roche, AbbVie, Bristol Myers Squibb, and Takeda.

New CEOs settle into their seats

This quarter could be particularly meaningful for a handful of drugmakers with new CEOs starting to act on their strategies now that they’re in control.

Chris Boerner

Biogen’s Viehbacher jumped to the Massachusetts biotech last November, and investors will listen to Tuesday’s call for more details on any cost-cutting measures, pipeline culls, and M&A priorities, particularly as the former Sanofi leader plans to use his deal-making acumen at the $40 billion biotech.

In March, Thomas Schinecker took over the CEO role at Roche, which will report earnings Thursday. Bristol Myers Squibb will also report Thursday, with analysts looking for any details on a hand-off to incoming CEO Chris Boerner set for November.

Beyond this week, Bill Anderson will lead his first earnings call at Bayer after leaving Roche for the top job in June. Investors and analysts are waiting on Anderson to outline his vision for the German giant, particularly whether he’ll keep or spin out the agriculture business. In April, he told Reuters he was keeping an “open mind” about whether or not to break up Bayer’s business.

Pharma looks to buck ‘lackluster’ performance 

The mid-year updates come as the drug industry’s market performance has been stuck in neutral for 2023. An index tracking large pharma called the “DRG” is up 1% on the year, while the closely followed $XBI biotech index is up 4%, both trailing the S&P 500 index $SPX, which is up 19%.

Goldman Sachs analysts described large pharma’s market performance as “lackluster” in a July 17 note, adding that it stems from “underwhelming operational performance and a relatively static outlook in terms of estimate revisions.”

There are also uncertainties hanging over the industry. The FTC has taken a much more aggressive stance on dealmaking, not just in biotech and pharma but across the economy. And implementation of the IRA’s drug price negotiation measures is about to move forward, though several companies have sued to try and block the law.

“We see another challenging quarter across commercial-stage biopharma, with any bounce for the group as a whole, likely to be driven more by macro factors than earnings leading the sector higher,” Carter Gould, an analyst with Barclays, said in a note to clients.

Cowen’s Steve Scala also said he expects investor interest in pharma to “remain cool” in the second half, particularly as some companies struggle with Covid-driven comparisons to last year. Pharma stocks are trading at a 20% discount on a price-to-earnings basis compared to the S&P 500 for 2024 forecasts, Scala added in a July 17 note.

The pandemic stars, in particular, will look to regain some of the shine that’s worn off in 2023. Pfizer has shed $80 billion in market capitalization this year. Moderna and BioNTech have lost $21 billion and $11 billion in market value respectively. All still face the daunting task of convincing investors about their businesses beyond Covid-19 vaccines.

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