Biotech earnings arrive after dreadful 6 months, but upcoming readouts offer hope to analysts

With signs that biotech’s nosedive may be starting to level off, will the sector’s big players use their second-quarter earnings results to point to green shoots?

A 34% drop in the XBI biotech index in the first half of the year provided a gloomy backdrop to a period of layoffs and cutbacks, but analysts at Berenberg noted that the same index has rebounded 26% in the past month—even overperforming the S&P 500 by 4%.

Ahead of earnings season’s kickoff with heavyweights Johnson & Johnson and Novartis on Tuesday, the analysts said all eyes in the second half of the year would be on a range of market catalysts that could indicate the long-term health of the sector.

“While the broad market recovery remains opaque, we continue to believe that picking high-quality names with potentially positive catalysts will be paramount,” they said in a July 15 note. “We anticipate a more stable biotech environment in H2 for these catalysts to play out.”

For Seagen, a final answer to the speculation swirling around a rumored sale to Merck may come even before the biotech announces its earnings next week. The chatter has done no harm to Seagen’s share price—with the analysts attributing it to a 22% stock lift—but they also have their eye on some forthcoming trial readouts.

These include the launch of trials of disitamab vedotin—a differentiated HER2-targeting antibody drug conjugate licensed from RemeGen—as well as phase 1 data from pancreatic cancer candidate SEA-CD40 and SGN-B6A in solid tumors.

Meanwhile, BioNTech has shown there is life beyond COVID shots with positive early data from its solid tumor CAR-T cell therapy and an mRNA cancer vaccine combo. While the “constant news flow from COVID-19 will likely weigh on shares,” Berenberg analysts pointed to the cancer vaccine partnership with Roche as another important area for the German biotech. “We think positive data will derisk the mRNA cancer vaccine approach.”

The race to successfully bring a TIGIT therapy through the clinic will also continue to be a theme in companies’ earnings reports and beyond. These include Arcus Biosciences, which is toward the front of the race with the phase 2 ARC-7 trial of its anti-TIGIT domvanalimab with Gilead Sciences. But Roche’s struggles with its own TIGIT drug tiragolumab mean the domvanalimab data will be “heavily scrutinized,” the analysts pointed out.

For Kymera Therapeutics, investors’ focus will remain on the development of the phase 1 IRAK4 degrader KT-474 in inflammatory skin diseases. And the analysts still have high hopes for Sarepta Therapeutics’ gene therapy SRP-5051 for Duchenne muscular dystrophy despite a back and forth with the FDA.

“While the recent update on the compiled function data from [SRP-5051’s] early-stage trials look encouraging and bode well for the potential success of the ongoing phase 3 trial, whether the accelerated approval path will be available remains uncertain to us,” the analysts said. “We expect some clarity to come in H2.”

Inflation uncertainty

The early impacts of global inflation had already reared their heads in spring’s earnings calls, with the likes of J&J and Bayer explaining how they are trying to navigate rising costs and supply chain instability. With inflation since ramping up in the U.S. and Europe, there are signs that this could continue to impact the outlook of biotech into the second half of the year.

As one of the first biotechs to publish its half-year report, Orion Biotechnology said inflation would negatively impact the company’s operating profits for the year, with further pain to follow.

“The impact of cost inflation is expected to start to be felt in late 2022 and more in 2023,” the company said.

The effects further up the supply chain were also illustrated by the announcement Friday that enzyme and microbial technologies provider Novozymes will “substantially” increase its prices to match inflation. The Danish company blamed “unprecedented cost-inflation on raw materials, energy and logistics.”