Abbott (ABT)
Abbott is one of our favorites in Big Pharma. We know many of you hold the stock in your own portfolios, and frankly, the company is one of the best operators in its industry. Abbott’s second-quarter performance revealed continued strength in its global diagnostics and branded generics businesses. Foreign currency exchange headwinds have posed problems for almost every multi-national in our coverage, but on an operational basis, second-quarter worldwide sales leapt nearly 10%. Abbott kept its full-year 2015 adjusted EPS guidance range from continuing operations unchanged at $2.10-$2.20, a rarity across a pharma universe that’s experiencing fantastic earnings momentum as of late.
Keys to the Quarter: We were very pleased with the traction witnessed in Abbott’s pediatric nutrition portfolio in China (punctuated by infant formula Eleva), where segment sales leapt at a double-digit pace. Share gains in the US and emerging-market growth in its diagnostic division were also quite impressive. Branded generics performance was incredibly strong in key emerging markets such as India, Russia, China, Brazil and Columbia, while the firm’s MitraClip structural heart device and FreeStyle Libre Flash Glucose Monitoring System helped to drive strength in its Vascular and Diabetes Care segments, respectively. Its August dividend will mark its 366th consecutive quarterly one. Shares yield just shy of 2% at the moment.
Bristol-Myers Squibb (BMY)
Bristol-Myers delivered solid second-quarter results and raised both its GAAP and non-GAAP earnings per share guidance, the latter to the range of $1.70-$1.80. Total reported revenues jumped 7%, but 16% on a currency-neutral basis thanks to strong performance internationally. Eliquis, Orencia, Sprycel, and Opdivo were the standouts in the period, though headwinds from Abilify and its Reyataz franchise remain. Bristol-Myers’ hepatitis C franchise contributed ~$743 million in new revenue during the period. Overall, it was a solid quarter, and the guidance increase was well-received.
Keys to the Quarter: All eyes are on Bristol-Myers’ immuno-oncology portfolio. The executive team continues to reiterate its excitement in light of recent data as the company continues to transform cancer treatment. CEO Giovanni Caforio, M.D. believes it is clear Bristol-Myers has a tremendous opportunity, and clinical milestones for Opdivo speak to strength. Shares yield just north of 2% at the moment.
Celgene Corp (CELG)
Celgene’s second-quarter results revealed a firm that is growing like few others. Product sales advanced 22% on a year-over-year basis, and the company levered that increase into a 36% increase in adjusted net income. Revlimid, Pomalyst/Imnovid, Abraxane, and Otezla were the primary drivers behind the fantastic showing. Revlimid sales alone came in at ~$1.45 billion in the quarter, increasing 19% on a year-over-year basis, thanks to longer duration of the therapy and continued share strength in multiple myeloma. Revlimid is expected to account for more than 60% of sales in 2015.
Keys to the Quarter: Exceptional is perhaps the best word to describe recent performance at Celgene. The firm continues to invest across its portfolio, and recent deals with AstraZeneca (AZN), Juno and Receptos should pave a nice runway of long-term growth. Celgene raised its 2015 adjusted earnings per share guidance to the range of $4.75-$4.85, showcasing the ongoing momentum of its business strength. The company gapped up significantly following its recent performance. We value shares north of $150 each.
Eli Lilly (LLY)
Eli Lilly continues to experience a fall-out from the loss of exclusivity on Zeprexa and Cymbalta. Adjusted sales fell 4% in the second quarter, but the company managed to execute well and grew non-GAAP earnings per share by more than 20% thanks to prudent expense management. We’re as encouraged as any optimist with the opportunities in its pipeline, and management hopes to return to top-line growth in 2015, but that may not matter much. As with any long-term investor, we’re most interested in the company’s ability to advance its pipeline, and growth from Jardiance, Trulicity and Cyramza will certainly help.
Keys to the Quarter: Eli Lilly’s share price has more than doubled since the beginning of 2012, and we think some caution is in order, even as we say we’re big fans of the company. Management continues to point to tangible results from launches of new medicines and careful control of operating expenses and upped its non-GAAP full-year 2015 earnings per share guidance to the range of $3.20-$3.30, but valuation is starting to be an important consideration “up here.” Shares yield ~2.3%. The company is probably due for a pullback. We values shares at ~$70 each.
Novartis AG (NVS)
Novartis’ second-quarter results showed solid top-line growth of 6% on a constant-currency basis and core operating income increasing at a similar pace. Solid performance for Sandoz, where net sales leapt 11% and core operating income increased 30%, and Pharmaceuticals, where net sales increased 6% and core operating income advanced 9%, helped to offset weakness for Alcon during the quarter. Highlights in the quarter included impressive performance in emerging growth markets (e.g. Brazil and China) and from products it designates as ‘Growth’ (e.g. Gilenya, Afinitor, Tasigna, Xolair, Tafinlar/Mekinist, Jakavi), which collectively now account for ~35% of net sales.
Keys to the Quarter: Novartis confirmed its outlook for 2015, expecting net sales to grow at a mid-single-digit pace and core operating income to grow slightly faster during the year. Innovation momentum continues, and management pointed to the recent approvals and launch of Entresto and Glatopa, the first generic version of Teva’s (TEVA) Copaxone. Its portfolio transformation with GlaxoSmithKline (GSK) remains on track. Shares have a juicier yield than peers’.
Roche Holding (RHHBY)
Roche has been executing well through the first half of 2015. Group sales at the company advanced 6% at constant-currency exchange rates. Strength was broad-based and evident across both its Pharmaceutical and Diagnostic divisions. HER2-positive breast cancer medicines, Avastin, and MabThera/Rituxan helped drive oncology-related sales, while Actemra/RoActemra and Xolair drove performance in its immunology portfolio. Core earnings per share advanced 7% through the first half of the year on a currency-neutral basis, and the firm confirmed its outlook for 2015 calling for sales growth in the low-to-mid single-digit range at constant currency exchange rates and core earnings per share growth slightly faster.
Keys to the Quarter: Pipeline development at Roche continues. The company noted positive phase III results for ocrelizumab in multiple sclerosis, and its immunotherapy candidate atezolizumab delivered positive study results across a variety of cancer profiles. Key launches across its Diagnostic division have also sweetened the company’s investment profile. Dividend increases in Swiss francs should be expected.
Valeant Pharma (VRX)
Perhaps the most exciting pharma entity in our coverage, Valeant delivered yet again with fantastic quarterly results. Total revenue advanced 34% over the prior-year period in the second quarter, while same store organic sales growth was tallied at 19% thanks to solid demand across dermatology, contact lenses, dental and Obagi. The company noted strength in China, the Middle East/North Africa and Russia, and integration of Salix and Dendreon appears to be progressing well. Cash earnings per share came in at $2.56 during the period, representing a growth rate of 43%.
Keys to the Quarter: Revenue and earnings momentum at Valeant is among the best in our entire equity coverage universe. The firm raised its guidance for revenue to the range of $10.7-$11.1 billion for 2015 and increased its cash earnings per share to the range of $11.50-$11.80 for the year. It also hiked its expected adjusted operating cash flow performance for 2015. The company is exciting, but it also isn’t cheap. Shares are fairly priced, in our view, having nearly doubled since the start of the year.