By Lewis Krauskopf
NEW YORK (Reuters) - Major U.S. pharmaceutical and biotechnology companies, whose shares have been laggards even in a sluggish market, face a litmus test in the corporate earnings season as investors already gun-shy over concerns about pressures on drug prices prepare to give a sharp eye for both hits and misses.
As a group, pharmaceutical stocks in the S&P 500 <.SPLRCCARG> are down about 4 percent so far this year, while S&P biotech stocks <.SPLRCBIOT> are off about 6 percent. Even in a choppy overall market, biotech and pharma have underperformed the broader S&P 500 (SPX), which is little changed for 2018.
Shares of Biogen Inc (O:BIIB), Celgene Corp (O:CELG) and Bristol-Myers Squibb Co (N:BMY) are all down at least 14 percent this year.
While various companies have suffered regulatory and other setbacks of their own, taking a toll on their stocks, analysts say worries over prescription drug prices continue to cloud shares of pharma and biotech companies in general.
"We need something that will breathe excitement in the group," said Kevin Gade, a portfolio analyst who follows pharmaceutical and biotech stocks at Bahl & Gaynor Investment Counsel in Cincinnati.
This week, Eli Lilly and Co (N:LLY), Biogen and Amgen Inc (O:AMGN) report quarterly results on Tuesday, with AbbVie Inc (N:ABBV) and Bristol-Myers due on Thursday.
For the 10 largest drug and biotech companies by market value, first-quarter earnings per share are expected to rise an average of 8.7 percent, according to an analysis of Thomson Reuters data, ranging from an expected rise of nearly 41 percent for AbbVie to a decline of 25 percent for Gilead Sciences Inc (O:GILD).
In the earnings reports, Morningstar analyst Damien Conover will be tracking growth of important drugs, such as Merck & Co Inc's (N:MRK) Keytruda and Bristol-Myers' rival cancer treatment, Opdivo; Lilly's Trulicity diabetes drug and Taltz psoriasis therapy; and Pfizer Inc's (N:PFE) Ibrance cancer medicine.
Gade said that "given low sentiment" for the stocks, he will be looking for the companies to at least hit analysts' earnings estimates and ideally raise their financial outlooks.
Indeed, big biotech and pharmaceutical stocks overall are trading at much steeper discounts to the broad market than they have on average over the past five years.
S&P 500 biotech companies recently traded at 12.6 times forward earnings, while S&P 500 drug companies traded at 14.2 times, compared with 16.4 times for the overall S&P 500, according to Thomson Reuters Datastream.
"The group is extremely cheap historically," Gade said.
While pharma and biotech stocks have been laggards this year, two healthcare industries generally seen as more immune from concerns about pricing, medical device companies and makers of life-science research tools, are up over 7 percent and 8 percent, respectively.
Those healthcare industries have been outperformers since a watershed moment for healthcare investing: when Hillary Clinton as the Democratic presidential candidate tweeted about "price gouging" in the specialty drug market.
Since that tweet in September 2015, medical device and life-science tool stocks have soared, more than 50 percent and 65 percent, respectively, while pharma stocks are up only about 4 percent and biotech is down 6 percent.
Drug pricing was expected to again be in the spotlight on Thursday, with President Donald Trump due to address the topic. But Trump postponed his speech to a date in the near future, the White House said on Sunday.
"One of the concerns people still have are pricing pressures for drugs, whether or not that will intensify either through the government channels or through" pharmacy benefit managers, Morningstar's Conover said.