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Will Gilead (GILD) Disappoint Investors in Q4 Earnings?

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Gilead Sciences Inc. (GILD - Free Report) , is scheduled to report fourth-quarter results on Feb 6, after the market closes.

Gilead, a leader in the hepatitis C virus (“HCV”) space, has a mixed track record, with the company beating estimates in three of the last four and missing in one. Last quarter, the company beat expectations by 8.6%. Overall, the company recorded an average positive earnings surprise of 9.1%.

 

Gilead Sciences, Inc. Price and EPS Surprise

 

Gilead Sciences, Inc. Price and EPS Surprise | Gilead Sciences, Inc. Quote

 

Gilead’s stock has rallied 12.8% over a year compared with the industry's gain of 6.0%.

 

 

Factors at Play

Concurrent with the third-quarter earnings call, Gilead updated its annual guidance. Gilead expects net product sales in the range of $24.5-$25.5 billion, up from $24.0-$25.5 billion provided earlier. Non-HCV product sales are projected between $16 billion and $16.5 billion (earlier projection: $15.5 billion and $16 billion).

Strong HIV performance and other antiviral product sales are being driven by continued uptake of tenofovir alafenamide (“TAF”) based products — Genvoya, Descovy and Odefsey. We expect the trend to continue in the fourth quarter as well. Genvoya has already become the most prescribed regimen for both treatment-naïve and switch patients since its launch. This should drive the non-HCV product sales.  The TAF-based regimens now represent 56% of total Gilead HIV prescription volume following the launch of Genvoya and Odefsey and Descovy in 2016. Strong uptake for Truvada for use in the pre-exposure prophylaxis setting is also expected to boost sales. The Zacks Consensus Estimate for sales of Genvoya is $1058 million. However, Gilead lost exclusivity for Viread in some countries outside the United States which might impact sales.

HCV product sales are projected between $8.5 billion and $9.0 billion (earlier projection: $8.5 billion and $9.5 billion).  The HCV franchise continues to be under competitive and pricing pressure leading to a massive decline in Harvoni and Sovaldi sales. Harvoni and Sovaldi has been facing competition from AbbVie Inc.’s (ABBV - Free Report) Viekira Pak and Viekira XR among others. While patient starts have exceeded expectations in 2017, competition has started to erode Gilead's market share and net pricing. The company saw some impact of this in the third quarter but most of it was due to be experienced in the fourth quarter.  The Zacks Consensus Estimate for sales of lead HCV drug Sovaldi and Harvoni are $141 million and $614 million, respectively. The HCV portfolio received a major boost when Epclusa gained approval in 2016. The FDA also approved Vosevi tablets as a single-tablet regimen (“STR”) for the re-treatment of chronic HCV infection in adults.

Adjusted R&D expenses and adjusted SG&A expenses are now projected in the range of $3.3-$3.4 billion and $3.3-$3.4 billion, respectively. Adjusted product gross margin is expected in the range of 86-87%. Earnings per share are now projected around $1.02-$1.17 (earlier projection: 86-93 cents).

Meanwhile, the Kite acquisition was a step in the right direction with the FDA approval of its chimeric antigen receptor T-cell (CAR-T) therapy, Yescarta (axicabtagene ciloleucel), for the treatment of refractory aggressive non-Hodgkin lymphoma, which includes DLBCL, transformed follicular lymphoma and primary mediastinal B-cell lymphoma. However, management stated that Yescarta launch will be a controlled launch to ensure patient safety as CAR-T therapy is complicated and can sometimes be associated with severe side effects.

We expect the management to throw more light on the same during the fourth-quarter’s call. Investors are also likely to keep an eye on other pipeline updates.

Earnings Whispers

Our proven model does not conclusively show that Gilead will beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: Earnings ESP for Gilead is -1.01%.  This is because the Most Accurate estimate is $1.68 while the Zacks Consensus Estimate is pegged at $1.70. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Gilead currently carries a Zacks Rank #4 (Sell). As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some health care stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Alexion Pharmaceuticals, Inc. is scheduled to release fourth-quarter results on Feb 8. The company has an Earnings ESP of +3.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Anthera Pharmaceuticals, Inc. (ANTH - Free Report) is expected to release fourth-quarter results on Feb 26. The company has an Earnings ESP of +20.47% and a Zacks Rank #2.

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