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Will Gilead (GILD) HIV Sales Offset HCV Sales Decline in Q3?

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Biotech major Gilead Sciences Inc. (GILD - Free Report) is scheduled to report third-quarter results on Oct 25, after market close.

Gilead has a decent track record, with the company’s earnings beating estimates in three of the last four quarters. In the last reported quarter, the company’s earnings missed expectations by 23.2%. Overall, the company delivered an average positive earnings surprise of 6.43%.

Gilead’s stock has rallied 3.3% in the year so far, outperforming the industry's decline of 14.2%.

 

Factors at Play

Concurrent with second-quarter results, Gilead reiterated its annual guidance. The company expects net product sales of $20-$21 billion. Adjusted R&D and adjusted SG&A expenses are projected to be $3.4-$3.6 billion and $3.4-$3.6 billion, respectively. Adjusted product gross margin is expected to be 85-87%.

While Gilead’s second-quarter results beat estimates, the year-over-year decline was disappointing as the magnitude of decline in hepatitis C virus (HCV) sales continues to deepen. Moreover, the results were overshadowed by the news of the company’s president and CEO John F. Milligan’s departure.

The HCV franchise is under competitive and pricing pressure, leading to a massive decline in Harvoni and Sovaldi sales. The franchise suffered a significant plunge in sales due to new competition and fewer patient starts. HCV revenues are projected to decline further and will constitute a smaller portion of the top line, going forward. The Zacks Consensus Estimate for sales of lead HCV drugs, Sovaldi and Harvoni are $41.2 million and $241 million, respectively.

Nevertheless, the HIV franchise is expected to maintain momentum. 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 third quarter.

Genvoya has been listed as a preferred regimen in several HIV treatment guidelines. Truvada, for use in the pre-exposure prophylaxis setting, continued the momentum with an estimated 180,000 patients using the drug, by the end of the second quarter. The China National Drug Administration has approved Genvoya for the treatment of HIV-1 infection. The Zacks Consensus Estimate for sales of Genvoya is $1.2 billion.

HIV is one of the primary areas of focus for Gilead and the company is working to bring new HIV treatments to market to further boost sales of the franchise. The company received a major boost when the FDA approved its once-daily single tablet regimen (“STR”), Biktarvy (bictegravir 50mg/emtricitabine 200mg/tenofovir alafenamide 25mg, BIC/FTC/TAF) for HIV-1 infection.

The approval in Europe will further strengthen the company’s HIV franchise. In March, Biktarvy was added as one of the recommended initial regimens  to the U.S. DHHS guidelines for the use of antiretroviral agents in adults and adolescents living with HIV.

Given the persistent decline in HCV sales, the company is looking to newer avenues to boost its top line. 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. In August 2018, the European Commission (EC) granted Marketing Authorization to Yescarta.

Gilead is intending to foray into the non-alcoholic steatohepatitis (NASH) and inflammation market with late-stage candidates, selonsertib and filgotinib, respectively. Both the candidates are being evaluated in late stage studies and a tentative approval will diversify Gilead’s portfolio.

In September 2018, Gilead and partner Galapagos NV (GLPG - Free Report) announced that placebo-controlled phase II study, TORTUGA, on experimental candidate — filgotinib — in adult patients suffering from moderate to severely active ankylosing spondylitis (AS) met its primary endpoint. We expect management to throw more light on the same during the third-quarter 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.

Earnings ESP: Earnings ESP for Gilead is -1.98%. The Zacks Consensus Estimate is pegged at $1.66, while the Most Accurate Estimate is pegged at $1.63. 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 #1 which is favorable. However, the negative ESP makes surprise prediction difficult.

Conversely, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

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

Amgen Inc. (AMGN - Free Report) is scheduled to release its results on Oct 30. The company has an Earnings ESP of +0.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron Pharmaceuticals, Inc. (REGN - Free Report) is scheduled to release results on Nov 6. The company has an Earnings ESP of +2.68% and a Zacks Rank #3.

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