Will Gilead (GILD) Q4 Earnings Disappoint on Weak HCV Sales?

Biotech major Gilead Sciences Inc. GILD is scheduled to report fourth quarter and full-year results on Feb 4, after the market closes.

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 beat expectations by 10.8%. Overall, the company delivered average positive earnings surprise of 6.99%.

Gilead’s stock has declined 8.8% in the last six months, against the industry's decline of 14.1%.

Factors in Play

Along with third-quarter results, Gilead updated its annual guidance. Gilead expects net product sales of $20.8-$21.3 billion in 2018 compared with the earlier estimate 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 third-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.

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. Gilead’s HCV drug, Harvoni has been approved in China.

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 193,000 patients using the drug by the end of the third 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 bringnew 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 has boosted sales further. Gilead currently expects Biktarvy to overtake Genvoya as the most successful launch in HIV history. 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.

In December 2018, the board of directors appointed Daniel O’Day as the company’s chairman and CEO.

Apart from the regular top and bottom-line numbers, we expect investors to focus on pipeline updates. Gilead intends 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.

Earlier this month, Gilead announced that it entered into a licensing and collaboration agreement with South Korea-based Yuhan Corporation to co-develop novel therapeutic candidates for the treatment of patients suffering from advanced fibrosis due to NASH. In December 2018, Gilead entered into a deal with Agenus AGEN to develop and commercialize up to five immuno-oncology (I-O) therapies.

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 -4.72%. The Zacks Consensus Estimate is pegged at $1.74, while the Most Accurate Estimate is pegged at $1.65. 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), which when combined with a negative ESP indicates very low chances of an earnings beat. As it is, 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.

Stocks to Consider

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

ACADIA Pharmaceuticals Inc. ACAD has an Earnings ESP of +3.89% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vertex Pharmaceuticals VRTX is scheduled to release its results on Feb 5. The company has an Earnings ESP of +4.52% and a Zacks Rank #3.

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