Gilead Sinks Most in Over a Year as Street Looks for Trough

(Bloomberg) -- Gilead Sciences Inc. fell 9 percent, the most since February 2017, after the drugmaker posted disappointing results and failed to raise its forecast. While the out-performance of Gilead’s blood cancer therapy was a positive in an otherwise gloomy report, Yescarta’s beat was quickly overshadowed by an added approval for a rival Novartis treatment.

“Investors are desperately waiting for Gilead’s revenue to trough after two years of declines and are looking for signs that Gilead is poised to re-rate,” Cowen analyst Phil Nadeau wrote in a note to clients.

Cowen, Phil Nadeau

“With Gilead’s revenue and EPS both missing consensus estimates in 1Q, this will not be the quarter that signals a turn in Gilead’s fundamentals. That being said, we also do not find Gilead’s 1Q performance overly disappointing. A revenue decline due to Viread generics and HCV competition was anticipated. The shortfall was due mostly to de-stocking in Gilead’s U.S. HIV business, a short-term issue.”

“In fact, Biktarvy’s early launch suggests it will help Gilead regain share from dolutegravir regimens, so HIV remains a bright spot, despite 1Q’s issues. The 30 percent quarter-over-quarter decline in HCV sales was steep and ugly, but in-line with our estimate. Management remains hopeful that HCV will stabilize midyear.”

Remains outperform, PT cut to $85 from $90

Morgan Stanley, Matthew Harrison

“Gilead was down ~5% in the after-market on two key concerns. The first is that the key bull thesis was an HIV business that could beat based on new launches, including Biktarvy. Unfortunately, both overall HIV missed by ~$280 million and Biktarvy by ~$20 million. On Biktarvy, consensus was unrealistically high as we had suggested in our preview.”

“On the overall HIV miss, we estimate de-stocking was at least $200 million. Thus, in our view the trends should reverse next quarter. The second concern was on further deterioration in the HCV business, driven mostly by competition from AbbVie.”

Yescarta, Gilead’s cancer drug was a bright spot while experimental therapies including the drugmaker’s autoimmune drug filgotinib and liver disease pipeline may make this a clinical story in the latter half of the year.

Remains equal-weight, PT cut to $81 from $85

Baird, Brian Skorney

“While investors had projected 2018 as a trough earnings year for the company, worse than expected sales performance, across the company’s two major franchises, has led to debate over what the trough number is.”

“Investors were immediately concerned following last night’s print about the company’s ability to meet their $20 billion to $21 billion 2018 sales guidance and despite assurances that it stands, we think these concerns will persist until the company can put up a much stronger quarter.”

Remains outperform, PT cut to $79 from $87

Barclays, Geoff Meacham

“The only standout for the quarter was Yescarta and the fact that Gilead didn’t formally lower 2018 product revenue guidance.”

“Overall, we’d characterize the quarter as forgettable with lower revenues and a slightly higher than expected tax rate driving weaker earnings. Fundamentally, we think that the pipeline (filgotinib and NASH) and the early stage progress with commercial Yescarta are enough to drive investor interest and easier comps in 2H18 for HIV / HCV are enough for Gilead to finally be positive on revenue/non-GAAP EPS growth looking to 2019.”

Reiterates overweight

Credit Suisse, Alethia Young

“Investor questions are now focused on whether the guidance is achievable though reiterated. We have adjusted our revenue estimates for the soft 1Q and still believe guidance is achievable. Our total product revenue expectation is $20.2 billion after adjusting our model and breaks down as follows: HCV is $3.7 billion, HIV is $14 billion, Yescarta is $294 million, and other products are $2.3 billion.”

“Our 2018 and 2019 EPS are now $5.90 and $6.10 from $6.20 and $5.97 previously. This is reflective of our sales estimate reduction in 2018 and reflecting it as a trough EPS year.”

Remains neutral, PT $80

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