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Will HIV Sales Drive Gilead (GILD) to Beat in Q2 Earnings?

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Will HIV Sales Drive Gilead (GILD) to Beat in Q2 Earnings?

Gilead (GILD) is likely to beat expectations in the second quarter propelled by the momentum in the HIV franchise.

Biotech bigwig Gilead Sciences Inc. GILD is likely to beat expectations when it reports results for the second quarter on Jul 25, after the market closes.

Gilead has a decent track record, with the company’s earnings beating estimates in three of the last four quaters. In the last reported quarter, the company’s earnings missed expectations by 10.8%. Overall, the company delivered an average positive earnings surprise of 4.98%.

Gilead’s stock has rallied 9.2% in the year so far, outperforming the industry's decline of 1.8%.


Why A Likely Positive Surprise?

Our proven model indicates that Gilead is likely to beat 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, which is what the case is here, as you will see below.

Zacks ESP: Earnings ESP for Gilead is +0.79%. 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 #2 which when combined with a positive ESP makes us reasonably confident of an earnings beat this quarter.

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.

Gilead Sciences, Inc. Price and EPS Surprise

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


Factors at Play

While the first-quarter results were disappointing, Gilead reiterated its annual guidance with the results. The company continues to expect net product sales in the range of $20-$21 billion. Adjusted R&D expenses and adjusted SG&A expenses are projected in the range of $3.4-$3.6 billion and $3.4-$3.6 billion, respectively. Adjusted product gross margin is expected in the range of 85-87%.

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 second quarter as well. Genvoya has already become the most-prescribed regimen for both treatment-naïve and switch patients since its launch in November 2015.

Also, Genvoya has been listed as a preferred regimen in several HIV treatment guidelines. In addition, Truvada, for use in pre-exposure prophylaxis setting, continued to maintain momentum with an estimated 167,000 patients using the drug by the end of the first quarter. 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 the company’s once-daily single tablet regimen (“STR”), Biktarvy (bictegravir 50mg/emtricitabine 200mg/tenofovir alafenamide 25mg, BIC/FTC/TAF) for HIV-1 infection. The recent approval of Biktarvy in Europe will further strengthen the company’s HIV franchise.

The Zacks Consensus Estimate for sales of Genvoya is $1.1 billion.

On the other hand, the HCV franchise continues to be under competitive and pricing pressure, leading to a massive decline in Harvoni and Sovaldi sales. Harvoni and Sovaldi have been facing competition from AbbVie’s ABBV Viekira Pak and Viekira XR among others. The franchise suffered a significant plunge in sales due to new competition and fewer patient starts.

While pricing has largely stabilized, market share will stabilize by mid-2018 and patient starts are expected to decline further. 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 $34 million and $285 million, respectively.

Given the persistent decline in HCV sales, the company is looking to newer avenues to help 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.

The initial uptake of Yescarta is also encouraging in the United States. The Committee for Medicinal Products for Human Use (CHMP) has issued a positive opinion on the company’s Marketing Authorization Application (MAA) for the therapy in Europe.

Gilead is also intending to foray into the NASH market with pipeline candidates, selonsertib and filgotinib. Both the candidates are being evaluated in late stage studies and a tentative approval will diversify Gilead’s portfolio. We expect the management to throw more light on the same during the second-quarter’s call. Investors are also likely to keep an eye on other pipeline updates.

Other Stocks to Consider

Here are some other health care stocks that 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.

Intercept Pharmaceuticals ICPT is expected to report second-quarter results on Jul 30. The company has an Earnings ESP of +4.25% and a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Acorda Therapeutics, Inc. ACOR is scheduled to release second-quarter results on Aug 2. The company has an Earnings ESP of +66.7% and a Zacks Rank #2.

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