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Will Strong HIV Sales Drive Gilead's (GILD) Q2 Earnings?

Zacks Equity Research

Biotech major Gilead Sciences Inc. GILD is slated to report second-quarter results on Jul 30, after the market closes.

Gilead has a pretty decent track record, with earnings beating estimates in three of the last four quarters. Overall, the company delivered an average positive earnings surprise of 6.86%. In the last reported quarter, the company’s earnings beat expectations by 8.64%.

Gilead’s stock has gained 6% in the year so far, against the industry's decline of 0.5%.

Why a Likely Positive Surprise?

Our proven model indicates that Gilead is likely to beat on earnings this quarter, as it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to be able to beat estimates.

Earnings ESP: Earnings ESP for Gilead is +3.20%.  The Zacks Consensus Estimate is pegged at $1.74, while the Most Accurate Estimate is pegged at $1.80. 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 confident of an earnings beat.

Note, 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.

Factors Likely to Impact Q2

Gilead did not provide any quarterly guidance.  For 2019, it continues to expect net product sales of $21.3-$21.8 billion. 

While the company’s revenues in the last reported quarter missed estimates, the metric was up 3.8% year over year. Soft HCV franchise sales stabilized as compared to the prior quarters. This trend should continue in the second quarter as well. 

The HIV franchise is expected to maintain momentum in the second quarter. Strong HIV performance and other antiviral product sales are being driven by continued uptake of tenofovir alafenamide (“TAF”)-based products — Genvoya, Descovy and Odefsey. Genvoya has been listed as a preferred regimen in several HIV treatment guidelines.

Biktarvy became the top-selling product in the United States in the first quarter and is the number one prescribed regimen for both treatment-naïve and switch patients. Robust performance of the drug should further boost sales in the second quarter. The Zacks Consensus Estimate for sales of Genvoya and Descovy is projected at $1.1 billion and $428 million, respectively.

Yescarta (axicabtagene ciloleucel), which was approved in the United States in October 2017 and Europe in August 2018, generated $96 million in sales during the first quarter of 2019. We expect similar contribution from the drug in the second quarter.

Apart from the regular top and bottom-line numbers, we expect investors to focus on the company’s pipeline updates in the to-be-reported quarter. Gilead is planning to submit a new drug application (“NDA”) seeking approval for its oral JAK1 inhibitor, filgotinib, as a treatment for rheumatoid arthritis (“RA”) in 2019. The decision was taken by the company following a pre-NDA meeting with the FDA.

Meanwhile, Gilead entered a 10-year global research and development collaboration with Galapagos NV GLPG. Hence, the company will gain access to Galapagos’ innovative portfolio of compounds, including six molecules currently in clinical trials, more than 20 preclinical programs and a proven drug discovery platform. In exchange, Gilead will make a $3.95-billion upfront payment to Galapagos and a $1.1-billion equity investment in the same. Galapagos will use the proceeds to expand and accelerate its research and development programs.

Other 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.

Incyte Corp. INCY has an Earnings ESP of +3.73% and a Zacks Rank of 2. The company is scheduled to release second-quarter results on Jul 30, before the market opens. You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron Pharmaceuticals, Inc. REGN has an Earnings ESP of +6.25% and a Zacks Rank #3. The company is scheduled to release second-quarter 2019 results on Aug 6.

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