Gilead's (GILD) HCV Segment To Decline Further In Q4 Earnings?

Biotech bigwig Gilead Sciences Inc. (NASDAQ:GILD) develops drugs for the treatment of human immunodeficiency virus (“HIV”), liver diseases such as chronic hepatitis C virus (“HCV”) infection and chronic hepatitis B virus (“HBV”) infection, cardiovascular, hematology/oncology and inflammation/respiratory diseases.

Apart from blockbuster HCV drugs, Sovaldi and Harvoni and the recently launched Epclusa, primary products at Gilead include Stribild, Viread, Atripla, Complera/Eviplera and Emtriva among others, along with the tenofovir alafenamide (“TAF”)-based products Genvoya, Odefsey and Descovy and newly approved HBV drug, Vemlidy.

Gilead had a solid presence in the HCV market. However, the HCV franchise continues to grapple with competitive and pricing pressure leading to a massive decline in Harvoni and Sovaldi sales. Harvoni and Sovaldi have been facing competition from AbbVie’s (NYSE:ABBV) Viekira Pak and Viekira XR and Merck‘s (NYSE:MRK) Zepatier. Nevertheless, the HCV portfolio received a major boost when Epclusa gained approval in 2016. The FDA also approved Vosevi tablets as a single-tablet regimen (“STR”) for the re-treatment of chronic HCV infection in adults in 2017. Sovaldi recently obtained approval in China. The approval of these new drugs will somewhat offset the decline of legacy drugs.

Gilead’s stock has gained 13.8% in the last six months compared with the industry's gain of 0.5%.

The company suffered a decline in HCV sales in the third quarter and same is expected in the fourth quarter as well. HCV product sales were $2.2 billion, down from $3.3 billion reported in the year-ago quarter. The downside was mainly attributed to lower sales of Harvoni and Sovaldi across all major markets, partially offset by higher sales of Epclusa (launched in 2016) and sales of Vosevi (approved in the United States and Europe in July 2017.

While patient starts have exceeded expectations in 2017, competition has started to erode Gilead's HCV market share and net pricing. The company saw some impact of this in the third quarter but most of it was due to be experienced in the fourth quarter. Hence, we expect the older HCV products to continue to witness declining sales.

The company expects HCV product sales between $8.5 billion and $9.0 billion in 2017. The Zacks Consensus Estimate for sales of lead HCV drug Sovaldi and Harvoni are $141 million and $614 million, respectively for the fourth quarter.

Hence, the weakness in the HCV franchise will adversely impact Gilead’s performance in the fourth quarter. Although Gilead has a mixed track record, with the company beating estimates in three of the last four and missing in one, an earnings beat looks highly unlikely in the fourth quarter given the competitive pressure. (Read more: Will Gilead Disappoint Investors in Q4 Earnings?)

Zacks Rank & Key Pick

Gilead currently carries a Zacks Rank #4 (Sell).You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

A better-ranked stock in the healthcare sector is Exelixis (NASDAQ:EXEL) with a Zacks Rank #1 (Strong Buy).

Exelixis’ earnings per share estimates have moved up from 72 cents to 77 cents for 2018 over the last 60 days. The company delivered a positive earnings surprise in the last four quarters, with an average beat of 572.92%.

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