Market Overview

Gilead Sciences Soars On "Striking" Clinical Trial Data

On Thursday after the closing bell, Gilead Sciences (NASDAQ: GILD) released its Q4 earnings results. While the biotech giant missed analysts earnings estimates, sales numbers for the quarter came in slightly higher than projected. More importantly, Gilead management announced positive clinical data about a hepatitis C drug which the company acquired in its $10.8 billion takeover of Pharmasset. J.P. Morgan (NYSE: JPM) analysts are calling the newly released data "striking" and analysts across Wall Street are getting even more bullish on the name in light of the new information.

On the earnings front, GILD posted non-GAAP income of $743 million or $0.95 per share, versus $779.3 million or $0.97 per share, in the year ago period. This compared to analysts' consensus EPS estimates of $1.05. Revenues for the fourth quarter were up 10% to $2.20 billion compared to $2 billion last year. This came in slightly ahead of Street consensus revenue estimates of $2.18 billion.

While the miss on the bottom line and only very slight beat on the top line could be viewed as mildly disappointing, traders are focusing on some very positive clinical data which Gilead discussed on its conference call. On the call with analysts and investors, Gilead's chief scientific officer, Norbert Bischofberger, said that patients with genotype 1 hepatitis C, which is the most common form of the disease in North America, had no detectable signs of the virus after four weeks on a drug called PSI-7977 which was acquired in Gilead's buyout of Pharmasset.

The drug previously was shown to cure all patients with hepatitis C genotype 2 and 3. In the wake of the new data, Bloomberg quoted RBC Capital Markets analyst Michael Yee as saying “It looks like Gilead will race ahead and continue to lead because its drug 7977 continues to support potential 100 percent cure rates." He added, "The data disclosed in genotype 1, an important population for which there was no good data yet, continues to show they can support a multibillion-dollar drug franchise with 7977.”

Yee is hardly the only Wall Street analyst who is excited about the Gilead data. J.P. Morgan analysts called the data from the ELECTRON clinical trial "simply striking." According to their report, expectations were that 7977 would not be as effective for patients with genotype 1 versus genotype 2 and 3 and that activity in the former group would be "far less robust." The new data released by Gilead, however, suggests that "this doesn't look to be the case thus far."

The analysts added that "we have to wait for SVR4/12 data, but initial RVR (rapid viral response) data for '7977 is very competitive in GT1 (genotype 1) patients, the largest (70%) population in this category." Furthermore, J.P. Morgan has doubled their 2015 and 2016 earnings forecasts for this drug in light of the new information. 2015 estimates go from $0.8 billion to $1.6 billion while 2016 goes from $1.5 billion to $3 billion. These numbers are very significant and traders should expect for estimates to go up across Wall Street, which could result in continued momentum for GILD shares.

J.P. Morgan reiterated its "Overweight" rating on the stock and $65.00 price target, with the analysts writing, "with a significant opportunity ahead in hep C with multiple catalyst and a core HIV business with strong fundamentals we see upside from current levels." Analysts at Needham also reiterated their "Buy" rating on Gilead on Friday morning.

Looking ahead, the positive 7977 data from the ELECTRON trial will be presented at the CROI meeting which is scheduled for March 5-8 in Seattle, Washington. Furthermore, GILD is expected to have additional data (SVR4) ready to be presented at the time of the CROI meeting. J.P. Morgan analysts wrote that "Given the solid RVR we expect a robust SVR of not quite 100% but certainly above 80%." So, what does all of this mean? Essentially, the outlook for GILD's hep C pipeline just got a lot brighter with the announcement of this new data.

Furthermore, next month's presentation in Seattle, Washington could present a catalyst for the stock as the March 5 date for the beginning of the meeting approaches. On Friday, GILD shares are trading up nearly 10% to $54.11 in the wake of the bullish news. The stock has now gained roughly 32% in 2012 alone and 36% over the last 6 months. Looking at a chart of GILD, the stock has been moving literally straight up since mid-December. In light of Friday's positive data, it would not be surprising to see the shares continue to move higher throughout February, although, at this point, a shallow pullback is definitely a possibility.

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