Leerink: Gilead Sciences HCV Franchise Erosion Here to Stay, Cuts Price Target

Leerink has warned that the US HCV price erosion for Gilead Sciences, Inc.

would likely to continue through 2016. Gilead is the market leader for two life-threatening viral diseases – HIV and HCV. Its treatments for these two diseases generated $30 billion in revenue in 2015, more than 3x its antiviral product sales in 2013. However, Gilead investors experienced a shock at the end of April, when the company announced total Hepatitis C revenues of $4.3 billion for the first quarter, 6 percent below consensus and 3 percent below Leerink estimates of $4.4 billion. Sales declined 12 percent sequentially and 6 percent yearly. "Given that Gilead has one of the most dominant franchises in recent industry history, GILD's investors and analysts experienced a rude awakening (as apparently did Gilead's management) when the company disclosed softening HCV sales in Q1 2016 based on growing rebates, more government purchases, and shorter treatment duration," analyst Geoffrey Porges wrote in a note. The US saw a sequential drop of 13 percent and year-over-year drop of 40 percent. This shows a 13 percent sequential increase in patient starts could not offset eroding revenue yield per patient. Porges now sees Gilead 2016 US HCV revenue of $8.7 billion, 5 percent less than his prior estimate of $9.2 billion. The analyst's adjusted total HCV revenue forecast for the company is now 2 percent above consensus for 2016 and 5 percent above consensus for 2017. But, the analyst maintained his Outperform rating, driven by strong revenues from the company's HIV franchise. Leerink is 4-5 percent above consensus for total revenue from 2017-2020. "Given the strength of Gilead's HIV portfolio, along with the optionality of its pipeline, we remain positive on the company and its stock at current levels," Porges added. The analyst cut his 2016 EPS estimate to $12.63 from $12.87 and revenue forecast to $31.566 billion from $31.950 billion. The analyst also slashed his price target to $120 from $123. At the time of writing, shares of Gilead Sciences were down 0.51 percent to $84.02.