Analysts Focus On Gilead's Late-Stage Data Readouts Following Mixed Q4

Gilead Sciences, Inc. GILD, which focuses on antiviral drugs, reported below-consensus fourth-quarter earnings per share Monday, sending its shares down. 

The Analysts

Raymond James analyst Steven Seedhouse reiterated a Strong Buy rating on the shares of Gilead and trimmed the price target from $92 to $90.

Bank of America Merrill Lynch analyst Ying Huang reiterated a Neutral rating and upped the price target from $73 to $76.

Wells Fargo Securities analyst Jim Birchenough maintained an Overweight rating and reduced the price target from $95 to $89.

Morgan Stanley's Matthew Harrison maintained an Equal-weight rating and nudged the price target down from $84 to $83.

Citigroup analyst Robyn Karnauskas reiterated a Buy rating and lowered the price target from $106 to $100.

Raymond James: Near-Term Focus On Phase 3 Readouts

Gilead's Q4 results, including above-consensus sales of Biktarvy and Truvada, were predictable, but the product revenue guidance for 2019, which indicates a year-over-year decline at the midpoint, was "confusing," Seedhouse said in a Tuesday note. 

The conservative guidance may have to do with the company's intention of not allowing new CEO Daniel O'Day to miss on guidance, the analyst said. 

The near-term focus for the pharma stock will be on five Phase 3 readouts on NASH, filgotinib and Descovy, Seedhouse said. 

"Gilead is communicating quite the long term (five-year) roadmap for selonsertib, a drug most expect to fail." 

Raymond James is above consensus, assuming a 60-percent probability of success for the pipeline candidate for treating NASH fibrosis.

If the NASH candidate works, Seedhouse said it expects the shares to get re-rated, with the downside to the stock being limited and temporary.  

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BofA Looks To M&A, New CEO's Strategy

Gilead's Q4 revenue beat was orchestrated by its HIV franchise and a lack of generic competition for Letairis, BofA's Huang said. EPS fell short of expectations due to higher operating expenditures, the analyst said. 

The Phase 3 results for NASH candidate selonsertib in F3 and F4 NASH patients, due in Q1 and Q2, respectively, should be taken with a grain of salt due to the small size of the trial and the lack of a placebo, Huang said. 

BofA noted that Gilead is focused on M&A and partnerships, and said it awaits a strategy from the new CEO, who assumes office March 1. 

Wells Fargo: Pipeline Success, Aggressive Product Development Are Key

With potential headwinds to its base HIV/HCV business, Gilead's pipeline success and aggressive business development are key, Birchenough said in a note. 

Gilead is due to release Phase 3 data from two separate studies, STELLAR 3 and STELLAR 4 in NASH with F3 and F4 fibrosis in the first half of the year. The company suggested that filing on a single study's success would have to be discussed with FDA, the analyst said.

Wells Fargo views the risk-reward as favorable ahead of the Phase 3 NASH data.

Morgan Stanley: Risk-Reward Skew Positive In Near-Term

Investors are likely to be disappointed by Gilead's flat revenue guidance, poor EPS performance and the significant ramp in 2019 SG&A, Morgan Stanley's Harrison said.

The Trump administration's quest to halt HIV transmission by 2030, as reported by Washington Post, is likely to improve investor perception of the longer-term health of Gilead's HIV portfolio, especially PrEP (prophylaxis treatment), the analyst said. 

"With investors assigning little to no credit for NASH and modest value for filgotinib in RA, we believe the risk-reward for GILD is skewed to the positive in the near-term." 

The firm, however, remains on the sidelines given its lack of conviction in the NASH market opportunity, but said it expects the shares to rally on positive data.

Citi: Transformational Deals Needed To Beat Generics

Gilead's 2019 guidance, which assumes double-digit year-over-year growth for the HIV portfolio and HCV stabilization, could be the base for growth, Citi's Karnauskas said.

The 18-percent growth in HIV portfolio in Q4 was due to strong demand for Truvada, with more than 200,000 individuals on PrEP, the analyst added.

The analyst views cell therapies to be a growth area, with Yescarta sales expected to double in 2019.

Citi sees the potential for M&A, with late-stage assets boosting the topline.

"In our view, more advanced assets or more transformational deals will be needed for growth to help offset generic competition in base biz," Karnauskas said. 

The Price Action

Gilead shares were down 3.5 percent at $67.60 at the time of publication Tuesday. 

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