As Gilead's Outlook Dims, Argus Downgrades

Biotech stocks are given to high volatility, given several risks confronting the sector, namely FDA decisions, clinical trial results, competitive pressure and drugs falling off patents. Gilead Sciences, Inc. GILD — which has made a name for itself in the HIV and hepatitis C treatment spaces —has risks surrounding its outlook, according to Argus. 

The Analyst 

Argus analyst David Toung issued a downgrade, lowering the firm's rating on Gilead's shares from Buy to Hold.

The Thesis

Sales of Gilead's hepatitis C products are deteriorating faster than anticipated, Toung said in a Monday note. (See Toung's track record here.)

Fewer patient starts and the competitive impact from the launch of a pan-genotype hepatitis C drug by AbbVie Inc ABBV have created headwinds for sales of Epclusa, Toung said.

The analyst also projects an accelerated decline in Harvoni and Sovaldi sales. 

Gilead's HIV products are plateauing, Toung said. Hepatitis C and HIV products account for 68 percent of Gilead's sales, according to Argus. 

"More than two-thirds of Gilead's revenue is on a flat-to-down trajectory," Toung said. 

See also: Attention Biotech Investors: Here Are November PDUFA Catalysts On The Horizon

Gilead faces operating margin pressure in 2018 from declining revenues, as well as higher R&D expenses to support development of the CAR-T program, acquired as part of Gilead's purchase of Kite Pharma Inc KITE, according to Argus. 

Argus lowered its adjusted earnings per share estimates for Gilead in 2017 from $8.60 to $8.50 and from $7.50 to $7 in 2018.

The Price Action

Gilead was trading down about 1 percent at $73.05 at the time of publication. 

Gilead Sciences shares have been up 3.49 percent since the start of the third quarter, outperforming the iShares NASDAQ Biotechnology Index (ETF) IBB, which has been up 0.68 percent.

For the year-to-date period, Gilead has gained only 2.29 percent compared to the iShares NASDAQ Biotechnology Index's 17.64 percent rally

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