Photo Credit: Wellness GM

Gilead Sciences, Inc. (GILD) Healthcare - Biotechnology | Reports February 7, After Market Closes.

Gilead Sciences turned a fruitful fiscal 2015 into a volatile 2016 after a string of weak reports took the stock down 15% from a year earlier. A considerable portion of the draw-down accrued from weak sales of its flagship Hep C products; Harvoni, Sovaldi and the recently launched Epculsa. Analysts expect the combination of flat drug sales and ongoing speculation about the Trump administration to take a toll on fourth quarter results.

In fact, estimates activity edged down considerably in the past 3 months, often a precursor to a weak report. Analysts at Estimize expect earnings of $2.50 per share, about 22% lower than the same period last year. That estimate dropped by 11% after Gilead’s mixed third quarter results. Revenue for the period is forecasted to drop 15% to $7.21 billion, marking three consecutive quarters of negative growth. 

Tomorrow’s report once again highlights the performance of new HIV and HBV products but above all else, the HCV franchise will draw most of the attention. In the third quarter sales of Harvoni, Sovaldi and Epclusa fell to $3.3 billion compared to $4.8 billion from a year earlier. Management blamed the decline in Harvoni and Sovaldi sales on the introduction of Epclusa in key U.S. and European market but the more likely culprit is Merck’s entry into the Hep C market. Merck’s aggressive pricing strategy stole a considerable amount of the Hep C market that Gilead once cornered.

Offsetting some of these losses was a strong performance from HIV and other antiviral products. Sales from the two jumped to $3.5 billion from $2.9 billion a year primarily due to an uptake in tenofovir alafenamide based products. This trend should provide some support in the fourth quarter as well. Gilead also recently launched its first HBV drug, Vemlidy, which should start to contribute meaningfully to the top line.

Besides the question of drug sales, Gilead face the threat that President Trump decimates drug pricing in the biotech and pharmaceutical industry. Any indication that financial performance will be hurt in fiscal 2017 from the new administration could ignite a sharp sell off tomorrow afternoon.