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Why Is Gilead (GILD) Down 7.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Gilead Sciences (GILD). Shares have lost about 7.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Gilead due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Gilead’s Q1 Earnings Top, Sales Beat

Gilead delivered earnings of $1.68 per share in the first quarter, increasing a cent from the year-ago quarter’s reported figure and beating the Zacks Consensus Estimate of $1.58.

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Total revenues of $5.55 billion beat the Zacks Consensus Estimate of $5.41 billion and grew 5.1% year over year.

HIV Franchise Maintains Momentum

Product sales came in at $5.5 billion, up from $5.2 billion. Sales in the reported quarter benefited from an estimated $200 million in revenues related to increased customer buying patterns and patient prescription trends, primarily in the United States, due to the coronavirus (COVID-19) pandemic.

HIV product sales increased 14.3% year over year to $4.6 billion, driven by higher sales volume from the continued uptake of Biktarvy, and increased customer buying patterns and patient prescription trends due to the pandemic. Sales of Biktarvy were $1.7 billion, up from $793 million in the year-ago quarter.
Genvoya generated sales of $824 million, down from $1.0 billion in the year-ago quarter. Descovy recorded sales of $458 million, up from $342 million in the year-earlier period, while Odefsey sales were $409 million, up from $397 million a year ago.

HCV product sales declined 7.7% to $729 million, due to lower average net selling price.

CAR-T therapy, Yescarta (axicabtageneciloleucel), generated $140 million in sales, up from $96 million a year ago, driven by its continued expansion in Europe. Sales also grew from $122 million in the previous quarter.

Sales from other products — chronic hepatitis B (HBV) drugs, cardiovascular, oncology and other categories (Vemlidy, Viread, Letairis, Ranexa, Zydelig and AmBisome) — were $464 million, which decreased from $696 million in the year-ago quarter due to declines in Ranexa and Letairis sales after generic entries in 2019.

Adjusted product gross margin was 87.1%, relatively flat with 87% in the year-ago period. Research & development (R&D) expenses came in at $1.10 billion, up from $1.06 billion in the year-ago quarter. Selling, general and administrative (SG&A) expenses increased to $1.08 billion from $1.03 million in the year-ago quarter.

2020 Guidance

Even though the first-quarter results weren’t affected, Gilead anticipates COVID-19 impacts on its business in the short term as fewer patients are accessing treatments for conditions like HIV and HCV. However, the magnitude of the anticipated impact is uncertain. Moreover, Gilead began advancing remdesivir and rapidly expanding its manufacturing production. The company expects to update its outlook on the second-quarter 2020 earnings call.

COVID-19 Update

Gilead initiated two open-label phase III studies in February (SIMPLE studies) on experimental candidate, remdesivir, for COVID-19. Additional global studies are ongoing, including a global, placebo-controlled trial being led by the U.S. National Institute of Allergy and Infectious Diseases (NIAID) as well as more recently initiated studies through the World Health Organization and INSERM in France.

NIAID recently announced that the preliminary results from their trial met the primary endpoint and remdesivir was found to shorten the time to recovery for hospitalized patients with COVID-19 when compared with a placebo. Gilead also announced top-line results from the first SIMPLE study evaluating 5-day and 10-day dosing durations of remdesivir in patients with severe COVID-19 disease. The study demonstrated similar clinical improvements in patients with severe symptoms of COVID-19, regardless of whether they received five or ten days of treatment.

Other Updates

Gilead acquired Forty Seven for approximately $4.9 billion, adding magrolimab, which is currently in phase Ib/II studies for several hematological cancers, to its pipeline.

Kite achieved two key regulatory milestones for KTE-X19, an investigational cell therapy for the treatment of relapsed or refractory mantle cell lymphoma. In Europe, the marketing authorization application for KTE-X19 was fully validated and is now under review by the European Medicines Agency. In the United States, the FDA accepted the Biologics License Application for the same and granted Priority Review designation.

In March, the FDA approved Epclusa for children 6 years and older (or weighing at least 17 kg) with HCV. Gilead is looking to expand remdesivir’s manufacturing production. The company expects more than 140,000 treatment courses of remdesivir to be manufactured by the end of May 2020.


How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Gilead has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Gilead has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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