Gilead's hepatitis C franchise breaks out of a rut, but the M&A drumbeat continues

Gilead Sciences made an unexpected turnabout in the second quarter, with hepatitis C sales finding firmer ground after a long slog through quarter after quarter of slough.

The hep C franchise, which recently won a new addition in Vosevi, came in at $2.86 billion, beating analysts' consensus expectations by $567 million, according to a note from Jefferies. HIV drugs also delivered strong sales of $3.57 billion.

That doesn't mean the M&A pressure is lapsing, though Gilead executives were likely relieved to report those strong sales late Wednesday. In fact, at least one analyst pointed out that the cash boost gives Gilead even more firepower to make a deal.

In addition to beating expectations in hep C and HIV, Gilead also surpassed predictions for total revenue and earnings per share. Non-GAAP EPS of $2.56 beat consensus estimates by 19%, according to Jefferies. With those numbers, Gilead raised its revenue guidance for the year to $24-$25.5 billion, up from previous guidance of $22.5-$24.5 billion.

RELATED: With hep C sales crashing, Gilead CEO Milligan concedes M&A is vital for growth

The company narrowly missed consensus estimates for its gross margin, according to Jefferies. But, writing on the results, analysts with the firm said the “more important metric is operating cash flow” of $3.5 billion for the period, a sequential increase from $2.9 billion in the first quarter.

According to the analysts, that number “indicates that Gilead is continuing to generate dry powder for a potential deal.”

And that’s what so many analysts have been calling for at the California biotech since new competition in hep C has taken a damaging toll on the company’s revenues and share prices. For several quarters in a row, that’s been a central theme on conference calls as Gilead executives responded that they continue to scout their options.

Earlier this year, CEO John Milligan conceded a deal would be needed in order to grow. While Gilead did post Street-beating revenue in the most recent quarter, sales were still down 8% from the same period last year, demonstrating the need for new offerings at the company.

RELATED: With $39B in cash and biosim threats looming, could Amgen use a deal? Executives say not yet

Even as calls for M&A heighten at Gilead, several biopharma executives have said they’re holding off on dealmaking until they can get clarity on U.S. tax reform. The sector’s deals have been worth just $49.3 billion in the first half of the year, according to recent research from EP Vantage. That number is lower than in the same period dating back to 2013. Many market watchers blame uncertainty in Washington, D.C., for the slowdown.

Meanwhile, following Amgen’s earnings announcement Tuesday, several analysts started speculating about potential M&A at that biotech.

“Perhaps instead of Gilead leading significant M&A, the ball might be in Amgen’s court?” Leerink Partners analyst Geoffrey Porges questioned in a note, noting the $39 billion in cash that the company is holding.