UPDATED: Analysts press for M&A as Gilead’s high-flying hep C franchise comes down to earth

Amid intense hep C competition, Gilead Sciences reported plummeting second-quarter sales for the megablockbuster franchise and slashed its full-year revenue forecast. The results are likely to put even more pressure on Gilead to make a game-changing deal.

Sales for Gilead’s hep C drugs fell a whopping 33% to $2.3 billion in the U.S. and 32% to $775 million in Europe. The unexpected result prompted Gilead to cut 2016 sales guidance to between $29.5 billion and $30.5 billion, down from previous expectations of $30 billion to $31 billion.

As executives explained on a conference call with analysts Monday, the changes reflect “current trends in payer and patient flow dynamics” for hep C. The company is reaping lower revenue per patient and losing market share as fewer hep C patients start therapy.

After the results, Leerink trimmed its revenue forecast for Gilead in 2016 by 3% to 5% and reduced its earnings projection by 6%, analyst Geoffrey Porges said in a note, though the figures remain above consensus. During the call, “management freely admitted their inability to gauge how long their HCV revenue might slide,” Porges said.

Analyst Mark Schoenebaum at Evercore ISI said in a note he’s observed a “gradual decline with stabilization, but no floor yet,” for Gilead’s hep C sales.

Predictably, questions about dealmaking followed the numbers announcement. Analysts and investors have been pressuring Gilead executives about M&A over the past few quarters, and this time around was no different. Responding to questions on the Q2 earnings call, CEO John Milligan said the company "has been very open" about its desire to do deals, "especially deals of a certain size."

Several analysts noted that Gilead plans to ratchet down on its share buybacks--thereby leaving more cash free for dealmaking. The company is said to be in the hunt for Medivation, the oncology-focused biotech that's now in play, with a host of Big Pharma and Big Biotech in pursuit. And Guggenheim analysts last week laid out a few buyout prospects, including Syntax Pharmaceuticals, Corvus Pharmaceuticals and Tesaro, which recently put up impressive data on its cancer-fighting PARP inhibitor niraparib.

The deal talk has heated up in recent quarters as concerns arose about Gilead's flagging growth, and the latest numbers only add to those worries. After revving up billions in sales from its first-to-market next-gen hepatitis C drugs Sovaldi and Harvoni, Gilead has suffered from good old fashioned competition as first AbbVie and then Merck & Co. launched competing cocktails. Bristol-Myers Squibb's Daklinza, used in combination with Sovaldi, has also taken its toll. In total, Gilead's hep C sales fell to $4 billion in the second quarter from last year’s $4.9 billion, “primarily due to a decline in sales” for the company’s superstar hep C combo Harvoni, according to the earnings release.

Unsurprisingly, one of the company's goals is moving beyond its staple antivirals--HIV in addition to hepatitis C--into other fields. Milligan said he's “very interested” in adding to Gilead's pipeline in the "non-antiviral area," and he hopes to end 2016 "with a more complete story of internal and external programs."

One bright spot in the earnings report came from Gilead's antiviral business outside of hep C: The company grew HIV and “other” antiviral sales to $3.1 billion versus last year’s $2.7 billion thanks to Genvoya, Descovy and Odefsey sales increases.

During the quarter, Gilead earned FDA approval for the first all-genotype hep C med, Epclusa, that it priced at a discount to its predecessors. Epclusa’s list price is $74,760 for a 12-week regimen, according to reports, less than Sovaldi or Harvoni, which ring in at $84,000 and $94,500 before discounts.

- here's the release

Related Articles:
Gilead's hep C juggernaut continues in Q4, even as U.S. sales fall
Gilead's hep C slowdown cues Q1 miss on sales, profit
Gilead notches FDA approval for first all-genotype hep C med, Epclusa