Gilead signals major hepatitis C trouble ahead with sales guidance tweak

Gilead's 2018 hep C sales haul could shrink to half the company's 2017 tally, some analysts predict.

Gilead’s doing its best to move away from hep C. But as usual, that topic dominated the discussion on Thursday’s third-quarter earnings call—and it wasn’t a positive discussion.

The big biotech’s hep C lineup generated $2 billion for the quarter, just $300 million shy of Wall Street’s projections. But executives “many times” cautioned investors on the call that AbbVie’s new launch—the pan-genotypic Mavyret—would have a “big impact” on fourth-quarter numbers, with pricing heading south by about 15% to 30%, Jefferies analyst Michael Yee wrote to clients.

On that note, the company lowered the high end of its guidance to $9 billion, just one quarter after moving it from $9 billion up to $9.5 billion. And while Gilead “steered clear” of any fourth-quarter or 2018 hep C projections, as Mizuho analyst Salim Syed put it, it wasn’t difficult for analysts to come up with the numbers themselves based on the tweak.

According to Evercore ISI analyst Umer Raffat’s math, the high end of guidance implies a $1.36 billion fourth quarter—and at that rate, the hep C lineup would rake in just $5.4 billion next year. To come to his actual estimate, Raffat assumed a 20% year-over-year decline on that number, coming up with $4.45 billion—far below consensus, which sits at $6.9 billion, he noted.

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“I see a wholesale reset of 2018 and 2019 expectations based on today’s results,” he wrote to clients, adding that his new earnings per share estimates “are 12-22% below published consensus for next couple of years.”

Syed encouraged his own clients to “recall as well that HCV is roughly split 50/50 public/private payer,” meaning that when private pay kicks in on the first day of 2018, it will “only amplify the decline of GILD HCV franchise.”

“Bottom line here is HCV sales can essentially get cut in half (perhaps more) next year,” he said.

Gilead’s hep C meds have had it rough over the last several quarters as new rivals have jumped in to steal share and drive prices down. They’ve also been victims of their own success, curing a large swath of the treatable population.

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And while the company has known for a while that it would need buys to spur growth, it only recently inked a major pact after years of sitting on a stockpile of cash. That deal, a $12 billion play, will bring it CAR-T med Yescarta, which won FDA approval last week.

More M&A action could soon be on the way, though, according to executives. “Gilead noted that it is in a ‘constant state of valuation and opportunities’ and that it is ‘very, very active’ and ‘constantly evaluating stuff’ and expect this to be ‘quite active in the coming years,” Syed wrote.

Meanwhile, the company’s HIV drugs filled the revenue hole left by the hep C miss, bringing the quarter’s top-line tally to $6.5 billion to register a $150 million beat. Earnings per share also surprised the Street, checking in at $2.27 to top projections by 15 cents.