Gilead Sciences' Sales Forecast Confirms Concerns

| About: Gilead Sciences, (GILD)


Gilead Sciences topped some estimates on its Q2 earnings, but sales declines put a damper on the stock's performance.

With consecutive quarters of bad news, poor trends are forming.

Over-reliance on the Hepatitis C market, and burgeoning competition from Merck are souring 2016 prospects for Gilead.

Diversification through acquisitions seems like the next likely step considering the firm's massive cash position.

Big Bummer for Gilead

Gilead Sciences (NASDAQ:GILD) has taken a hit after showing a bigger than expected dip in sales forecasts. With a 22% drop in sales year over year for Q2, it puts a real damper on its earnings beat. It's worth noting, however, that while profit surprised, its $3.08 a share was below last year's $3.15 in Q2. I've written many times on Gilead Sciences. It's one of those companies that has displayed great returns for shareholders, but is facing some bad momentum as of late. I'm less than enthusiastic about the stock's prospects for the rest of the year. I had been a little hopeful for Q2 results giving a short-term boost. Alas, that didn't pan out.

An Unfortunate Habit

Gilead has two strikes in a row at this point. Q1 results were a bummer compared to last year, but things happen. Now Q2 shows that it was the start of a less than desirable trend and the stock is showing it.

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It's not a good sign when the #1 product on Gilead's lineup is losing sales. I mean, its entire gravy train stems from Hepatitis C drugs. It doesn't sound like things can get better this year. We've seen some growth in HIV sales going from $2.7 billion in Q2'15 to $3.1 billion this quarter. This doesn't come close to making up for $900 million decrease to $4 billion in HCV related drug sales.

Products in the pipeline are a good thing, but I've written before about how a lot of its developments are continued moves in the Hep C spectrum. Epclusa is basically just a mix/match of its products in a more simplified dosage. Other than more convenience, I don't see how it can drastically change trends. There is promise in further HIV growth as it has European approval for marketing of Odefsey, but will this potential upside offset the clear downside occurring in Hep C sales? The declines are unlikely to stop. Merck (NYSE:MRK) is now a direct competitor in the Hepatitis C market, and its product appears to be a good one.

Can it kick the habit?

It's not like the company is doomed or anything. Gilead has a massive cash position at over $24 billion. What's being seen lately is the financial result of increased competition and lacking of a new catalyst for continued expansion. With so much capital, the firm has the means to engage in some M&A. There has been some word on an interest in oncology assets. The future will be all about the quality of assets purchased. Some rumors on Medivation (NASDAQ:MDVN) seem interesting. Until some moves in non-Hep C directions start occurring, there doesn't seem to be a lot of excitement in Gilead's future.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.