Shares in Gilead Sciences (GILD) fell 5% in Friday’s trading after the company’s first quarter earnings results sparked a wave of downgrades from the Street. JP Morgan and Raymond James downgraded the stock from Buy to Hold on May 1, while SunTrust Robinson went one step further- taking its GILD rating from Hold to Sell due to “lack of visibility to growth.”
“All guidance has been withdrawn due in part to uncertainty around COVID-19 impact on the core business, but primarily due to unknown revenue and costs with remdesivir [Gilead’s antiviral drug for the treatment of COVID-19]. We believe investors should temper remdesivir profit expectations in near- and long-term” warned Needham analyst Alan Carr following the earnings call.
He has a hold rating on the stock, which is currently trading up over 23% year-to-date despite Friday’s pullback.
Management revealed that it expects to have 1.5 million vials of remdesivir available in May, over 5 million in October, and over 10 million by the end of the year.
At the same time the company also disclosed the extent of its remdesivir expenditure: “The potential range of this investment for 2020 is up to $1 billion” said CFO Andrew Dickinson, adding “The magnitude of this investment is dependent on the continued evolution of the data, the duration of the pandemic and other factors.”
Already, during the first quarter 2020, compared to the same period in 2019, R&D expenses and non-GAAP R&D expenses increased primarily due to Gilead’s ramp up of remdesivir, including approximately $50 million of manufacturing scale-up and clinical trial costs.
Gilead reported Q1 Non-GAAP EPS of $1.68, which beat the consensus expectations by $0.12; however, GAAP EPS of $1.22 fell short of the Street forecasts by $0.03. Revenue of $5.55B beat the Street by $110M, and represented 5.1% year-over-year growth.
In particular, HIV product sales were $4.1 billion for the first quarter 2020 compared to $3.6 billion for the same period in 2019. The increase was primarily driven by higher sales volume as a result of the continued uptake of Biktarvy and increased customer buying patterns due to the Covid-19 pandemic.
“Limited clarity on remdesivir monetization may disappoint some, though strength of core HIV franchise should continue to set up for good, low-risk cash flow sustainability” wrote RBC Capital’s Brian Abrahams. He took a more positive turn on the stock, arguing that alongside the company’s potential pipeline, the remdesivir optionality should continue to make it an attractive name and enable shares to grind higher.
Overall GILD scores a Hold consensus with a $79 average analyst price target, indicating marginal downside from the current share price. (See Gilead stock analysis on TipRanks).
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