Gilead Sciences: A Good Set Up for Earnings Beats?

Barclays analyst Geoff Meacham and team argue that sales of Gilead Sciences’ (GILD) hepatitis-C drugs could surprise to the upside:

In 2016, Street forecasts for Gilead’s hepatitis C (hep C) franchise call for a ~20% y/y decline in US sales given fewer warehoused patients, modest share/price erosion and steady TRx declines. Thus far in the launch, access to Gilead’s Sovaldi and Harvoni has largely been granted to ‘sicker’ hep C patients with fibrosis stage F2, F3 and F4, with many patients (up to 1M) with fibrosis stage F0 or F1 being denied access. In 2016, however, loosening of utilization/access restrictions from payors/PBMs, specifically around fibrosis scores could be an underappreciated volume driver and notably, more relaxed prior authorization criteria from payors such as Anthem (ANTM) and UnitedHealth (UNH) (both covered by Josh Raskin) began in late 2015. In this context, we conducted a sensitivity analysis to assess the impact of higher hep C patient volumes from broader access; a 10-25% increase in treated hep C patients could drive $1.0 to $2.5B in incremental revenue and $0.50 – $1.30 in non-GAAP EPS upside. With Gilead shares trading at 7X our 2016 adjusted EPS estimates, expectations for upside potential or growth are minimal despite what we view as a good setup for multiple beats and raises this year.