Leerink Swann analyst Geoffrey Porges is "tired of waiting" for Gilead Sciences (GILD) to acknowledge slowing hepatitis C patient volume and competition from rivals AbbVie and Merck.
Porges downgraded Gilead stock to a market perform rating from outperform and cut his price target to 94 from 112. Long cautious, Porges is now bearish on the "flash-in-the-pan" hepatitis C market. He cut his hepatitis C sales expectations by 17% in 2017 and 20%-25% after.
"Our existing HCV estimates were already materially below (the) consensus," he wrote in a research report. "We now think that HCV revenues will decline faster and farther than we previously estimated, and than (the) consensus currently forecasts."
It briefly had a stranglehold on the market, but Gilead now faces competition from AbbVie (ABBV), which has sold Viekira Pak since April. Merck (MRK) shook up the market even more when it started selling its own medication well below the high costs of Gilead and AbbVie earlier this year.
Gilead caused a stir in the biotech world when it released its first hepatitis C drug, Sovaldi, in late 2013. The drug cost $84,000, or $1,000 a pill for a 12-week regimen but offered a near guarantee that patients who used the drug would be cured. Gilead saw triple-digit jumps in profits throughout 2014 as a result.
In late 2014, Gilead released Harvoni, its follow-on to Sovaldi that cost even more, beyond $90,000. Profits continued to grow at a double-digit pace throughout 2015. That slowed to a single-digit increase in the first quarter of this year and a 2% drop in profits in the second quarter. Shares of the company now trade below 80 after reaching a peak of more than 123 in mid-2015.
AbbVie started selling Viekira Pak for around the same price as Sovaldi, but Merck's Zepatier goes for much less, at $54,600.
On the stock market today, Gilead stock dipped 1.7%, to 79.25, hitting its lowest point in a week and falling below the key 50-day moving average support line after five straight down days.
IBD'S TAKE: Gilead stock has a Composite Rating of 62, meaning it underperforms 38% of all stocks in terms of key growth metrics. IBD's 421-company Medical-Biomed/Biotech industry group is on a recent hot streak amid the potential for M&A by Big Pharma.
The hepatitis C market in the U.S. appears to be in steady, secular decline, Porges said. Despite a large pool of treatable patients, the U.S. and Europe will likely only see 60,000 to 70,000 patients apiece annually in the long-term vs. a record high 270,000 in 2015.
Through 2020, Porges forecasts 15% patient erosion per year, 5% erosion of revenue per unit and a 7% dip in treatment erosion. He also expects Gilead to lose 10% market share and sees hepatitis C sales toppling nearly 90% by 2020 to $1.7 billion from peak $13 billion in sales in 2015.
Gilead should have seen it coming, Porges said. But, he said: "Gilead has been surprised by the slowing in patient volume around the world, as well as price erosion in the U.S. and other developed markets."
"We fear that the company has become paralyzed by its size and good fortune, and the uncertainty about its outlook and its capabilities," he wrote. Gilead appears unwilling to match the market's price for high-quality assets or to invest in a pipeline for its future.
Outside hepatitis C, Porges has kinder words for Gilead's HIV business. But that is contingent upon the success of its development of bictegravir. He currently models $3.4 billion in sales for a bictegravir combination in 2020.
Gilead also has a rheumatoid arthritis treatment, filgotinib, for which Porges sees a 65% probability of success, up from 35%.
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