William Blair Sets Bullish Expectations On Two Biotech Giants: Gilead Sciences, Inc. (GILD) and Exelixis, Inc. (EXEL)

As he previews fourth-quarter results for these two biotech giants, William Blair analyst John Sonnier is setting positive expectations on Gilead Sciences, Inc. (NASDAQ:GILD) and Exelixis, Inc. (NASDAQ:EXEL). Though the analyst slightly reduces estimates for Gilead’s HCV franchise in the years ahead, he cheers the HIV franchise, believing investors should expect outperformance. Meanwhile, while Sonnier also decreases some estimates for Exelixis, he sings the praises of its cabozantinib franchise.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst John Sonnier is ranked #424 out of 4,372 analysts. Sonnier has a 52% success rate and gains 15.2% in his yearly returns. When recommending GILD, Sonnier earns 3.8% in average profits on the stock. When suggesting EXEL, Sonnier garners 129.8%.

Let’s dive in:

Gilead Will Outperform the Market

Ahead of Gilead’s expected fourth-quarter print due February 7th after the close, Sonnier offers a bullish take on the biotech giant’s prospects, taking a close look into both its HCV as well as HIV franchises.

As such, the analyst views the giant’s outlook favorably and reiterates an Outperform rating on shares of GILD without listing a price target.

Regarding the HCV franchise, Sonnier highlights, “In the United States, both Harvoni and Sovaldi continue to experience a quarter-to-quarter decrease in total prescriptions. However, the effect will be partly offset by the recent launch of Epclusa. Going forward, we see continued pricing pressure from new market entrants such as Merck […] and new patient-start headwinds to affect the HCV franchise in 2017. In terms of patient volume, we believe the Veterans Affairs (VA) system could provide a patient flow tailwind in fiscal 2017 […]”

For the fourth quarter, the analyst lifts HCV revenue from $3.3 billion to $3.4 billion while tweaking full-year revenues up from $14.9 billion to $15.0 billion in 2016. Yet, the analyst sees some declines in sight, reducing down from $13.1 billion to $12.9 billion in 2017, down from $13.0 billion to $12.1 billion in 2018, and down from $12.9 billion to $11.6 billion in 2019.

Conversely, “Based on prescription trends, we are increasing our projections for newer TAF-based HIV regimens […] as a result of faster-than-expected conversion from older HIV regimens […] we continue to observe a strong utility in Truvada in the prophylaxis setting, where Descovy has not yet been approved. We are also reducing our future estimates for Atripla given Gilead’s recent de-emphasis on the product. Over the longer term, we anticipate generic Viread-containing regimens to affect Gilead’s HIV franchise starting in 2018,” Sonnier contends.

For the print, the analyst is more bullish on HIV revenue than before, raising the estimate from $2.89 billion to $3.02 billion while pushing full-year revenues up from $11.5 billion to $11.6 billion in 2016 and up from $11.6 billion to $11.9 billion in 2017.

Moving ahead, the analyst recognizes possibilities for robust growth, especially in regards to GILD’s HIV franchise, and predicts the giant will outclass the market.

TipRanks analytics exhibits GILD as a Buy. Out of 15 analysts polled by TipRanks in the last 3 months, 11 are bullish on Gilead stock and 4 remain sidelined. With a return potential of nearly 32%, the stock’s consensus target price stands at $94.83.

Exelixis: Cabometyx and Cometriq are One-Two Punch in Driving Value

When considering a confident forecast for Exelixis, for Sonnier, much of the biotech giant’s success rests on two powerful drug assets: Cabometyx and Cometriq. Therefore, previewing an anticipated fourth-quarter earnings release March 6th, even with some slight downward adjustments in estimates, the analyst reiterates an Outperform rating on EXEL without suggesting a price target.

For fourth-quarter results, the analyst looks for the 38% quarter-to-quarter rise in prescription trends of Cabometyx to affect sales, and therefore tweaks domestic sales projections from $53 million to $45 million. Subsequently, the analyst reigns in EPS expectations by $0.03 from EPS of $0.02 to a loss of $0.01. For full year 2016 EPS, the analyst also pulls the estimate down by $0.02 to a loss of $0.48.

Yet, Sonnier believes EXEL’s pipeline is compelling, which is why he asserts his positive stance. The analyst explains, “The cabozantinib franchise […] has become the key driver of Exelixis’s value. The drug is approved in two indications and is positioned to have a Phase III readout in second-line hepatocellular carcinoma in 2017. Given the scarcity of active, differentiated assets in the biopharmaceutical industry, we see the cabozantinib franchise as extremely valuable. We believe the recent launch of Cabometyx in second-line renal cell carcinoma will contribute to significant revenues and create material shareholder returns. Moreover, ongoing clinical and regulatory initiatives could materially increase the total addressable market for cabozantinib.”

Additionally, “Outside the cabozantinib franchise, Cotellic is a partnered compound with Roche and is approved in metastatic melanoma. Current research initiatives of Cotellic include a Phase III trial in colorectal cancer in combination with Roche’s PD-L1 antibody Tecentriq and a Phase II study in combination with paclitaxel in triple-negative breast cancer,” Sonnier surmises.

TipRanks analytics demonstrates EXEL as a Strong Buy. Based on 3 analysts polled by TipRanks in the last 3 months, all 3 rate a Buy on EXEL stock. The 12-month average price target stands at $18.50.

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