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Gilead turns bearish on declining sales of antiviral drug

gilead sciencesLast Thursday, Biopharmaceutical company Gilead Sciences (GILD) reported its fiscal 2016 first-quarter revenue and earnings that missed the analysts estimate. Following the earnings report, the shares of Gilead Sciences has so far lost about 11% to close at $87.17 on Tuesday. In spite of such a steep decline in price, due to the reasons discussed below, the share price is not expected to recover any time soon.

For the first-quarter, the company reported revenue of $7.8 billion, which was below the analysts’ estimate of $8.135 billion. Excluding items, Gilead’s first quarter earnings of $4.3 billion or $3.03 per share also missed the analysts’ estimate of $3.15 per share.

During the fiscal 2016 first quarter, the sales of antiviral product declined to $4 billion, from $4.9 billion in the similar period last year.

According to Jason Kolbert, the research analyst at Maxim, Gilead hit bull’s eye several times in the past with blockbuster drug launches. Having come so far, the company now finds it difficult to meet the expectation of investors. The company now faces serious competition from Merck for its HCV (Hepatitis C Virus) drug Harvoni. The sales in the US have fallen 53% on a y-o- y basis. Furthermore, price control in some countries like Japan is also hindering the margins. Gilead was also ordered to pay $200 million to Merck on a patent infringement case.

The market participants closely monitor Gilead for three important product developments. The first drug is Simtuzumab, which is currently being evaluated to treat NASH (fatty liver disease). The disease affects as many as 25 million Americans every year. By 2025, the market for NASH treatment is expected to touch $35 billion.

However, it should be noted that Gilead, in some other clinical tests, has suffered back to back phase 2 failures in the past. So, there is no guarantee that this will succeed.

The second drug, which is undergoing phase I study, is GS-9620. The drug is developed for the treatment of HIV. The HIV market is more than $11 billion worth. Thirdly, the company is also developing tenofovir alafenamide (TAF) based therapies for HIV. By 2017, the TAF based therapy is expected to replace Viread and Truvada, which are tenofovir disoproxil fumarate (TDF) based therapies. Gilead’s experience in developing curative treatments should not be underestimated. However, as seasoned professionals know, unless and otherwise a product succeeds in all phases of clinical trials there is little to celebrate. None of these three drugs are expected to hit the market before the second half of 2016. Thus, fundamentally, the stock would remain range bound with bearish bias in the short-term.

The stock has a major resistance at 105.50 from where the decline started this time. Major support for the stock, as indicated by the price action chart, is at 75. The RSI, which had been holding above 50 for nearly four years in the five year price chart, has fallen below the 50 level. This indicates that the share price is due for a long-term decline.

Gilead Sciences: May 4th 2016

Thus, a binary option trader should not miss the opportunity and benefit from the probable fall in the share price by purchasing a one touch put options contract. The strike price for the one touch put option contract should be around $75. Considering the current scenario, four week (expiry period) validity looks to be sufficient enough for the contract.

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