Although biotech major Gilead Sciences, Inc, had some bad news from an ongoing clinical trial this week, the company still remains relatively popular among Wall Street analysts. Recent research reports published by analysts at RBC and Morgan Stanley this week rate the stock Outperform and Equal-weight, respectively, and argue that there is a good chance of notable revenue growth from a pick up in sales of the company’s HCV treatments due to new insurance guidelines.

Micheal Roden and team at UBS rate Gilead as a Buy with a 12-month price target of $130.

Gilead Sciences terminates Phase II simtuzumab clinical trial

On Wednesday, Gilead announced the termination of the Phase II trial of its antifibrotic antibody simtuzumab in IPF because of lack of efficacy.

In a January 5th research report, Jefferies analysts Brian Abrahams, M.D. and Gregory Renza, M.D. highlight that while there was an upside NT catalyst if the data were positive, expectations were generally very low, and therefore the news is of minimal impact for the company. Although the cancellation of the clinical trial obviously reflects the poor performance of the drug so far, Gilead did announce that the PSC study and the NASH studies will continue after their upcoming interim “peeks”, which the analysts see as an incremental positive.

The IPF study was truly a long shot, and expectations were very low. Keep in mind that data from this study were due to be reported in the first half of 2016 and that the 500-patient study was testing the agent vs. placebo in patientts with IPF. There was some rationale for the trial on a scientific basis given high LOXL2 expression seen in such patients and pilot study data that suggested moving into a Phase IIb trial, but IPF is a very difficult condition, and concurrent use of recently-approved agents Esbriet and Ofev made it even more difficult to prove a benefit over standard of care.

Abrahams and Renza emphasize that they did not have any probability-weighted assumptions for simtuzumab in IPF in their valuation model for Gilead Sciences. The Jefferies team currently rates Gilead as a Hold with a price target of $115.

Gilead Sciences

Changes by health insurance firms is good news for Gilead Sciences

As RBC analysts Michael J. Yee and Judy Liu point out in their January 5th report, both United Healthcare and Anthem have recently liberalized their approval requirements for Harvoni/Sovaldi by removing fibrosis restrictions. They note that the large majority of plans do not now not include restrictions on use with fibrosis, which is “a potential tailwind for patient volumes in 2016 which could reduce some investor concern about 2016 guidance.”

The analysts highlight that while CVS/Caremark, Cigna,Express Scripts and Aetna did not update their policies on Harvoni/Sovaldi approval, but all these firms already had broader criteria relating to fibrosis.

Yee and Liu continue and provide more insight into the potential scale of the revenue boost to Gilead: “To be clear, 50% of scripts written are for healthier pts but only a fraction of those get approved and disbursed. Thus most of GILD’s revenues are all from sicker pts and opening up the market to healthier pts could theoretically open GILD’s revenue opportunity by 50% or more.”