Shares of Gilead Sciences (GILD) are slipping after the company's STELLAR4 trial in nonalcoholic steatohepatitis, or NASH, failed to meet its primary endpoint. Following the news, both Wells Fargo analyst Jim Birchenough and Citi analyst Robyn Karnauskas downgraded the stock to Neutral-equivalent ratings. Remaining bullish on the stock, their peer at JPMorgan pointed out that the trial’s failure was "disappointing, albeit not entirely surprising."
PHASE 3 TRIAL FAILS: Gilead Sciences announced on Monday that its STELLAR-4, a Phase 3, randomized, double-blind, placebo-controlled study evaluating the safety and efficacy of selonsertib - an investigational, once-daily, oral inhibitor of apoptosis signal-regulating kinase 1 - in patients with compensated cirrhosis due to NASH, did not meet the pre-specified week 48 primary endpoint of a greater than or equal to 1-stage histologic improvement in fibrosis without worsening of NASH. In the study of 877 enrolled patients who received study drug, 14.4% of patients treated with selonsertib 18 mg and 12.5% of patients treated with selonsertib 6 mg achieved a greater than or equal to 1-stage improvement in fibrosis according to the NASH Clinical Research Network classification without worsening of NASH after 48 weeks of treatment, compared with 12.8% of patients who received placebo. Selonsertib was generally well-tolerated and safety results were consistent with prior studies.
MOVING TO THE SIDELINES: Following the failure of the STELLAR4 trial, Wells Fargo analyst Jim Birchenough downgraded Gilead Sciences to Market Perform from Outperform and lowered his price target on the shares to $68 from $89. While the analyst sees limited downside from current levels, he sees limited upside as well and expects shares to be range bound pending better visibility on current sales trends in HCV and HIV, timelines for JAK inhibitor filgotinib and strategic options to reaccelerate growth from current trough earnings levels. With no difference between selonsertib and placebo in reversing liver fibrosis in STELLAR4, Birchenough sees little likelihood of STELLAR3 success in NASH with F3 fibrosis, with uncertainty on whether a single trial in a lower risk patient group would be approvable. Meanwhile, Citi’s Karnauskas also downgraded Gilead Sciences to Neutral from Buy and lowered her price target on the shares to $75 from $100.
MISS 'LARGELY EXPECTED': Also commenting on the news, Piper Jaffray analyst Tyler Van Buren told investors that while the STELLAR4 failed trial to meet its primary endpoint was "disappointing," it was also "largely expected." Nonetheless, the readout in STELLAR3 expected next quarter could still show a larger treatment benefit for selonsertib, he added. While he is not modeling any potential NASH impact currently, Van Buren sees Gilead's potential success in NASH in the future leading to potential upside in its stock price. He reiterated a Neutral rating and $75 price target on the shares. While acknowledging that the failure of Gilead’s Phase 3 STELLAR4 study with selonsertib in NASH is disappointing, JPMorgan analyst Cory Kasimov said it was "not entirely surprising." However, the analyst believes Gilead shares could be off as much as 3%-5% on the failed trial "given the hit on sentiment and removal of pipeline optionality." Further, the negative development "may leave some with a bad taste" given management's positive tone on this data as recently as last week, Kasimov contended, adding that the NASH miss brings an increasing amount of pressure on the incoming CEO. The analyst reiterated an Overweight rating on Gilead’s stock. Also pointing out that expectations into the data were very low, Jefferies analyst Michael Yee told investors that he expects Gilead’s shares to be down "slightly" on the Phase 3 failure in NASH but then "bounce as this is not the primary thesis." NASH represented a "call option, he contended, adding that he does not expect the next selonsertib readout to work either. Yee reiterated a Buy rating on the stock.
VIKING COULD EMERGE AS 'PRIME' TARGET: Monday’s clinical setback "will likely reinvigorate" Gilead's willingness to augment its NASH pipeline, given the company’s leadership position in liver diseases and the significant resources that it has devoted in the development of nonalcoholic steatohepatitis, William Blair analyst Andy Hsieh told investors in a research note of his own. The analyst believes Gilead's Phase 3 failure could have a positive read-through to Viking Therapeutics (VKTX), which he notes has one of the only two beta-selective thyroid hormone receptor agonists in clinical testing. Viking's VK2809 demonstrated highly competitive data in reducing liver fat while maintaining a benign tolerability profile, Hsieh noted. Pending positive results from the company's Phase IIb study involving biopsy-confirmed NASH patients, he believes Viking Therapeutics "could emerge as a prime M&A target." The analyst reiterated an Outperform rating on Viking's shares.
PRICE ACTION: In morning trading, shares of Gilead have dropped about 5% to $64.36, while Viking's stock has jumped almost 7% to $8.66.
