It's been a rotten year for Gilead Sciences (NASDAQ:GILD) shareholders. The biotech stock is down over 25% in 2016. Sales for hepatitis C virus (HCV) drugs Harvoni and Sovaldi are dropping like a brick. This sales trend appears likely to continue into the new year. Could 2017 be Gilead's worst year yet?

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Bad-news biotech

Gilead Sciences has experienced more than its share of bad news this year. The negative impact of the biotech's HCV franchise implosion shouldn't be understated. In just the first nine months of 2016, Gilead's sales from the two drugs dropped over $3.3 billion.

When a biotech's existing drugs begin to falter, the company typically turns to its pipeline. Unfortunately for Gilead, several of its potential pipeline candidates flopped this year. Just a few days into January, the company canceled a mid-stage study of simtuzumab in treating idiopathic pulmonary fibrosis. 

In September ,Gilead terminated another clinical study -- a phase 2/3 trial evaluating anti-MMP9 antibody GS-5745 in treating ulcerative colitis. The company later threw in the towel on another phase 2/3 study of GS-5745 in treating Crohn's disease.

Gilead stopped all development for simtuzumab in November after disappointing results in clinical studies of the monoclonal antibody in treating primary sclerosing cholangitis and nonalcoholic steatohepatitis (NASH). The biotech also ended a study of experimental heart drug eleclazine in treating ventricular tachycardia and ventricular fibrillation.

In mid-November, Gilead again announced disappointing results, this time for momelotinib. Two separate late-stage clinical studies found that the JAK inhibitor wasn't more effective than Incyte's Jakafi in treating myelofibrosis. 

To end the year on yet another negative note, Gilead lost a legal battle with Merck (NYSE:MRK). In December, a federal judge found that Gilead had infringed on one of Merck's patents with Harvoni and Sovaldi. The jury ordered Gilead to pay $2.54 billion to Merck, making it the largest patent-infringement verdict in American history. Gilead is appealing the decision.

What it would take

Gilead now finds itself headed into the new year with weaker pipeline prospects than it started out with in 2016 and potentially having to fork out cash to a rival. For the biotech to have its worst year ever, shares would need to fall more than 34% in 2017. What would it take for that to happen? More of the same as what Gilead saw this year.

First, sales for Harvoni and Sovaldi would need to keep sliding. That seems quite possible, if not likely. Gilead faces the prospects of fewer of the very sick patients that it saw after the initial launches of the two drugs. It also must battle Merck and others for market share.

Second, Gilead would have to suffer additional clinical setbacks. That shouldn't be out of the question, either. Two of the biotech's late-stage studies are for experimental drugs that didn't succeed in other indications -- GS5745 and eleclazine.

Threats to Gilead's HIV franchise could make a large stock drop more likely. Atripla already faces pressure from generic drugs in Europe and seems likely to encounter generic competition in the U.S. in 2017. ViiV Healthcare, a joint venture of Pfizer and GlaxoSmithKline, goes head-to-head with essentially all of Gilead's HIV drugs with its Tivocay and Triumeq.

If President-elect Donald Trump carries out his threat to go after high prescription drug prices, that could be the final straw in making next year Gilead's worst yet. The biotech claimed the top two spots on the list of most expensive drugs of 2016 compiled by prescription drug comparison website GoodRx. 

The sky isn't falling

Are you depressed yet? Don't be. I truly don't think next year will be that horrible for Gilead.

While I expect sales for Harvoni and Sovaldi to be lower, the trajectory of the slide will likely improve. Also, new HCV drug Epclusa should help soften the blow to some degree. Gilead could have more pipeline woes, but the biotech could just as easily enjoy some big wins. As for the Merck lawsuit, Gilead won in a California federal court earlier in 2016. There's a chance that the big biotech could prevail in its appeal of the Delaware court verdict.

The main reason that I don't think 2017 will be Gilead's worst year, though, is that the company possesses the ability to change its fortunes in a significant way. How? By spending some of its $31.6 billion on smart acquisitions. The right deal or deals could excite investors once again about Gilead's prospects.

I wouldn't say that there are sunny skies ahead for Gilead. The company faces plenty of challenges. But the sky isn't falling, either.