There is no holding back
) hepatitis C virus (HCV) drug Sovaldi. The drug continued its
exceptional performance in the second quarter of 2014, helping the
company to beat the Zacks Consensus Estimate on both revenues and
The biopharmaceutical company's second quarter adjusted earnings
(including stock based compensation expenses) of $2.32 per share
trumped the Zacks Consensus Estimate of $1.61. Moreover, second
quarter 2014 earnings were way above the year-ago figure of 48
cents per share.
Gilead Sciences, Inc - Earnings Surprise |
Including one-time items, the company reported second quarter
earnings of $2.20 per share, well above the year-ago earnings of 46
Sovaldi Steals the Show for Second Quarter in a
Sovaldi's strong sales helped Gilead record total revenues of $6.53
billion, way above the year-ago figure of $2.77 billion. Quarterly
revenues easily surpassed the Zacks Consensus Estimate of $5.8
With Sovaldi registering sales in excess of $3.4 billion ($3.48
billion to be exact) in the second quarter of 2014 it wasn't
surprising that product sales more than doubled (141% growth) to
$6.41 billion. Sovaldi sales in the second quarter climbed 53.3%
sequentially. Though Sovaldi sales outshone the rest, other
anti-viral products, such as HIV treatments Complera/Eviplera (up
59% to $299.5 million) and Stribild (launched in the U.S. and the
EU in Aug 2012 and May 2013 respectively) performed very well.
Stribild sales came in at $269.5 million, up 25.2% sequentially.
Sales of older HIV drugs like Truvada, Viread and Atripla were
mixed. Truvada sales were flat at to $806.6 million, Viread sales
improved 4% to $260.7 million while Atripla sales declined 7% to
Antiviral product sales for the quarter registered massive growth
of 160.2% to $6.01 billion on the strength of Sovaldi. The U.S.
market was the chief beneficiary of Sovaldi's strong sales for the
second consecutive quarter. The HCV treatment registered second
quarter sales of $3.03 billion in the U.S., up 44.3% sequentially.
The drug was approved by the FDA in Dec 2013. Consequently, the
U.S. market notched up antiviral product sales of $4.52 billion, up
229%. Europe contributed $1.23 billion (up 63.1%) to antiviral
product sales. The EU approval of Sovaldi was gained in Jan 2014
and the drug registered European sales of $400.2 million in the
second quarter of 2014. Other products including Letairis, Ranexa
and AmBisome recorded sales of $144.7 million (up 13%), $122
million (up 14%) and $94.8 million (up 26.2%), respectively.
On the operational front (including stock-based compensation
expenses), operating margin improved to 70.6% from 42.9% a year
ago. Research & development (R&D) expenses climbed 12.9% to
$578.6 million in the second quarter of 2014 while selling, general
and administrative (SG&A) expenses surged 51.4% to $613.2
million. The rise in R&D expenses was primarily driven by
Gilead's efforts to develop its HIV and oncology pipelines.
SG&A expenses shot up because of Gilead's expansion efforts.
Costs associated with the marketing of Sovaldi in the U.S. and
pre-launch expenses associated with oncology drug Zydelig
(idelalisib) also pushed up SG&A expenses.
Zydelig Cleared by FDA
Gilead's product portfolio was further strengthened when the FDA
approved Zydelig (idelalisib) for treating three cancer forms. The
FDA cleared Zydelig in combination with
) Rituxan (rituximab) for treating patients with relapsed chronic
lymphocytic leukemia. Zydelig is also approved as monotherapy for
treating patients with relapsed follicular B-cell non-Hodgkin
lymphoma and small lymphocytic lymphoma who have received at least
two previous systemic therapies.
For the first time Gilead provided net product sales guidance
including the impact of Sovaldi sales. Gilead expects product sales
in the range of $21 billion to $23 billion. The Zacks Consensus
Estimate of $22.45 billion is on the higher end of the guidance
range. Previously Gilead had anticipated product sales
in the range of $11.3 billion to $11.5 billion (excluding Sovaldi
sales). We expect Gilead's stock price to climb following the
strong earnings report, a guidance inclusive of Sovaldi and the FDA
approval of Zydelig.
Adjusted product gross margin for 2014 is now projected in the
range of 85% to 88% (old guidance: 75% to 77%). Adjusted effective
tax rate is now pegged in the range of $17.5% to 20.5% (previous
guidance: $28% to $29%).
R&D expenses (excluding stock-based compensation expenses and
other special items) are projected in the range of $2.3 billion to
$2.4 billion (old guidance: $2.2 billion to $2.3 billion). The
increase takes into account Gilead's efforts to develop its
pipeline. SG&A expenses are forecast in the range of $2.3
billion to $2.4 billion (old guidance: $2.1billion to $2.2
billion). Gilead's efforts to expand its commercial infrastructure
in Asia and Europe have led to the increased guidance.
One cannot but be impressed by Sovaldi's performance in the second
quarter of 2014. We expect Sovaldi sales to continue growing
through 2014. The product's outstanding performance for the second
straight quarter should go a long way to justify its high price
tag. The drug costs $84,000 for a 12-week treatment period in the
U.S. According to Gilead, approximately 70,000 patients have been
treated with Sovaldi in the U.S. since its launch late last year.
Products like Complera/Eviplera and Stribild should also continue
Focus will also be on Gilead's pipeline. After Sovaldi, Gilead is
looking to get its next HCV treatment, a fixed dose combination of
ledipasvir and Sovaldi, approved in the U.S. The FDA will decide on
the approval status of this cocktail treatment by Oct 10. The month
is crucial as it is likely to see a couple more of FDA decisions on
Gilead candidates. While the U.S. regulatory body will decide on
cobicistat's regulatory status by Oct 3, it will decide on
elvitegravir by Oct 4.
Gilead currently carries a Zacks Rank #3 (Hold). Some better-ranked
stocks in the healthcare space include
). Both stocks sport a Zacks Rank # 1 (Strong Buy).
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