Higher Costs Hurt Gilead - Analyst Blog

By Zacks Equity Research,

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Gilead Sciences, Inc.'s ( GILD ) first quarter 2012 earnings (excluding special items but including stock option expense) of 61 cents per share fell well short of the Zacks Consensus Estimate of 92 cents. Also, first-quarter adjusted earnings decreased 25.6% from the year-ago period. Higher-than-expected expenses led to the earnings miss in the reported quarter.

Revenues climbed 19% to $2.28 billion, beating the Zacks Consensus Estimate of $2.21 billion. Foreign exchange (Fx) fluctuations adversely impacted revenues by $16.4 million.

Quarter in Details

Product sales climbed 19% to $2.21 billion, driven by antiviral products such as Atripla (up 19% to $887.6 million), Truvada (up 13% to $758.3 million), Viread (up 14% to $191.7 million) and Letairis (up 40% to $87.3 million). Products sales were also aided by the launch of Complera/Eviplera last year.

Antiviral product sales for the quarter grew 18% to $1.93 billion. While the US market contributed $1.08 billion (up 24.0%) to antiviral product sales, Europe contributed $696.5 million (up 7%). Other products such as Cayston and AmBisome liposome recorded sales of $112.0 million (up 9.4%).

Gilead's royalty, contract and other revenues climbed 19% to $74.1 million driven primarily by increased royalties from GlaxoSmithKline ( GSK ) regarding pulmonary arterial hypertension drug, Volibris.

On the operational front (excluding special items but including stock option expense), operating margin came down to 36.8% from 47.8% a year ago due to higher costs. Both research & development (R&D) expenses (up 77% to $450 million) and selling, general and administrative (SG&A) expenses (up 46.5% to $429.7 million) were on the upswing during the quarter. While R&D expenses jumped primarily due to Gilead's efforts to develop its pipeline, SG&A expenses increased primarily due to Gilead's efforts to expand further coupled with higher pharmaceutical excise tax.

Neutral on Gilead

We have a Neutral recommendation on Gilead. Our long-term stance is in line with the Zacks #3 Rank (Hold rating) carried by the company in the short run. We remain optimistic on the growth prospects of the company's HIV drugs, Truvada and Atripla. We are also encouraged by the approval of Complera/Eviplera, which together with Quad, once approved, will further fortify the HIV franchise and help mitigate the impact of the upcoming patent expirations.

Gilead is looking to combat the threat of genericization by inking deals and acquisitions and introducing new products. To further strengthen its hepatitis C virus (HCV) portfolio, Gilead purchased Pharmasset in January 2012, for approximately $11.1 billion.

GILEAD SCIENCES ( GILD ): Free Stock Analysis Report
GLAXOSMITHKLINE ( GSK ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: GILD , GSK

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