Gilead Sciences, Inc.
) made a strong start to 2014, with both revenues as well as
earnings beating expectations by huge margins in the first
quarter of the year. The company's first-quarter 2014 earnings
(including stock-based compensation expenses but excluding other
special items) of $1.44 per share blew past the Zacks Consensus
Estimate of 75 cents per share. Moreover, first quarter 2014
earnings were way above the year-ago figure of 45 cents per
share. We expect the stellar first quarter 2014 results to have a
significant positive impact on the company's stock price.
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The massive growth in earnings was attributable to the
exceptional performance of Gilead's newly approved hepatitis C
virus (HCV) drug Sovaldi in its first full quarter in the market.
Sovaldi's strong sales helped Gilead record total revenues of $5
billion, way above the year-ago figure of $2.53 billion.
Quarterly revenues easily surpassed the Zacks Consensus Estimate
of $4 billion.
Including one-time items, the biopharmaceutical company reported
first quarter earnings of $1.33 per share, well above the
year-ago earnings of 43 cents.
The First Quarter in Details
With Sovaldi registering sales in excess of $2 billion ($2.27
billion to be exact) in its first full quarter in the market, it
was not surprising that product sales more than doubled (103.8%
growth) to $4.87 billion. Though Sovaldi sales grabbed the
headlines, some other anti-viral products, such as HIV treatments
Complera/Eviplera (up 69% to $250.7 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
$215.3 million, up 5.7% sequentially. Sales of older HIV drugs
like Truvada, Viread and Atripla were mixed. Truvada sales
increased 8% to $759.7 million, Viread sales were flat at $210.6
million but Atripla sales declined 11% to $779.6 million.
The exceptionally strong performance by Sovaldi led to antiviral
product sales for the quarter registering a massive growth of
119% to $4.51 billion. The U.S. market was the chief beneficiary
of Sovaldi's strong sales. The HCV treatment registered sales of
$2.1 billion in the U.S., where it was approved in Dec 2013.
Consequently, the U.S. market was the major contributor ($3.36
billion, up 190.5%) to antiviral product sales. Europe
contributed $949.4 million (up 26.5%) to antiviral product sales.
EU approval for Sovaldi was gained in Jan 2014 and the drug
registered European sales of $163.7 million in the reported
quarter. Other products including Letairis, Ranexa and AmBisome
recorded sales of $122.9 million (up 4%), $111.6 million (up 16%)
and $92.1 million (up 8%), respectively. Gilead's royalty,
contract and other revenues fell marginally to $76.6 million.
On the operational front (including stock-based compensation
expenses but excluding other special items), operating margin
improved to 65.0% from 42.1% a year ago. Research &
development (R&D) expenses climbed 21.6% to $592.2 million in
the first quarter of 2014 while selling, general and
administrative (SG&A) expenses surged approximately 49% to
$545.3 million. The rise in R&D expenses was primarily driven
by Gilead's efforts to develop its HIV and oncology pipeline. The
increase in SG&A expenses was primarily attributable to
Gilead's efforts to expand. Costs associated with the ongoing
launches of Sovaldi in the U.S. and the anticipated launch of
oncology candidate idelalisib also pushed up SG&A expenses.
2014 View Maintained
Gilead maintained its guidance for 2014 which was originally
provided by the company in Feb 2014 while releasing its fourth
quarter and full year 2013 results.
Gilead still expects product sales in the range of $11.3-$11.5
billion, well above the $10.8 billion recorded in 2013. However,
we expect Gilead to record much higher product sales in 2014 as
the company's guidance excludes Sovaldi sales. The company's
decision not to provide guidance for 2014 Sovaldi sales can be
viewed as the only disappointing aspect of the earnings report
and may dampen investor enthusiasm to some extent.
Adjusted product gross margin for 2014 is still projected in the
range of 75%-77%. Adjusted effective tax rate continues to be
projected in the range of $28%-$29%. The company maintained that
adjusted gross margin will improve by 0.75%-1% and adjusted
effective tax rate will decline by the same amount for every $1
billion Sovaldi sales.
R&D expenses (excluding stock based compensation expenses and
other special items) are projected in the range of $2.2-$2.3
billion, well over 2013 levels. SG&A expenses are still
forecasted in the range of $2.1-$2.2 billion, well above the 2013
We are very impressed by Sovaldi's stellar performance in the
first quarter of 2014. We expect Sovaldi sales to continue
growing throughout 2014. The blockbuster product should see
strong demand until an improved treatment enters the market. The
product's outstanding performance in the quarter should go a long
way in justifying its high price tag. The drug costs $84,000 for
a 12-week treatment period in the U.S. We remind investors that
Sovaldi's high price had invited criticisms from various
quarters. The drug's outstanding performance should lay to
rest such concerns. Other products such as Complera/Eviplera and
Stribild also should continue performing well.
Focus will also be on Gilead's pipeline. Idelalisib is one of the
most interesting candidates at Gilead. The candidate is under
review in the U.S. for the chronic lymphocytic leukemia (action
date: Aug 6, 2014) and indolent non-Hodgkin's lymphoma
indications (target date: Sep 11, 2014).
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 U.S. Food and Drug Administration (FDA) will decide on
the approval status of this cocktail treatment by Oct 10. The
month of October is likely to see a couple of more FDA decisions
on Gilead's 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.
Other major biopharma players reporting this week include
Gilead carries a Zacks Rank #2 (Buy). A better-ranked stock in
the biopharma space is
) carrying a Zacks Rank #1 (Strong Buy).