Gilead (GILD) Beats on Q3 Earnings & Sales, Updates View

While Gilead Sciences, Inc .'s GILD third-quarter earnings beat estimates, the year-over-year decline was disappointing as the magnitude of decline in hepatitis C virus (HCV) sales continues to deepen.

The company's third-quarter earnings of $1.84 per share beat the Zacks Consensus Estimate of $1.66. However, earnings were below the year-ago quarter figure of $2.27 per share. Total revenues of $5.6 billion beat the Zacks Consensus Estimate of $5.4 billion but declined 14.1% year over year.

Gilead Sciences, Inc. Price and Consensus

Gilead Sciences, Inc. Price and Consensus | Gilead Sciences, Inc. Quote

HIV Franchise Sustains Momentum

Product sales came in at $5.5 billion, down 14.8% year over year, due to accelerated decline in legacy hepatitis C virus (HCV) franchise.

HCV product sales plunged 59% to $902 million due to lower sales of Harvoni, Epclusa and Sovaldi across all major markets, as a result of increased competition and fewer patient starts. Sales of Harvoni plunged 68% year over year to $331 million in the quarter. Epclusa garnered sales of $477 million, down 45.9% from the year-ago quarter.

HIV product sales increased 11.9% year over year to $3.7 billion, primarily owing to the continued uptake of Genvoya and Odefsey, and the rapid adoption of Biktarvy. Genvoya generated sales of $1.2 billion, up from $988 million in the year-ago quarter. Descovy recorded sales of $406 million, up from $316 million, while Odefsey registered sales of $423 million, up from $296 million in the year-ago quarter.

In the United States, 74% of Gilead's total HIV treatment prescription volume comprised Descovy-based regimens. We note that Gilead received a major boost when the FDA approved the company's once-daily single tablet regimen ("STR"), Biktarvy (bictegravir 50mg/emtricitabine 200mg/tenofovir alafenamide 25mg, BIC/FTC/TAF) for HIV-1 infection. The approval of Biktarvy in Europe boosted sales further. Bikatrvy's sales came in at $386 million. In March, the drug was added to the U.S. DHHS guidelines for the use of antiretroviral agents in adults and adolescents living with HIV as one of the recommended initial regimens. Biktarvy also became the number one prescribed regimen for both treatment-naïve and switch patients during the quarter.

Gilead currently expects Biktarvy to overtake Genvoya as the most successful launch in HIV history. Truvada, for use in the pre-exposure prophylaxis setting, continued to maintain momentum with an estimated 193, 000 patients using the drug, by the end of the third quarter. However, HIV sales were slightly down year over year in Europe, due to generic competition in several markets.

HIV treatments like Stribild and Complera/Eviplera sales declined 36.2% and 41.3%, respectively. Atripla sales slumped 41.2% to $258 million and Truvada sales fell 6.6% to $757 million.

CAR-T therapy Yescarta (axicabtagene ciloleucel), which was launched in the United States in October 2017, generated $75 million in sales, up from $68 million in the previous quarter. In August, Yescarta was approved in Europe.

Other product sales, which include chronic hepatitis B (HBV) drugs, cardiovascular, oncology and other categories (Vemlidy, Viread, Letairis, Ranexa, Zydelig and AmBisome), were $751 million compared with $874 million in the year-ago quarter.

Adjusted product gross margin was 85.9% compared with 87.2% in the year-ago period. Research & development (R&D) expenses increased 13.2% to $844 million. Selling, general and administrative (SG&A) expenses increased 5.7% to $852 million.

2018 Guidance

Gilead expects net product sales of $20.8-$21.3 billion compared with the earlier estimate of $20-$21 billion. Adjusted R&D and adjusted SG&A expenses are projected to be $3.4-$3.6 billion and $3.4-$3.6 billion, respectively. Adjusted product gross margin is expected to be 85-87%.

Dividend and Share Repurchase

Gilead declared a cash dividend of 57 cents per share of common stock for fourth-quarter 2018. The dividend is payable on Dec 28 to stockholders of record at the close of business on Dec 14. During the quarter, the company paid cash dividends of $742 million and repurchased shares for $449 million.

Our Take

Although Gilead's third-quarter results beat estimates, the year-over-year decline in HCV sales is a concern. While the company announced plans to launch authorized generic versions of Epclusa and Harvoni in the United States in January 2019 through a newly created subsidiary, Asegua Therapeutics LLC, the HCV franchise sales are expected to decline further.

While the HIV franchise maintains momentum, driven by the rapid adoption of Descovy-based regimens, growth rates weren't exemplary. Given the persistent decline in HCV sales, the company is looking to HIV and newer avenues to help the top line. The initial uptake of Yescarta (from the Kite Pharma acquisition) is also encouraging but it will take some time for sales to contribute significantly to the top line, given the high cost of treatment. Moreover, Novartis' NVS Kymriah is also there in the market, posing competition.

Gilead's stock has lost 5.7% in the past six months, worse than the industry' s decline of 0.2%.

Gilead has promising late-stage candidates in the NASH and inflammation market - selonsertib and filgotinib. The company also has a collaboration agreement with Sangamo Therapeutics, Inc. SGMO to use Sangamo's zinc finger nuclease technology platform for the development of next-generation ex vivo cell therapies in oncology.

Going forward, Gilead will have to generate substantial revenues from its HIV franchise, to offset the HCV sales decline. This will be a challenging task for the company with stiff competition from the likes of GlaxoSmithKline GSK in the HIV market.

Zacks Rank

Gilead currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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