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Gilead Sciences, Inc.‘s (GILD - Analyst Report) second quarter 2013 earnings (excluding special items but including stock option expense) of 48 cents per share were in line with the Zacks Consensus Estimate. The company’s second quarter 2013 adjusted earnings were above the year-ago figure by a penny.

Revenues climbed 15% to $2.77 billion and surpassed the Zacks Consensus Estimate of $2.68 billion. The year-over-year increase in total revenue was attributable to higher product sales. Foreign exchange (Fx) fluctuations adversely impacted product sales by $21 million.

The Second Quarter in Details

Product sales climbed 14% to $2.66 billion, driven by anti-viral products, such as Viread (up 16% to $250.2 million), Complera/Eviplera launched in 2011 (up 159% to $188.7 million), Truvada (up 3%) and Atripla (up 4%). Stribild – an HIV combination pill – launched in the US in Aug 2012, contributed $99.4 million to total revenue in the second quarter of 2013, up 8% sequentially.

Antiviral product sales for the quarter grew 15% to $2.31 billion. The U.S. market contributed $1.37 billion (up 20%) to antiviral product sales, while Europe contributed $755.8 million (up 5%). Other products including Letairis, Ranexa and AmBisome recorded sales of $128.3 million (up 26.2%), $106.6 million (up 11.5%) and $75.1 million (down 10.3%), respectively. Gilead’s royalty, contract and other revenues climbed 31.1% to $110.1 million.

On the operational front (excluding special items but including stock option expense), operating margin declined to 42.9% from 45.2% a year ago. Research & development (R&D) expenses climbed 30.8% to $512.4 million in the second quarter of 2013 while selling, general and administrative (SG&A) expenses surged 24.7% to $405 million. The rise in R&D expenses was primarily driven by Gilead’s efforts to develop its pipeline. The increase in SG&A expenses was primarily attributable to Gilead’s efforts to expand.

Interest expenses declined during the second quarter of 2013 due to the repayment of the convertible senior notes (due in May 2013) and bank debt issued pertaining to Gilead’s purchase of Pharmasset Inc. in 2012.

2013 Projection Backed

Gilead maintained its guidance for 2013 issued earlier. The company still expects product revenue in the range of $10–$10.2 billion, reflecting an increase of 6%–9% over 2012 levels.

Adjusted product gross margin for 2013 is still projected in the range of 74%–76%. Adjusted R&D expenses continue to be projected in the range of $1.8–$1.9 billion. SG&A expenses are still forecast in the range of $1.55–$1.65 billion.

Our Take

We are pleased by Gilead’s strong second quarter performance. The strong sales of newly launched products like Complera/Eviplera and Stribild are very encouraging.

A key action date is coming up for Gilead in December when the U.S. Food and Drug Administration (FDA) is expected to decide on the company’s high potential candidate, sofosbuvir, being developed for treating patients suffering from chronic hepatitis C virus (HCV).

Approval of sofosbuvir would not only boost Gilead’s top line but also strengthen its position in the lucrative HCV market. Meanwhile, shares of Gilead climbed significantly on the news of the partial clinical hold placed by the FDA on the development of Vertex Pharmaceuticals Incorporated’s (VRTX - Analyst Report) HCV candidate VX-135 due to safety concerns.

Gilead, a biopharmaceutical company, carries a Zacks Rank #2 (Buy). However, companies like Actelion Ltd. (ALIOF) and Sarepta Therapeutics, Inc. (SRPT - Analyst Report) appear to be more attractive in the biopharma space with a Zacks Rank #1 (Strong Buy).

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