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Gilead (GILD) Beats on Q2 Earnings, Cuts 2016 Sales View
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Gilead Sciences, Inc.’s (GILD - Free Report) second-quarter 2016 earnings (including the impact of stock-based compensation expenses) of $3.03 per share beat the Zacks Consensus Estimate of $3.02. However, earnings (including the impact of stock-based compensation expenses) were significantly lower than the year-ago figure of $3.10 per share.
Total revenues of $7.78 billion came in below the Zacks Consensus Estimate of $7.85 billion and were also down 5.7% from the year-ago period.
HCV Franchise Disappoints, HIV Impresses
Product sales came in at $7.7 billion, down 5.9% year over year but flat sequentially. The year-over-year decline was due to lower hepatitis C virus (HCV) sales, partially offset by increased sales across HIV and other therapeutic areas. Sequentially, there was an increase in HIV, HCV (U.S.) and other products that was offset by a decline in HCV sales in Japan and Europe.
Antiviral product sales, which include products in Gilead's HIV and liver disease areas, came in at $7.1 billion in the second quarter of 2016, down 6.6% from the year-ago period.
HCV product sales, which consist of Harvoni, Sovaldi and the recently launched Epclusa, were $4 billion, down 18.6% year over year mainly due to lower sales of Harvoni. HCV product sales in the U.S. came in at $2.3 billion, down 33% year over year, mainly attributable to lower revenues per patient as a result of increased rebates and discounts due primarily to payer mix and lower patient starts for Harvoni as the initial group of warehouse patients was treated in 2015. However, HCV product sales in the U.S. were up 13% sequentially.
Total HCV revenue in Europe in the second quarter was $775 million, down 32% year over year and 7% sequentially. This was attributed to lower HCV patient starts and a higher proportion of patient starts from countries that have a lower net average price. While steady treatment rates were observed in Italy and Spain, lower numbers were seen in early launch markets like Germany and France.
Harvoni, plunged 28.9% year over year to $2.6 billion in the reported quarter. The decline was mainly due to lower sales in the U.S. (down 47.8% to $1.5 billion) and Europe (down 17.8% to $512 million). However, sales of Sovaldi, registered year-over-year growth of 5.2% to $1.4 billion. Epclusa, which gained FDA approval in late June this year, already recorded sales of $64 million in the reported quarter.
Nevertheless, HIV and other antiviral product sales came in at $3.1 billion, up 14.8% from the year-ago period. This increase was primarily due to recently launched tenofovir alafenamide (TAF)-based products, Genvoya (recorded sales of $302 million, significantly higher than $158 million in the first quarter of 2016), Descovy ($61 million) and Odefsey ($58 million).
HIV treatments Truvada (up 11% to $942 million), Viread (up 5.9% to $287 million) and Complera/Eviplera (up 0.3% to $368 million) performed well. However, Atripla sales declined 13.9% to $673 million while Stribild sales were down 4% to $429 million.
Other products including Letairis, Ranexa and Zydelig recorded sales of $203 million (up 15.3%), $153 million (up 8.5%) and $41 million (up 36.7%), respectively. However, AmBisome’s sales declined 17.5% to $85 million.
Research & development (R&D) expenses (including stock-based compensation expenses) were up 45.7% to $1.1 billion. Selling, general and administrative (SG&A) expenses (including stock-based compensation expenses) were up 9% to $885 million.
2016 Sales Guidance Lowered
Gilead lowered its net product sales outlook for 2016 given the current trends in payer and patient flow dynamics for HCV. The company now expects net product sales in the range of $29.5–$30.5 billion (old guidance: $30–$31 billion).
The company noted that the lowered outlook is based on a number of factors including lower HCV revenue per patient as a result of a mix shift toward the more heavily discounted payer segment in the U.S. and a lower net average price in Europe, a trend toward slowing patient starts in the U.S. commercial segment and some earlier launch markets of Europe, a continued gradual trend toward shorter duration and loss of some market share to competition.
While adjusted R&D expenses are now projected in the range of $3.6–$3.8 billion (old guidance: $3.2–$3.5 billion), adjusted SG&A expenses are expected to be $3.1–$3.3 billion (old guidance: $3.3–$3.6 billion).
Adjusted product gross margin for 2016 is still expected in the range of 88–90%.
Dividend and Share Repurchase
Gilead declared its third-quarter 2016 dividend. The company has declared a quarterly cash dividend of 47 cents per share of common stock, to be paid on Sep 29, 2016, to all stockholders of record as of the close of business on the record date of Sep 16, 2016.
During the second quarter, the company repurchased shares worth $1 billion under the $12 billion 2016 share repurchase program. The company anticipates that share repurchases in the second half of 2016 will be lower than the first half as it intends to focus its capital allocation on the advancement of R&D opportunities.
Gilead’s second-quarter results were mixed with the company beating earnings expectations marginally but failing to beat top-line estimates. Moreover, both earnings and revenues declined year over year. The company’s trimming of product sales outlook for 2016 is concerning considering the slowdown in the HCV franchise attributable to a number of factors.
Although the HIV franchise performed encouragingly well thanks to TAF-based regimens Genvoya, Descovy and Odefsey, barring Truvada and Viread, other HIV drugs demonstrated a slowdown. We expect investors to react negatively to the news.
Nevertheless, given management’s hints, we could see some merger & acquisition activities at the company beyond antivirals and other therapeutic areas.
Gilead is a Zacks Rank #2 (Buy) stock. Some other favorably ranked stocks in the health care sector Innoviva, Inc. (INVA - Free Report) , Fibrocell Science, Inc. and Nektar Therapeutics (NKTR - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).
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Gilead (GILD) Beats on Q2 Earnings, Cuts 2016 Sales View
Gilead Sciences, Inc.’s (GILD - Free Report) second-quarter 2016 earnings (including the impact of stock-based compensation expenses) of $3.03 per share beat the Zacks Consensus Estimate of $3.02. However, earnings (including the impact of stock-based compensation expenses) were significantly lower than the year-ago figure of $3.10 per share.
Total revenues of $7.78 billion came in below the Zacks Consensus Estimate of $7.85 billion and were also down 5.7% from the year-ago period.
HCV Franchise Disappoints, HIV Impresses
Product sales came in at $7.7 billion, down 5.9% year over year but flat sequentially. The year-over-year decline was due to lower hepatitis C virus (HCV) sales, partially offset by increased sales across HIV and other therapeutic areas. Sequentially, there was an increase in HIV, HCV (U.S.) and other products that was offset by a decline in HCV sales in Japan and Europe.
Antiviral product sales, which include products in Gilead's HIV and liver disease areas, came in at $7.1 billion in the second quarter of 2016, down 6.6% from the year-ago period.
HCV product sales, which consist of Harvoni, Sovaldi and the recently launched Epclusa, were $4 billion, down 18.6% year over year mainly due to lower sales of Harvoni. HCV product sales in the U.S. came in at $2.3 billion, down 33% year over year, mainly attributable to lower revenues per patient as a result of increased rebates and discounts due primarily to payer mix and lower patient starts for Harvoni as the initial group of warehouse patients was treated in 2015. However, HCV product sales in the U.S. were up 13% sequentially.
Total HCV revenue in Europe in the second quarter was $775 million, down 32% year over year and 7% sequentially. This was attributed to lower HCV patient starts and a higher proportion of patient starts from countries that have a lower net average price. While steady treatment rates were observed in Italy and Spain, lower numbers were seen in early launch markets like Germany and France.
Harvoni, plunged 28.9% year over year to $2.6 billion in the reported quarter. The decline was mainly due to lower sales in the U.S. (down 47.8% to $1.5 billion) and Europe (down 17.8% to $512 million). However, sales of Sovaldi, registered year-over-year growth of 5.2% to $1.4 billion. Epclusa, which gained FDA approval in late June this year, already recorded sales of $64 million in the reported quarter.
Nevertheless, HIV and other antiviral product sales came in at $3.1 billion, up 14.8% from the year-ago period. This increase was primarily due to recently launched tenofovir alafenamide (TAF)-based products, Genvoya (recorded sales of $302 million, significantly higher than $158 million in the first quarter of 2016), Descovy ($61 million) and Odefsey ($58 million).
HIV treatments Truvada (up 11% to $942 million), Viread (up 5.9% to $287 million) and Complera/Eviplera (up 0.3% to $368 million) performed well. However, Atripla sales declined 13.9% to $673 million while Stribild sales were down 4% to $429 million.
Other products including Letairis, Ranexa and Zydelig recorded sales of $203 million (up 15.3%), $153 million (up 8.5%) and $41 million (up 36.7%), respectively. However, AmBisome’s sales declined 17.5% to $85 million.
Research & development (R&D) expenses (including stock-based compensation expenses) were up 45.7% to $1.1 billion. Selling, general and administrative (SG&A) expenses (including stock-based compensation expenses) were up 9% to $885 million.
2016 Sales Guidance Lowered
Gilead lowered its net product sales outlook for 2016 given the current trends in payer and patient flow dynamics for HCV. The company now expects net product sales in the range of $29.5–$30.5 billion (old guidance: $30–$31 billion).
The company noted that the lowered outlook is based on a number of factors including lower HCV revenue per patient as a result of a mix shift toward the more heavily discounted payer segment in the U.S. and a lower net average price in Europe, a trend toward slowing patient starts in the U.S. commercial segment and some earlier launch markets of Europe, a continued gradual trend toward shorter duration and loss of some market share to competition.
While adjusted R&D expenses are now projected in the range of $3.6–$3.8 billion (old guidance: $3.2–$3.5 billion), adjusted SG&A expenses are expected to be $3.1–$3.3 billion (old guidance: $3.3–$3.6 billion).
Adjusted product gross margin for 2016 is still expected in the range of 88–90%.
Dividend and Share Repurchase
Gilead declared its third-quarter 2016 dividend. The company has declared a quarterly cash dividend of 47 cents per share of common stock, to be paid on Sep 29, 2016, to all stockholders of record as of the close of business on the record date of Sep 16, 2016.
During the second quarter, the company repurchased shares worth $1 billion under the $12 billion 2016 share repurchase program. The company anticipates that share repurchases in the second half of 2016 will be lower than the first half as it intends to focus its capital allocation on the advancement of R&D opportunities.
GILEAD SCIENCES Price and EPS Surprise
GILEAD SCIENCES Price and EPS Surprise | GILEAD SCIENCES Quote
Our Take
Gilead’s second-quarter results were mixed with the company beating earnings expectations marginally but failing to beat top-line estimates. Moreover, both earnings and revenues declined year over year. The company’s trimming of product sales outlook for 2016 is concerning considering the slowdown in the HCV franchise attributable to a number of factors.
Although the HIV franchise performed encouragingly well thanks to TAF-based regimens Genvoya, Descovy and Odefsey, barring Truvada and Viread, other HIV drugs demonstrated a slowdown. We expect investors to react negatively to the news.
Nevertheless, given management’s hints, we could see some merger & acquisition activities at the company beyond antivirals and other therapeutic areas.
Gilead is a Zacks Rank #2 (Buy) stock. Some other favorably ranked stocks in the health care sector Innoviva, Inc. (INVA - Free Report) , Fibrocell Science, Inc. and Nektar Therapeutics (NKTR - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>