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Gilead Sciences Inc.’s (GILD - Analyst Report) adjusted earnings per share (EPS) of 92 cents (including stock option expense) for the fourth quarter of 2011 missed the Zacks Consensus Estimate by 8 cents, as higher revenues were offset by increased research and development (R&D) expenses. However, the earnings were 2 cents above the year-earlier earnings of 90 cents.

Fourth quarter revenues were up 10% from the prior-year quarter to $2.2 billion, spurred by higher product sales. Total revenue also edged past the Zacks Consensus Estimate of $2.19 billion.

For the full year 2011, Gilead announced earnings of $3.68 per share, below the Zacks Consensus Estimate of $3.74. Revenues were $8.39 billion, marginally above the Zacks Consensus Estimate of $8.35 billion. Revenues, however, grew 5% and earnings were up 4.5% over the prior year.

The Fourth Quarter in Detail

Product sales, at $2.13 billion, were up approximately 11% over the prior year due to higher sales of antiviral products. Royalty, contract and other revenues were down 2% to $67.0 million.

Antiviral product sales in the quarter were up 9% year over year to $1.86 billion, driven by solid performance of Atripla. Antiviral revenue in the US was $1.04 billion in the relevant quarter, up 12% over the prior year. In Europe, antiviral revenue was $684.3 million, up 5% year over year.

Sales of Truvada, which is a fixed-dose, once-daily tablet containing Gilead's Viread and Emtriva, were up 9% to $746.0 million. Sales of Atripla, which combines Truvada and Bristol Myers Squibb’s (BMY - Analyst Report) Sustiva, were up 11% over the prior year to $863.3 million.

Viread, used for the treatment of HIV and chronic hepatitis B, recorded sales of $190.9 million, almost flat with the revenue recorded in the prior-year quarter. Revenues were however down (1%) from $192.9 million recorded in the third quarter.

The company’s newly launched HIV drug, Complera, is a fixed-dose combination of Truvada and Johnson and Johnson’s (JNJ - Analyst Report) HIV drug Edurant. Complera is witnessing slow uptake, recording revenue of just $19.7 million in the fourth quarter versus $19.0 million in the third quarter of 2011. Complera was approved in the US in August last year and was cleared in the European Union (EU) in November with the trade name of Eviplera. The drug has been launched in a few EU countries like UK, Austria, and Germany and will continue to be rolled out throughout 2012.

In 2012, Gilead is expected to launch another important treatment option for HIV patients. The US Food and Drug Administration (FDA) is expected to decide on the fate of Gilead’s most anticipated HIV pipeline candidate, the Quad pill. Quad is a combination of Gilead pipeline candidates- elvitegravir and cobicistat, and its marketed HIV drug Truvada. The US Food and Drug Administration (FDA) will give its decision regarding approvability of Quad on August 27, 2012 (target date). However, an FDA panel is expected to be conducted in May this year to give an opinion on Quad approvability. Quad is also under review in the EU. Gilead management expects Quad to be launched in the second half of 2012.

Other products such as Letairis (for the treatment of pulmonary arterial hypertension) and Ranexa (for chronic angina) recorded sales of $78.7 million (up 23% over the prior year) and $83.7 million (up 23%).

Adjusted R&D expenses (excluding stock option expense) were $349.3 million in the quarter, up by a whooping 50.7% year over year. The huge increase in R&D expenses was driven by Gilead’s continuous efforts to expand its pipeline and enter into deals and acquisitions. In this context, Gilead recently completed the acquisition of Pharmasset, Inc, a maker of drugs for the treatment of chronic hepatitis C virus (HCV), for approximately $11.2 billion. Pharmasset currently has three pipeline candidates in various stages of development for the treatment of HCV, which are expected to synergize well with Gilead’s HCV portfolio. Of these, PSI-7977 in late stage trials is seen as most promising.

Sales, general and administration (SG&A) expenses (excluding stock option expense)  were $289.9 million, up 21.1% year over year, due to increased excise tax and bad debt expenses.

2012 Guidance

Gileadannounced 2012 guidance during the fourth quarter conference call. The company expects product revenue in the range of $8.6 billion to $8.8 billion in 2012, reflecting an increase of 6% to 9% over 2011 product sales. The Zacks Consensus Estimate for 2012 sales is currently pegged at $9.08 billion. The guidance assumes that the benefits from the Quad launch, Complera growth and strong non-HIV sales will be partially offset by headwinds in Europe and potential negative impact from currencies.

Adjusted product gross margins are expected to range between 73% and 75%. Research and development expenses are guided in the range of $1.325 billion to $1.4 billion.  SG&A expenses are forecast in a band of $1.225 billion to $1.3 billion, which includes the potential costs for the Quad launch and continued increase in excise tax.

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