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Gilead Sciences, Inc. ‘s (GILD - Analyst Report) first quarter 2013 earnings (excluding special items but including stock option expense) of 45 cents per share missed the Zacks Consensus Estimate of 47 cents per share.  Lower-than-expected revenues were responsible for the earnings miss during the first quarter of 2013. The company’s first quarter 2013 adjusted earnings beat the year-ago earnings of 30 cents.

Revenues climbed 11% to $2.53 billion but missed the Zacks Consensus Estimate of $2.56 billion. The year-over-year increase in total revenue was attributable to higher product sales. Foreign exchange (Fx) fluctuations adversely impacted product sales by $7.3 million.

The First Quarter in Details

Product sales climbed 8.1% to $2.39 billion, driven by anti-viral products, such as Viread (up 10% to $210.3 million) and Complera/Eviplera launched in 2011 (up 184% to $148.2 million). Stribild – an HIV combination pill – launched in the US in Aug 2012, contributed $92.1 million to total revenue in the first quarter of 2013, up 130.3% sequentially. However, HIV drugs, such as Truvada (down 8%) and Atripla (down 1%), performed disappointingly in the first quarter of 2013.

Antiviral product sales for the quarter grew 7% to $2.06 billion. The US market contributed $1.16 billion (up 7%) to antiviral product sales, while Europe contributed $750.4 million (up 8%). Other products including Letairis, Ranexa and AmBisome recorded sales of $118.1 million (up 35.3%), $96.3 million (up 15.7%) and $85.3 million (up 0.6%) respectively. Gilead’s royalty, contract and other revenues climbed 86.4% to $138.1 million.

On the operational front (excluding special items but including stock option expense), operating margin climbed to 42.1% from 36.7% a year ago. Research & development (R&D) expenses climbed 8.2% to $486.9 million in the first quarter of 2013 while selling, general and administrative (SG&A) expenses declined 14.8% to $363.5 million. The rise in R&D expenses was primarily driven by Gilead’s efforts to develop its pipeline. Interest expenses declined during the first quarter of 2013 due to the repayment of bank debt pertaining to Gilead’s acquisition of Pharmasset Inc. in 2012.

2013 Projection Backed

Gilead maintained its guidance for 2013, which was originally issued in Feb 2013 while releasing its fourth quarter 2012 results. 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.

Gilead carries a Zacks Rank #3 (Hold). The companies that look better-positioned include Osiris Therapeutics (OSIR), Athersys, Inc. (ATHX - Snapshot Report) and Cleveland BioLabs, Inc. (CBLI). All three are Zacks Rank #1 (Strong Buy) stocks.

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