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Gilead (GILD) Beats on Q4 Earnings, 2018 View Lacks Lustre

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Gilead Sciences, Inc.’s (GILD - Free Report) reported fourth-quarter 2017 results wherein both earnings and revenues surpassed expectations. However, management issued a bleak view for 2018.

 

 

Consequently, the stock declined in after-market hours trading and is expected to open in the red given the expectation of a further decline in hepatitis C virus (HCV) franchise in 2018.  Nevertheless, Gilead’s stock has gained 10.9% in the last six months as against the industry's  decline of 4.6%.

The company’s fourth-quarter earnings of $1.78 per share beat the Zacks Consensus Estimate of $1.70. However, earnings were below the year-ago quarter figure of $2.70 per share.

Moreover, total revenues of $5.9 billion topped the Zacks Consensus Estimate of $5.8 billion. However, revenues declined 18.7% year over year.

 

Gilead Sciences, Inc. Price and Consensus

 

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

 

Harvoni & Sovaldi Plunges Further

Product sales came in at $5.8 billion, down 19.1% year over year. The decline was due to lower HCV sales, partially offset by higher sales across HIV and other therapeutic areas.

Antiviral product sales, which include Gilead's HIV and liver disease portfolio, came in at $5.2 billion in the quarter, down 21.2%.

HCV product sales, which include Harvoni, Sovaldi, Epclusa and Vosevi, were $1.5 billion, down from $3.2 billion reported in the year-ago quarter. The downside was mainly attributed to lower sales of Harvoni and Sovaldi across all major markets.

Sales of Harvoni declined 60.7% year over year to $644 million in the quarter. Further, Sovaldi sales recorded a steep year-over-year decline of 78.4% to $117 million.

Epclusa garnered sales of $565 million in the quarter, down from the year-ago figure of $1.0 billion.

Meanwhile, HIV and HBV product sales came in at $3.7 billion, up 8.8% year over year. The increase was primarily driven by continuous strong uptake of tenofoviral afenamide (TAF)-based products such as Genvoya, which generated sales of $1,060 million, up from $563 million in the year-ago quarter, Descovy, which recorded sales of $365 million, up from $149 million, and Odefsey, which registered sales of $325 million, up from $155 million. HIV treatments like Stribild and Complera/Eviplera sales declined 42.6% and 25.2% respectively. Viread sales were down at $212 million, down 34.6%.

Atripla sales tanked 27.5% to $440 million, while Truvada sales fell 8.2% to $797 million.

Other products like Letairis, Ranexa, AmBisome and Zydelig recorded sales of $233 million (up 3.1%), $200 million (down 4.7%), $90 million (down 4.4%) and $39 million, respectively.

Research & development (R&D) expenses declined 11.9% to $845 million due to the 2016 impact of ongoing milestone payments. Selling, general and administrative (SG&A) expenses decreased 1.6% to $923 million. Adjusted product gross margin was 83.5% compared to 88.1% in the year-ago period.

2017 Results

Revenues in 2017 came in at $26.1 billion, down from $30.4 billion in 2016 and surpassed Zacks Consensus Estimate of $25.9 billion. Earnings per share came in at $8.84, down from $11.57 in 2016 and beat the Zacks Consensus Estimate of $8.73.

2018 Guidance

Gilead now expects net product sales in the range of $20-$21 billion. Adjusted R&D expenses and adjusted SG&A expenses are projected in the range of $3.4-$3.6 billion and $3.4-$3.6 billion, respectively. Adjusted product gross margin is expected in the range of 85-87%.

Acquisitions

The company acquired Kite Pharma in 2017. The FDA approval for Yescarta, a CAR-T therapy for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy should Gilead’s prospects.

The company recently acquired Cell Design Labs to expand further in the CAR-T space.

Dividend and Share Repurchase

Concurrently, Gilead declared a cash dividend of 57 cents per share of common stock for first-quarter 2018, an increase of 10%. The dividend is payable on Mar 29 to stockholders of record at the close of business on Mar 16. During 2017, the company paid cash dividends of $2.7 billion and repurchased shares for $954 million.

Our Take

Though the company topped both earnings and revenue estimates in the fourth quarter, the magnitude of the decline in HCV sales was larger-than-expected. The HCV franchise is under tremendous pressure due to lower patient starts and increasing competition. We expect sales to decline further going forward.  We note that Harvoni, Sovaldi and Epclusa, face competition from AbbVie’s (ABBV - Free Report) Viekira Pak and Viekira XR, Bristol-Myers’(BMY - Free Report) and Merck’s (MRK - Free Report) Zepatier. Both pricing and market share are expected to stabilize by mid-2018 while patient starts are expected to decline further.

Meanwhile, the HIV franchise maintains momentum driven by the rapid adoption of TAF-based regimens in the United States and EU. The TAF-based regimens now represent 62% of total Gilead HIV prescription volume following the launch of Genvoya and the launches of Odefsey and Descovy in 2016. Truvada for use in the pre-exposure prophylaxis setting also put up a strong performance as the company saw a significant uptick in PrEP usage in 2017 with an estimated 153,000 patients using Truvada by the end of 2017. The approval of Yescarta also bodes well for Gilead. We expect the decline in HCV franchise to offset the positive momentum of HIV franchise. Gilead is also intending to foray into the NASH market with pipeline candidates- selonsertib and filgotinib.

Zacks Rank

Gilead currently carries a Zacks Rank #4 (Sell).

You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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