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Gilead (GILD) Q4 Earnings Miss Estimates, Revenues Beat

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Shares of Gilead Sciences (GILD - Free Report) are trading down in after-market trading, after the company reported mixed results for the fourth quarter, wherein earnings missed expectations but revenues beat on the same.

Gilead’s stock has declined 8.5% in the last six months, against the industry's decline of 13.%.

 

Gilead reported earnings of $1.44 per share in the fourth quarter, down from $1.78 in the year-ago quarter and missing the Zacks Consensus Estimate of $1.70.

Total revenues of $5.79 billion beat the Zacks Consensus Estimate of $5.53 billion but declined 2.6% year over year.

HIV Franchise Sustains Momentum

Product sales came in at $5.7 billion, down 2.7% year over year due to continued decline in legacy hepatitis C virus (HCV) franchise.

HCV product sales plunged 50.8% to $738 million, due to lower average net selling price and decreased sales volumes of Harvoni and Epclusa across all major markets as a result of increased competition and lower patient starts. Sales of Harvoni plunged 63.9% year over year to $232 million in the quarter.  Epclusa garnered sales of $453 million, down 19.8% from the year-ago quarter.

HIV product sales increased 20.6% year over year to $4.1 billion, primarily owing to the continued uptake of Genvoya and Odefsey, and the rapid adoption of Biktarvy. The quarter are also benefited from seasonal inventory purchases and a favorable payer mix. Genvoya generated sales of $1.2 billion, up from $1.0 billion in the year-ago quarter. Descovy recorded sales of $411 million, up from $365 million a year ago, while Odefsey registered sales of $448 million, up from $325 million in the year-ago quarter.

In the United States, 77% of Gilead's total HIV treatment prescription volumes comprised Descovy-based regimens. We note that Gilead received a major boost when the FDA approved the company’s once-daily single tablet regimen (“STR”), Biktarvy (bictegravir 50mg/emtricitabine 200mg/tenofovir alafenamide 25mg, BIC/FTC/TAF) for HIV-1 infection. The approval of Biktarvy in Europe boosted sales further. Bikatrvy’s sales came in at $578 million.  Approximately 80% of Biktarvy’s U.S. prescriptions came from switches, 25% of which came from dolutegravir and another 25% from Genvoya.  Truvada, for use in the pre-exposure prophylaxis setting, continued to maintain momentum with an estimated 202, 000 patients using the drug by the end of the fourth quarter. However, HIV sales were slightly down year over year in Europe, due to generic competition in several markets. During 2018, Gilead experienced slower erosion of the HIV franchise due to later generic entry in a few countries.

HIV treatments like Stribild and Complera/Eviplera sales declined 38.3% and 43.7%, respectively.  Atripla sales slumped 35.2% to $258 million, while Truvada sales increased 3.3% to $823 million.

CAR-T therapy Yescarta (axicabtagene ciloleucel), which was launched in the United States in October 2017, generated $81 million in sales, up from $75 million in the previous quarter.  In August, Yescarta was approved in Europe.

Other product sales, which include chronic hepatitis B (HBV) drugs, cardiovascular, oncology and other categories (Vemlidy, Viread, Letairis, Ranexa, Zydelig and AmBisome), were $797 million compared with $886 million in the year-ago quarter. 

Adjusted product gross margin was 77.9% compared with 83.5% in the year-ago period. Research & development (R&D) expenses increased 11.1% to $939 million. Selling, general and administrative (SG&A) expenses increased 11.8% to $1.0 billion.

2018 Results

Revenues came in at $22.1 billion, surpassing the Zacks Consensus Estimate of $21.8 billion. Earnings per share came in at $6.67 missing the Zacks Consensus Estimate of $6.93.

2019 Guidance

Gilead expects net product sales of $21.3-$21.8 billion compared to the Zacks Consensus Estimate of $22.01 billion. Adjusted R&D and adjusted SG&A expenses are projected to be $3.6-$3.8 billion and $3.9-$4.1 billion, respectively. Adjusted product gross margin is expected to be 85-87%.

For the first quarter of 2019, Gilead expects product sales to decline sequentially by 12-14%, primarily owing to the U.S. seasonal inventory patterns and buying patterns of public payers that negatively impact payer mix.

Dividend and Share Repurchase

During 2018, Gilead generated $8.4 billion in operating cash flow, repaid $6.3 billion of debt, paid cash dividends of $3.0 billion and spent $2.9 billion on repurchases of 40 million shares.

Our Take

The earnings miss was disappointing even though the company beat on revenues in the fourth quarter. The HCV franchise sales are expected to decline further.

While the HIV franchise maintains momentum, driven by the rapid adoption of Descovy-based regimens and Biktarvy, Gilead will have to generate substantial revenues from its HIV franchise to offset the HCV sales decline. This will be a challenging task for the company with stiff competition from the likes of GlaxoSmithKline (GSK - Free Report) in the HIV market.

Given the persistent decline in HCV sales, the company is looking to HIV and newer avenues to help the top line. The initial uptake of Yescarta (from the Kite Pharma acquisition) is also encouraging but it will take some time for sales to contribute significantly to the top line, given the high cost of the treatment. Moreover, Novartis’ (NVS - Free Report) Kymriah is also there in the market, posing competition.

Gilead has promising late-stage candidates like selonsertib and filgotinib in the NASH and inflammation markets, respectively. The company also has a collaboration agreement with Sangamo Therapeutics, Inc. to use Sangamo’s zinc finger nuclease technology platform for the development of next-generation ex vivo cell therapies in oncology. Gilead also collaborated with Agneus (AGEN - Free Report) for the development and commercialization of up to five novel immuno-oncology therapies.

Meanwhile, on the earnings call, management hinted that the strong balance sheet should enable the company to go for mergers, acquisitions and partnerships to drive further growth.

Zacks Rank

Gilead currently carries a Zacks Rank #5 (Strong Sell). 

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

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