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Why Is Gilead (GILD) Down 4.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Gilead Sciences (GILD - Free Report) . Shares have lost about 4.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Gilead due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Gilead Q4 Earnings Miss Estimates, Revenues Beat

Gilead reported mixed results for the fourth quarter, wherein earnings missed expectations but revenues beat on the same.

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.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.15% due to these changes.

VGM Scores

At this time, Gilead has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Gilead has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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