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Gilead (GILD) Lags Q1 Earnings & Revenues, '16 View Intact

Gilead Sciences, Inc.’s GILD first-quarter 2016 earnings (including stock-based compensation expenses) of $2.98 per share fell significantly short of the Zacks Consensus Estimate of $3.03. Reported earnings were, however, higher than the year-ago figure of $2.90 per share. We expect investors to react negatively to the news.

Total revenues of $7.79 billion were also way below the Zacks Consensus Estimate of $8.13 billion. However, quarterly revenues were up 2.6% year over year.

Quarter in Detail

Product sales increased 3.7% to $7.7 billion. Antiviral product sales for the quarter registered growth of 2.8% to $7.2 billion.

Gilead’s blockbuster hepatitis C virus (HCV) drug, Harvoni, plunged 15.7% year over year to $3 billion in the reported quarter. The decline was due to lower sales in the U.S. (plunged $53.3% to $1.4 billion) reflecting lower patient starts and the full-quarter impact of higher commercial rebates, which were entered into during the first quarter of 2015. However, sales of Sovaldi, another HCV drug at Gilead, registered year-over-year growth of 31.4%.

Nevertheless, other anti-viral products, such as HIV treatments Complera/Eviplera (up 19.1% to $381 million) and Stribild (up 34% to $477 million) performed well. Sales of older HIV drugs like Truvada (up 16.5% to $898 million) were also impressive. Viread sales escalated 16.2% to $272 million. However, Atripla sales declined 8% to $675 million.

Recently launched (Nov 2015) Genvoya, the company’s first tenofovir alafenamide-based regimen for the treatment of HIV-1 infection, recorded sales of $158 million, significantly higher than $45 million in the fourth quarter of 2015.

Other products including Letairis, Ranexa and AmBisome recorded sales of $175 million (up 15.9%), $144 million (up 23.1%) and $86 million (up 1.2%), respectively. Newly launched Zydelig also performed well, recording revenues of $49 million, up 22.5% sequentially.

Research & development (R&D) expenses (including stock-based compensation expenses) were up 16.9% to $810 million. Selling, general and administrative (SG&A) expenses (including stock-based compensation expenses) were up 5.4% to $682 million.

2016 Guidance Reiterated

Gilead maintained its 2016 guidance. The company continues to expect net product sales in the range of $30–$31 billion.

Adjusted product gross margin for 2016 is still expected in the range of 88–90%. While R&D expenses (excluding stock-based compensation expenses) are still projected in the range of $3.2–$3.5 billion, SG&A expenses (excluding stock-based compensation expenses) are expected to be $3.3–$3.6 billion.

Dividend and Share Repurchase

Gilead declared its second-quarter 2016 dividend. The company has declared a quarterly cash dividend of $0.47 per share of common stock, to be paid on Jun 29, 2016, to all stockholders of record as of the close of business on the record date of Jun 16, 2016.

Moreover, during the quarter, the company completed the $15 billion share repurchase program and has started repurchasing shares under the $12 billion share repurchase program that was approved this January.

Our Take

Gilead’s first-quarter results were discouraging with the company missing both top- and bottom-line estimates. Slowdown in Harvoni sales is a concern given the impact of rebates and patient starts, which could continue to impact the drug’s sales further. Nevertheless, there was a small increase to new patient start in the first quarter of 2016 and the company expects new patient starts to remain consistent through 2016.

Meanwhile, following management’s hints, we could see some merger & acquisition activities at the company. Given the entry of a new competitor – Merck & Co. Inc.’s MRK Zepatier – we expect investor focus to remain on changing HCV market dynamics as well as on Harvoni’s performance.

Gilead is a Zacks Rank #2 (Buy) stock. A couple of other favorably ranked stocks in the health care sector are Aegerion Pharmaceuticals, Inc. AEGR and Emergent BioSolutions, Inc. EBS, each sporting a Zacks Rank #1 (Strong Buy).

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