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Gilead (GILD) Down on Weak HCV Sales Despite Q3 Earnings Beat

Gilead Sciences, Inc.’s GILD reported third quarter 2017 results wherein both earnings and revenues surpassed expectations.

 

 

However, the stock is expected to open in the red given the decline in hepatitis C virus (HCV) franchise.  Nevertheless, Gilead’s stock has gained 15.2% year to date as against the industry's  decline of 0.2%.

The company’s third-quarter earnings (including the impact of stock-based compensation expenses) of $2.27 per share beat the Zacks Consensus Estimate of $2.09. However, earnings were below the year-ago quarter figure of $2.75.

Moreover, total revenues of $6.5 billion topped the Zacks Consensus Estimate of $6.3 billion. However, revenues declined 13.2% year over year.

HIV Impresses Yet Again, Harvoni & Sovaldi Plunges

Product sales came in at $6.4 billion, down 13.5% year over year. The decline was due to lower hepatitis C virus (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 $5.8 billion in the reported quarter, down 14.7%.

HCV product sales, which include Harvoni, Sovaldi, Epclusa and Vosevi, were $2.2 billion, down from $3.3 billion reported in the year-ago quarter. The downside was mainly attributed to lower sales of Harvoni and Sovaldi across all major markets, partially offset by sales of Epclusa (launched in 2016) and sales of Vosevi (approved in the United States and Europe in July 2017).

Sales of Harvoni declined 47.7% year over year to $973 million in the reported quarter. Further, Sovaldi sales recorded a steep year-over-year decline of 73.4% to $219 million.

Epclusa garnered sales of $882 million in the reported quarter, up from the year-ago figure of $640 million. We note that Epclusa was launched in the U.S. and Europe in June and Jul 2016, respectively.

Meanwhile, HIV and HBV product sales came in at $3.6 billion, up 16.1% 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 $988 million, up from $461 million in the year-ago quarter, Descovy, which recorded sales of $316 million, up from $88 million, and Odefsey, which registered sales of $296 million, up from $105 million. HIV treatments like Stribild and Complera/Eviplera sales declined 63.1% and 42.3% respectively. Viread sales were down at $274 million, down 9.6%.

Atripla sales tanked 32.4% to $439 million, while Truvada sales fell 5.5% to $811 million.

Other products like Letairis, Ranexa, AmBisome and Zydelig recorded sales of $213 million (down 0.9%), $164 million (down 3.5%), $92 million (up 1.1%) and $40 million (up 2.5%), respectively.

Research & development (R&D) expenses declined 24% to $745 million. On the other hand, selling, general and administrative (SG&A) expenses increased 3.3% to $806 million. Adjusted product gross margin was 87.2% compared to 87.6% in the year-ago period.

2017 Guidance Updated

Gilead now expects net product sales in the range of $24.5-$25.5 billion, up from $24.0-$25.5 billion provided earlier. Non-HCV product sales are projected between $16 billion and $16.5 billion (earlier projection: $15.5 billion and $16 billion). HCV product sales are projected between $8.5 billion and $9.0 billion (earlier projection: $8.5 billion and $9.5 billion). Adjusted R&D expenses and adjusted SG&A expenses are now projected in the range of $3.3-$3.4 billion and $3.3-$3.4 billion, respectively. Adjusted product gross margin is expected in the range of 86-87%. Earnings per share are now projected around $1.02-$1.17 (earlier projection: 86-93 cents).

Kite Acquisition

The company recently acquired Kite Pharma. Last week, the company received 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.

Dividend and Share Repurchase

Concurrently, Gilead declared a cash dividend of 52 cents per share of common stock for fourth-quarter 2017. The dividend is payable on Dec 28 to stockholders of record at the close of business on Dec 15. During the quarter, the company paid cash dividends of $682 million and repurchased shares for $153 million.

Our Take

Though the company topped both earnings and revenue estimates in the third quarter, it witnessed a  decline in HCV sales. 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, Inc.’s ABBV Viekira Pak and Viekira XR and Bristol-Myers Squibb Company’s BMY Daklinza among others. Competition as well as pricing pressure has intensified further with the launch of Merck & Co., Inc.’s MRK Zepatier. Only 39,000 patients began treatment on a Gilead regimen during the quarter, down 9% from the prior quarter.

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 56% of total Gilead HIV prescription volume following the launch of Genvoya and the launches of Odefsey and Descovy in 2016. Genvoya is now the company’s bestselling HIV product with a treatment-naïve patient share of 41%. Strong uptake for Truvada for use in the pre-exposure prophylaxis setting should further boost sales as the company saw a significant uptick in PrEP usage in 2017 with an estimated 145,000 patients using Truvada by the end of the third quarter. The approval of Yescarta also bodes well for Gilead.

However, Gilead has lost exclusivity for Viread and Truva which will further impact performance. We expect the decline in HCV franchise to offset the positive momentum of HIV franchise.

Zacks Rank

Gilead currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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