Antiviral Franchise Powers Earnings Beat at Gilead

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Gilead Sciences, Inc.’s (GILD) third quarter 2013 earnings (excluding special items) of 50 cents per share surpassed the Zacks Consensus Estimate by 3 cents and the year-ago earnings by 2 cents. The earnings beat at Gilead was due to higher-than-expected revenues.

Revenues climbed 15% to $2.78 billion, edging past the Zacks Consensus Estimate of $2.74 billion. The increase in total revenue was attributable to higher product sales. Key antiviral products at Gilead performed very well during the third quarter of 2013. Foreign exchange fluctuations adversely impacted product sales by $17.5 million during the third quarter of 2013.

The Third Quarter in Details

Product sales climbed 15% to $2.71 billion, driven by anti-viral products, such as Viread (up 6% to $231.6 million), Complera/Eviplera launched in 2011 (up 112% to $210.7 million), Truvada (up 3%) and Atripla (up 1%). Stribild – an HIV combination pill – launched in the U.S. and the EU in Aug 2012 and May 2013 respectively, contributed $143.9 million to total revenue in the third quarter of 2013, up 45% sequentially driven by strong demand.

Antiviral product sales for the quarter grew 14% to $2.33 billion. The U.S. market contributed $1.39 billion (up 19%) to antiviral product sales, while Europe contributed $750 million (up 6%). Other products including Letairis, Ranexa and AmBisome recorded sales of $135.1 million (up 28.5%), $115.8 million (up 21.8%) and $97.8 million (up 11.8%), respectively. Gilead’s royalty, contract and other revenues climbed 31.1% to $110.1 million.

On the operational front (excluding special items but including stock option expense), operating margin declined to 43% from 46.3% a year ago. Research & development (R&D) expenses climbed 26.9% to $516.3 million in the third quarter of 2013 while selling, general and administrative (SG&A) expenses surged 29.5% to $409.9 million. The rise in R&D expenses was primarily driven by Gilead’s efforts to develop its pipeline. The increase in SG&A expenses was primarily attributable to Gilead’s efforts to expand. Costs associated with the anticipated launch of Gilead’s high potential late-stage hepatitis C virus (:HCV) candidate, sofosbuvir, also pushed up SG&A expenses.

The HCV candidate is under review both in the U.S. (target date: Dec 8, 2013) and the EU. An advisory panel of the FDA recommended the approval of sofosbuvir earlier this month. Gilead is highly optimistic about the potential of sofosbuvir. We too expect sofosbuvir to be approved in the U.S. in December.

Interest expenses declined during the third quarter of 2013 due to the maturity of the convertible senior notes (due in May 2013) and repayment of $850 million worth of bank debt issued pertaining to Gilead’s purchase of Pharmasset Inc. in 2012.

2013 Projection Adjusted

Gilead updated its guidance for 2013. The company now expects product revenue in the range of $10.3-$10.4 billion (old guidance: $10–$10.2 billion).

Adjusted product gross margin for 2013 is still projected in the range of 74%–76%. R&D expenses (excluding stock based compensation expenses and other special items) are now projected in the range of $1.95-$2 billion (old guidance: $1.8–$1.9 billion). SG&A expenses projection have been reduced to the range of $1.5-$1.55 billion from $1.55–$1.65 billion.

Gilead currently carries a Zacks Rank #4 (Sell). Currently, companies like Actelion Ltd. (ALIOF), AMAG Pharmaceuticals, Inc. (AMAG) and. Isis Pharmaceuticals, Inc. (ISIS) look well positioned. All 3 are Zacks Rank #1 (Strong Buy) stocks.

Read the Full Research Report on ISIS
Read the Full Research Report on GILD
Read the Full Research Report on ALIOF
Read the Full Research Report on AMAG


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