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Gilead Beats Estimates in 4Q

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Gilead Sciences, Inc.’s (GILD) fourth quarter 2012 earnings (excluding special items but including stock option expense) of 47 cents per share beat the Zacks Consensus Estimate of 45 cents. Better-than expected earnings came on the back of higher revenues.

The company’s fourth quarter 2012 adjusted earnings came in line with the year-ago earnings.  We note that all earnings per share figures have been adjusted to reflect the two-for-one stock split, which took effect on Jan 25, 2013.

Revenues climbed 17.6% to $2.59 billion, beating the Zacks Consensus Estimate of $2.43 billion. The increase in total revenue was attributable to higher product sales. Foreign exchange (Fx) fluctuations favorably impacted product sales by $12.4 million.

For full year 2012, earnings came in at $1.73 per share, a penny short of the Zacks Consensus Estimate and 6% below the year-ago earnings. Full year earnings were hurt by higher costs.

Revenues increased 16% to $9.7 billion in 2012, beating the Zacks Consensus Estimate of $9.5 billion. Higher product sales (up 16% to $9.4 billion) drove revenues in 2012. Full year product sales were above the company’s guidance range of $9.1–$9.2 billion.

The Fourth Quarter in Details

Product sales climbed 18% to $2.51 billion, driven by anti-viral products, such as Atripla (up 6% to $917.5 million), Truvada (up 12% to $832.7 million) and Viread (up 19% to $226.7 million). Products sales were also aided by the launch of Complera/Eviplera in 2011. Stribild – an HIV combination pill – launched in the US in Aug 2012, contributed $40 million to total revenue in the final quarter of 2012, up 128.6% sequentially.

Antiviral product sales for the quarter grew 17% to $2.17 billion. The US market contributed $1.26 billion (up 20%) to antiviral product sales, while Europe contributed $743 million (up 9%). Other products including Cayston and AmBisome liposome recorded sales of $127.7 million (up 15%). Gilead’s royalty, contract and other revenues climbed 16% to $77.5 million.

On the operational front (excluding special items but including stock option expense), operating margin climbed to 43.7% from 43.1% a year ago. Both research & development (R&D) expenses (up 18% to $434.2 million) and selling, general and administrative (SG&A) expenses (up 14.9% to $363.5 million) were on the upswing during the quarter. The rise in R&D expenses was primarily driven by Gilead’s efforts to develop its pipeline, whereas SG&A expenses increased primarily due to the company’s efforts to expand. Interest expenses too were on the rise during the final quarter of 2012.

2013 Projection

Apart from releasing its fourth quarter and full year financial results, Gilead also provided guidance for 2013. The company expects product revenue in the range of $10–$10.2 billion, reflecting an increase of 6%–9% over 2012 levels.

Adjusted product gross margin for 2013 is projected in the range of 74%–76%. Adjusted R&D expenses are guided in the range of $1.8– $1.9 billion, well above 2012 levels. The increase is attributable to Gilead’s efforts to develop its pipeline.

SG&A expenses are forecasted in the range of $1.55–$1.65 billion. The guidance includes the increased costs expected to be incurred pertaining to the potential 2014 launch of Gilead’s sofosbuvir for treating patients suffering from hepatitis C virus (:HCV).

Positive Results on sofosbuvir

Gilead also announced encouraging top-line results from 2 phase III studies (FISSION and NEUTRINO) on HCV candidate, sofosbuvir. The company intends to seek regulatory approvals for sofosbuvir as a combination therapy in the second quarter of 2013.

Gilead, a biopharmaceutical company, currently carries a Zacks Rank #4 (Sell). Biopharma stocks, such as Peregrine Pharmaceuticals, Inc. (PPHM), Medivation, Inc. (MDVN) and Targacept, Inc. (TRGT) are much more favorably placed and carry a Zacks Rank #1 (Strong Buy).

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