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Gilead (GILD) Q2 Earnings & Sales Beat, Sales Guidance Raised

Zacks Equity Research

Gilead Sciences, Inc. GILD reported better-than-expected results for the second quarter of 2019 on strong sales of Biktarvy. It also raised its sales guidance for 2019.

The company delivered earnings of $1.82 per share in the second quarter, declining from $1.91 a year ago but comfortably beating the Zacks Consensus Estimate of $1.74.

Total revenues of $5.68 billion easily surpassed the Zacks Consensus Estimate of $5.56 billion and were almost flat year over year.

HIV Franchise Sustains Momentum

Product sales came in at $5.6 billion, up 1.2% year over year.

HCV product sales plunged 15.8% to $842 million, due to competitive dynamics, including a decline in U.S. Medicare prices and lower patient starts. Epclusa sales came in at $493 million, down from $500 million in the year-ago quarter.

HIV product sales increased 8.1% year over year to $4 billion, driven by higher sales volume led by the continued uptake of Biktarvy. Sales of Biktarvy were $1.1 billion, up from $185 million in the year-ago quarter.

Genvoya generated sales of $980 million, down from $1.2 billion in the year-ago quarter. Descovy recorded sales of $358 million, down from $403 million in the year-earlier period, while Odefsey registered sales of $387 million, up from $385 million a year ago.

During the quarter, Biktarvy became the top-selling product in the United States. It is also the number one prescribed regimen for both treatment-naïve and switch patients. Overall, Descovy-based regimens continue to gain market share and now account for approximately 83% of Gilead's total U.S. treatment prescription volumes.

CAR-T therapy Yescarta (axicabtagene ciloleucel), launched in the United States in October 2017, generated $120 million in sales, up from $96 million in the last reported quarter, driven by an increase in the number of therapies provided to patients. Yescarta was also approved in Europe in August 2018.

Other product sales — chronic hepatitis B (HBV) drugs, cardiovascular, oncology and other categories (Vemlidy, Viread, Letairis, Ranexa, Zydelig and AmBisome) — were $604 million, down from $807 million in the comparable quarter last year, due to declines in Ranexa and Letairis sales after generic entries in 2019.

Adjusted product gross margin was 87.3% compared with 84.2% in the year-ago period. Research & development (R&D) expenses were relatively flat at $916 million. Selling, general and administrative (SG&A) expenses increased 20.8% to $1.01 billion.

2019 Guidance Updated

Based on favorable demand trends in the first half of 2019, Gilead raised its guidance for net product sales. The company now expects sales of $21.6-$22.1 billion compared with the previous guidance of $21.3-$21.8 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 anticipated to be 85-87%.

Dividend and Share Repurchase

During the quarter, Gilead generated $2.2 billion in operating cash flow, repaid $500 million of debt, made dividend payout of $800 million and spent $588 million on share buybacks.

Other Updates

Gilead recently announced a global research and development collaboration with Galapagos GLPG, whereby it will make a $3.95-billion upfront payment to the latter as well as an equity investment of approximately $1.1 billion. Through this agreement, Gilead will gain access to a proven drug-discovery platform and an innovative portfolio of compounds, including six molecules currently in clinical trials and more than 20 preclinical programs.

This year, Gilead intends to submit a new drug application to the FDA for filgotinib, an investigational, oral, selective JAK1 inhibitor, for the treatment of rheumatoid arthritis (RA).

Our Take

The company’s results in the second quarter benefited from solid performance of the HIV franchise, driven by the rapid adoption of Biktarvy amid stiff competition from the likes of GlaxoSmithKline GSK.

Although the increase in sales guidance was impressive, this biotech is facing tough business conditions lately with dwindling HCV sales. 

Gilead’s stock has gained 7.3% in the year so far, outperforming the industry's growth of 0.1%.

 

The initial uptake of Yescarta (from the Kite Pharma acquisition) is also encouraging but it will take some time for the drug to contribute significantly to the acquired company’s top line, given the treatment’s exorbitant cost. Moreover, Novartis’ NVS Kymriah also exists in the market, posing a fierce rivalry for the stock.

Nevertheless, Gilead’s intent to foray into the inflammation market to diversify its revenue base is encouraging.

Zacks Rank

Gilead currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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