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Gilead's (GILD) Earnings Miss Estimates in Q3, Sales Beat

Zacks Equity Research

Gilead Sciences, Inc. GILD reported mixed results for the third quarter of 2019 as earnings missed expectations while sales managed to marginally surpass the same.

The company delivered earnings of $1.75 per share in the third quarter, declining from $1.84 in the year-ago quarter and missing the Zacks Consensus Estimate by a penny.

Total revenues of $5.60 billion beat the Zacks Consensus Estimate by 0.1% and were roughly flat year over year.

HIV Franchise Maintains Momentum

Product sales came in at $5.5 billion, up 1.1% year over year.

HCV product sales declined 25.3% to $674 million, due to competitive dynamics.

HIV product sales increased 13.5% year over year to $4.2 billion, driven by higher sales volume led by the continued uptake of Biktarvy. Sales of Biktarvy were $1.2 billion, up from $386 million in the year-ago quarter and $1.1 billion in the previous quarter. It was the number one prescribed regimen for both treatment-naïve and switch patients in the United States in the quarter.

Genvoya generated sales of $978 million, down from $1.2 billion in the year-ago quarter. Descovy recorded sales of $363 million, down from $406 million in the year-earlier period, while Odefsey sales were $436 million, up from $423 million a year ago.

CAR-T therapy Yescarta (axicabtagene ciloleucel) generated $118 million in sales, up from $75 million a year ago, driven by a higher number of therapies provided to patients and its continued expansion in Europe. However, sales were down from $120 million in the previous quarter.

Other product sales — chronic hepatitis B (HBV) drugs, cardiovascular, oncology and other categories (Vemlidy, Viread, Letairis, Ranexa, Zydelig and AmBisome) — were $522 million, which decreased from $751 million in the year-ago quarter due to declines in Ranexa and Letairis sales after generic entries in 2019.

Adjusted product gross margin was 86.2% compared with 85.9% in the year-ago period. Research & development (R&D) expenses came in at $954 million, down from $844 million in the year-ago quarter. Selling, general and administrative (SG&A) expenses increased to $967 million from $852 million in the year-ago quarter.

2019 Guidance Narrowed

Gilead now expects sales of $21.8-$22.1 billion compared with the previous guidance of $21.6-$22.1 billion. Adjusted R&D and adjusted SG&A expenses are projected to be $3.7-$3.8 billion and $4.0-4.1 billion, respectively. Adjusted product gross margin is anticipated to be 85-87%.

Dividend and Share Repurchase

During the quarter, Gilead repaid $1.5 billion of debt, paid out dividends of $804 million and spent $223 million on share buybacks.

Other Updates

The FDA approved a label expansion of HIV treatment, Descovy, as a prevention option. The agency approved the treatment for the pre-exposure prophylaxis (PrEP) indication. Descovy for PrEP is indicated to reduce the risk of sexually acquired HIV-1 infection in adults and adolescents weighing at least 35 kg, who are HIV-negative and at risk for sexually acquired HIV, excluding individuals at risk from receptive vaginal sex. The approval was based on the DISCOVER trial, which demonstrated that the drug is just as effective as Truvada and offers advantages in bone and renal safety parameters.

In August, Gilead and partner Galapagos’ GLPG Marketing Authorization Application for filgotinib, an investigational, oral, selective JAK1 inhibitor, for the treatment of adults with rheumatoid arthritis was validated by the European Medicines Agency.  The company is on track to complete a filing in the United States by the end of the year.

Our Take

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

While the HCV franchise declined as expected, the uptake of Yescarta (from the Kite Pharma acquisition) has been quite slow and it will take some time for the drug to contribute significantly to the company’s top line, given the treatment’s exorbitant cost. Moreover, Novartis’ NVS Kymriah exists in the market, posing stiff competition.

The stock is trading down in pre-market hours on lackluster results. Gilead’s stock has gained 5.5% in the year so far against the industry's decline of 2.5%.

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

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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