Gilead Sciences, Inc.’s (NASDAQ:GILD) third-quarter 2016 earnings (including the impact of stock-based compensation expenses) of $2.70 per share missed the Zacks Consensus Estimate of $2.74 and were down 15.4% from the year-ago quarter figure. As a result, GILD stock was off about 2% on Wednedsay.
Moreover, Gilead’s total revenue in the reported quarter came in at $7.5 billion, down 9.6% year-over-year. Nevertheless, quarterly revenues marginally beat the Zacks Consensus Estimate of $7.4 billion.
Here’s a closer look at the report, and our take on GILD stock:
Gilead’s HCV Franchise Disappoints Again, HIV Impresses
Product sales came in at $7.4 billion, down 9.8% year over year and 3.2% sequentially. The decline was due to lower hepatitis C virus (HCV) treatment sales, partially offset by higher sales across HIV and other therapeutic areas. Sequentially, GILD saw an increase in HIV sales and HCV sales in the U.S., and other products, offset by a decline in HCV sales in Japan and Europe.
Antiviral product sales, which include Gilead’s HIV and liver disease portfolios, came in at $6.8 billion in the third quarter of 2016, down 11.2%.
HCV product sales — which include Harvoni, Sovaldi and the recently launched Epclusa — were $3.3 billion, down 31.3% mainly due to lower sales of Harvoni and Sovaldi.
Gilead’s HCV product sales in the U.S. came in at $2 billion, down 37% year-over-year, mainly attributable to lower patient starts for Harvoni and lower revenues per patient. This was primarily a result of a higher percentage of sales that were made in more deeply discounted segments. The figure was also down 12% sequentially.
Total HCV revenue in Europe in the third quarter was $604 million, down 30% year over year and 22% sequentially. This was attributed to lower HCV patient starts in the early launch markets like Germany and France.
Sales of Harvoni plunged 44.2% year over year to $1.9 billion in the reported quarter. The decline was mainly due to lower sales in the U.S. (down 57.3% to $1.1 billion) and Europe (down 28.6% to $380 million). Further, Sovaldi sales recorded a year-over-year decline of 43.7% to $825 million.
Epclusa garnered sales of $640 million in the reported quarter, significantly higher than $64 million reported in the prior quarter. We note that Epclusa was launched in the U.S. and Europe in June and July, respectively.
Meanwhile, HIV and other antiviral product sales came in at $3.5 billion, up 20.7% year over year and approximately 13% sequentially. The increase was primarily driven by continually strong uptake of tenofovir alafenamide (TAF)-based products, Genvoya, which generated sales of $461 million, up from $302 million in the second quarter of 2016; Descovy, which recorded sales of $88 million, up from $61 million in the second quarter of 2016; and Odefsey, which registered sales of $105 million, up from $58 million in the second quarter of 2016.
HIV treatments like Stribild (up 21.5% to $621 million), Complera/Eviplera (up 14.2% to $411 million) and Viread (up 2% to $303 million) performed well. However, Atripla sales tanked 20.5% to $650 million, while Truvada sales fell 5% to $858 million.
Other products — that is Letairis, Ranexa, AmBisome and Zydelig — recorded sales of $215 million (up 18.8%), $170 million (up 5.6%), $91 million (up 3.4%) and $39 million (up 8.3%), respectively.
Research & development (R&D) expenses (including stock-based compensation expenses) were up 35.4% to $1 billion. The increase was primarily due to overall development of the company’s clinical studies, including a $200 million milestone expense associated with the acquisition of Nimbus Apollo, Inc.
Selling, general and administrative (SG&A) expenses (including stock-based compensation expenses) were down 8.1% to $827 million primarily due to lower branded prescription drug fee expense.
Adjusted product gross margin was 87.6%, down from 89.6% in the year-ago period.
2016 Guidance Reiterated
Gilead maintained its outlook for 2016. GILD continues to expect net product sales in the range of $29.5-$30.5 billion.
Adjusted R&D expenses and adjusted SG&A expenses are still projected in the range of $3.6–$3.8 billion and $3.1-$3.3 billion, respectively.
Adjusted product gross margin for 2016 is still predicted in the range of 88–90%.
Dividend and Share Repurchase
Gilead declared its fourth-quarter 2016 dividend. The company will pay a quarterly cash dividend of 47 cents per share of common stock on Dec 29, 2016, to stockholders of record as of the close of business on Dec 15.
During the reported quarter, the company repurchased shares worth $1 billion under its $12 billion 2016 share repurchase program.
Gilead Sciences Price, Consensus and EPS Surprise
Our Take on GILD Stock
Gilead’s third-quarter results were far from encouraging, with the company missing earnings expectations and marginally beating top-line estimates. Moreover, both earnings and revenues declined year over year. We expect investors to react negatively to the news. Nevertheless, Gilead has maintained its outlook for 2016. Its HCV franchise has been under competitive and pricing pressure, which led to a disappointing performance, especially the sales decline of both Harvoni and Sovaldi.
However, Epclusa’s uptake has been encouraging. The HIV franchise performed encouragingly as well, thanks to Genvoya, Descovy and Odefsey. The company also revealed quite a few setbacks related to its pipeline on the third-quarter call.
Zacks Rank & Stocks to Consider
GILD stock is a Zacks Rank #5 (Strong Sell) stock. Investors interested in the health care sector may consider Exelixis, Inc. (NASDAQ:EXEL), Incyte Corporation (NASDAQ:INCY) and Geron Corporation (NASDAQ:GERN). While Geron sports a Zacks Rank #1 (Strong Buy), Exelixis and Incyte carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Incyte’s earnings estimates for 2016 and 2017 were up a respective 10% and 2.1% over the last 60 days. The company has beaten earnings estimates thrice in the last four quarters with an average surprise of 335.16%.
Exelixis has an average positive surprise of 9.10% over the trailing four quarters. Its share price has jumped more than 90% year to date. Loss estimates for both 2016 and 2017 have narrowed over the past 60 days.
Geron has posted a positive earnings surprise in all of the four trailing quarters with an average beat of 20.78%.
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