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Gilead (GILD) Q2 Earnings & Sales Beat Eclipsed by CEO Exit
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While Gilead Sciences, Inc.’s (GILD - Free Report) second-quarter earnings beat estimates, the year-over-year decline was disappointing as the magnitude of decline in hepatitis C virus (HCV) sales continues to deepen. Moreover, the results were overshadowed by the news of the company’s president and chief executive officer (CEO), John F. Milligan’s departure.
Consequently, the stock declined in after-market trading and is expected to open in the red. Gilead’s stock has lost 9.8% in the last six months, worse than the industry's decline of 7.9%.
The company’s second-quarter earnings of $1.91 per share beat the Zacks Consensus Estimate of $1.55. However, earnings were below the year-ago quarter figure of $2.56 per share. Total revenues of $5.7 billion beat the Zacks Consensus Estimate of $5.2 billion but declined 20.9% year over year.
HCV Drowns, HIV Floats
Product sales came in at $5.5 billion, down 21.4% year over year, due to accelerated decline in legacy hepatitis C virus (HCV) franchise.
HCV product sales plunged 65.5% due to lower sales of Harvoni, Epclusa and Sovaldi across all major markets, as a result of increased competition. Sales of Harvoni plunged 76% year over year to $331 million in the quarter. Epclusa garnered sales of $500 million in the quarter, down 57.3% from the year-ago quarter.
HIV product sales increased 12.9% year over year to $3.7 billion, primarily due to the continued uptake of products containing emtricitabine (FTC) and tenofovir alafenamide (TAF). Genvoya generated sales of $1.2 billion, up from $857 million in the year-ago quarter. Descovy recorded sales of $403 million, up from $286 million, while Odefsey registered sales of $385 million, up from $258 million in the year-ago quarter. 70% of Gilead's total HIV treatment prescription volume was comprised of Descovy-based regimens. We note that Gilead received a major boost when the FDA approved the company’s once-daily single tablet regimen (“STR”), Biktarvy (bictegravir 50mg/emtricitabine 200mg/tenofovir alafenamide 25mg, BIC/FTC/TAF) for HIV-1 infection. The recent approval of Biktarvy in Europe will further strengthen the company’s HIV franchise. Bikatrvy’s sales came in at $185 million. Biktarvy also became the number one regimen for switch patients during the quarter. Truvada, for use in the pre-exposure prophylaxis setting, continued to maintain momentum with an estimated 180,000 patients using the drug, by the end of the second quarter. The FDA expanded Truvada’s label to include at-risk adolescents as well, in May 2018. However, HIV sales were down slightly year-over-year in Europe, due to generic competition in several markets.
HIV treatments like Stribild and Complera/Eviplera sales declined 36.2% and 21.6%, respectively. Atripla sales tanked 26.5% to $349 million, while Truvada sales fell 5.8% to $765 million.
CAR-T therapy Yescarta (axicabtagene ciloleucel), which was launched in the United States in October 2017, generated $68 million in sales, up from $40 million in the previous quarter.
Other product sales, which include chronic hepatitis B (HBV) drugs, cardiovascular, oncology and other categories (Vemlidy, Viread, Letairis, Ranexa, Zydelig and AmBisome), were $807 million for the second quarter of 2018 compared to $932 million in the year-ago quarter.
Adjusted product gross margin was 84.2% compared to 87.3% in the year-ago period. Research & development (R&D) expenses increased 13.4% to $921 million. Selling, general and administrative (SG&A) expenses increased 1.6% to $840 million.
2018 Guidance
Gilead continues to expect net product sales in the range of $20-$21 billion. Adjusted R&D expenses and adjusted SG&A expenses are projected in the range of $3.4-$3.6 billion and $3.4-$3.6 billion, respectively. Adjusted product gross margin is expected in the range of 85-87%.
Dividend and Share Repurchase
Gilead declared a cash dividend of 57 cents per share of common stock for third-quarter 2018. The dividend is payable on Sep 27 to stockholders of record at the close of business on Sep 14. During the quarter, the company paid cash dividends of $740 million and repurchased shares for $450 million.
CEO to Step Down
Concurrently, Gilead announced that its CEO, John F. Milligan, will step down after serving the company for 28 years. Milligan will continue in his current position through the end of the year, while the board of directors finds a successor.
Our Take
Although Gilead’s second-quarter results beat estimates, the year-over-year decline is a matter of concern.
Gilead Sciences, Inc. Price, Consensus and EPS Surprise
The departure of the CEO at this crucial time further clouds the growth prospects of the company. As expected, the HCV franchise sales continue to decline. While the HIV franchise maintains momentum driven by the rapid adoption of Descovy-based regimens, the growth rates are not exemplary.
Given the persistent decline in HCV sales, the company is looking to HIV and newer avenues to help its top line. The initial uptake of Yescarta (from the Kite Pharma acquisition) is also encouraging but it will take some time for sales to contribute significantly to the top line, given the high cost of treatment. Moreover, Novartis’ (NVS - Free Report) Kymriah is also there in the market posing competition.
During the first quarter, Gilead announced an agreement with Sangamo Therapeutics, Inc. (SGMO - Free Report) to use Sangamo’s zinc finger nuclease technology platform for the development of next-generation ex vivo cell therapies in oncology. Gilead is also intending to foray into the NASH and inflammation market with late-stage candidates- selonsertib and filgotinib.
Going forward, Gilead will have to generate substantial revenues from its HIV franchise to offset the HCV sales decline. This will be a challenging task for the company with stiff competition from the likes of GlaxoSmithKline (GSK - Free Report) in the HIV market.
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Gilead (GILD) Q2 Earnings & Sales Beat Eclipsed by CEO Exit
While Gilead Sciences, Inc.’s (GILD - Free Report) second-quarter earnings beat estimates, the year-over-year decline was disappointing as the magnitude of decline in hepatitis C virus (HCV) sales continues to deepen. Moreover, the results were overshadowed by the news of the company’s president and chief executive officer (CEO), John F. Milligan’s departure.
Consequently, the stock declined in after-market trading and is expected to open in the red. Gilead’s stock has lost 9.8% in the last six months, worse than the industry's decline of 7.9%.
The company’s second-quarter earnings of $1.91 per share beat the Zacks Consensus Estimate of $1.55. However, earnings were below the year-ago quarter figure of $2.56 per share. Total revenues of $5.7 billion beat the Zacks Consensus Estimate of $5.2 billion but declined 20.9% year over year.
HCV Drowns, HIV Floats
Product sales came in at $5.5 billion, down 21.4% year over year, due to accelerated decline in legacy hepatitis C virus (HCV) franchise.
HCV product sales plunged 65.5% due to lower sales of Harvoni, Epclusa and Sovaldi across all major markets, as a result of increased competition. Sales of Harvoni plunged 76% year over year to $331 million in the quarter. Epclusa garnered sales of $500 million in the quarter, down 57.3% from the year-ago quarter.
HIV product sales increased 12.9% year over year to $3.7 billion, primarily due to the continued uptake of products containing emtricitabine (FTC) and tenofovir alafenamide (TAF). Genvoya generated sales of $1.2 billion, up from $857 million in the year-ago quarter. Descovy recorded sales of $403 million, up from $286 million, while Odefsey registered sales of $385 million, up from $258 million in the year-ago quarter. 70% of Gilead's total HIV treatment prescription volume was comprised of Descovy-based regimens. We note that Gilead received a major boost when the FDA approved the company’s once-daily single tablet regimen (“STR”), Biktarvy (bictegravir 50mg/emtricitabine 200mg/tenofovir alafenamide 25mg, BIC/FTC/TAF) for HIV-1 infection. The recent approval of Biktarvy in Europe will further strengthen the company’s HIV franchise. Bikatrvy’s sales came in at $185 million. Biktarvy also became the number one regimen for switch patients during the quarter. Truvada, for use in the pre-exposure prophylaxis setting, continued to maintain momentum with an estimated 180,000 patients using the drug, by the end of the second quarter. The FDA expanded Truvada’s label to include at-risk adolescents as well, in May 2018. However, HIV sales were down slightly year-over-year in Europe, due to generic competition in several markets.
HIV treatments like Stribild and Complera/Eviplera sales declined 36.2% and 21.6%, respectively. Atripla sales tanked 26.5% to $349 million, while Truvada sales fell 5.8% to $765 million.
CAR-T therapy Yescarta (axicabtagene ciloleucel), which was launched in the United States in October 2017, generated $68 million in sales, up from $40 million in the previous quarter.
Other product sales, which include chronic hepatitis B (HBV) drugs, cardiovascular, oncology and other categories (Vemlidy, Viread, Letairis, Ranexa, Zydelig and AmBisome), were $807 million for the second quarter of 2018 compared to $932 million in the year-ago quarter.
Adjusted product gross margin was 84.2% compared to 87.3% in the year-ago period. Research & development (R&D) expenses increased 13.4% to $921 million. Selling, general and administrative (SG&A) expenses increased 1.6% to $840 million.
2018 Guidance
Gilead continues to expect net product sales in the range of $20-$21 billion. Adjusted R&D expenses and adjusted SG&A expenses are projected in the range of $3.4-$3.6 billion and $3.4-$3.6 billion, respectively. Adjusted product gross margin is expected in the range of 85-87%.
Dividend and Share Repurchase
Gilead declared a cash dividend of 57 cents per share of common stock for third-quarter 2018. The dividend is payable on Sep 27 to stockholders of record at the close of business on Sep 14. During the quarter, the company paid cash dividends of $740 million and repurchased shares for $450 million.
CEO to Step Down
Concurrently, Gilead announced that its CEO, John F. Milligan, will step down after serving the company for 28 years. Milligan will continue in his current position through the end of the year, while the board of directors finds a successor.
Our Take
Although Gilead’s second-quarter results beat estimates, the year-over-year decline is a matter of concern.
Gilead Sciences, Inc. Price, Consensus and EPS Surprise
Gilead Sciences, Inc. Price, Consensus and EPS Surprise | Gilead Sciences, Inc. Quote
The departure of the CEO at this crucial time further clouds the growth prospects of the company. As expected, the HCV franchise sales continue to decline. While the HIV franchise maintains momentum driven by the rapid adoption of Descovy-based regimens, the growth rates are not exemplary.
Given the persistent decline in HCV sales, the company is looking to HIV and newer avenues to help its top line. The initial uptake of Yescarta (from the Kite Pharma acquisition) is also encouraging but it will take some time for sales to contribute significantly to the top line, given the high cost of treatment. Moreover, Novartis’ (NVS - Free Report) Kymriah is also there in the market posing competition.
During the first quarter, Gilead announced an agreement with Sangamo Therapeutics, Inc. (SGMO - Free Report) to use Sangamo’s zinc finger nuclease technology platform for the development of next-generation ex vivo cell therapies in oncology. Gilead is also intending to foray into the NASH and inflammation market with late-stage candidates- selonsertib and filgotinib.
Going forward, Gilead will have to generate substantial revenues from its HIV franchise to offset the HCV sales decline. This will be a challenging task for the company with stiff competition from the likes of GlaxoSmithKline (GSK - Free Report) in the HIV market.
Zacks Rank
Gilead currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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