Gilead Earnings Blaze a Star-Studded Future


The global HIV market supports a large and lucrative business environment. With more than $13 billion in antiretroviral drug sales in 2011 -- to just the United States and Europe's five-largest markets alone -- companies in this space can drum up substantial revenues by catering to the HIV patient population.

There may be no more successful company in this sphere than Gilead Sciences , however, which has established its foundation on blockbuster HIV drugs and emerged as a biotech power. Gilead's been good to shareholders recently, with the stock up more than 18% over the last three months -- but with earnings on tap, could the company keep up its momentum?

Revenue soars, earnings beat
Revenue's been roaring higher lately for Gilead, and analysts expected a strong showing from the fourth quarter. Investors were eager to see how the company's latest drug, Stribild, would fare after launching in just August of last year, particularly as the company looks to diversify beyond HIV therapies as it expands its reach across the biotech sphere into hepatitis-C drugs, oncology, and more.

Fortunately, there's no need for shareholders to fret, as Gilead scored yet another win. The company's earnings surged yet again, with adjusted earnings per share coming in at $0.50 -- up $0.01 from a year ago and beating analyst expectations by a full $0.03.

Sales also soared, as Gilead reported revenue of $2.59 billion for the fourth quarter, up 18% year-over-year. That number also smashed projections, which expected only $2.43 billion in revenue for the quarter. Things aren't all rosy in sales, however: Gilead announced that between $80 million to $100 million of its sales came through wholesalers stocking up in the company's drugs ahead of scheduled price increases for 2013. Company executive vice president of commercial affairs Kevin Young pointed out how such trends were beyond Gilead's control, saying, "We cannot predict whether these purchaser activities will be repeated in 2013."

Gilead's already been hiking prices on its HIV drugs over 2012, a move that boosted revenue and also greatly irked the AIDS Healthcare Foundation. The AHF complained about the price hikes on Monday in light of Gilead's raise of HIV therapy Atripla's price in 2012, along with its announcement of Stribild as the most expensive drug on the market in September. Still, the results have worked well for investors, and if price hikes can keep fueling the company's revenues, I doubt Wall Street -- or Gilead's management -- will complain.

The numbers were good, and shares of Gilead responded positively in after-hours trading. In the aftermath of earnings, how should you view the future of this company?

A starstruck future for Gilead
Firstly, Gilead's still shining brightly in an HIV market that's continuing to rise. Blockbuster Atripla is cruising right along with 6% sales growth in the U.S. during the fourth quarter and 5% growth in Europe. That's less than Gilead was recording through the first nine months of the year, but it didn't hurt Atripla's 11% sales growth throughout 2012. With full-year sales now eclipsing $3.5 billion, it's been a good run for Atripla -- but Gilead could soon face some serious pressure here, as the patent for a component of the drug, Sustiva, expires this year.

However, Stribild marks the future of Gilead's HIV preeminence. Stribild combines four drugs into one medication and has already been shown to work as effectively as Atripla. The drug isn't selling much now, with just $40 million in revenue in the fourth quarter after its launch last year, but analysts have already pegged sales expectations for Stribild in the billions. All signs point to this as Gilead's future blockbuster and the true successor to Atripla.

However, Gilead's efforts to reach beyond HIV have succeeded, as well - and there's more in the pipeline to come. The company's looking to boost its oncology portfolio, and its acquisition of YM Biosciences in December should help. Gilead's cardiovascular franchises have also done quite well, with both Letairis and Ranexa seeing double-digit sales growth over the full year 2012 -- the former with 40% revenue growth, a great success.

Gilead has really put the pressure on the hepatitis-C market as of late, however. The company purchased hep-C-focused firm Pharmasset last year for $11 billion, and the results may now be paying off. The company reported two successful phase 3 trials of its hep-C therapy sofosbuvir on Monday, and all signs point to an FDA approval for the drug. Should that occur, sofosbuvir would become the first all-oral hep-C therapy on the market. That would be a big win for Gilead in a market predicted by some analysts to rise to as much as $20 billion in coming years, but it's not the only interested player. AbbVie has its own all-oral therapy in the works, and with a cure rate of 99% -- exceeding Gilead's statistics -- AbbVie could be poised to beat out Gilead in the oral hepatitis-C arena.

So, what does Gilead's 2013 look like? The company's still facing some competition in the HIV arena. Merck has done well with HIV therapy Isentress, a drug that's entered the big pharma's upper echelon with $1.5 billion in sales during 2012 -- an 11% year-over-year increase. Viiv Healthcare -- the partnership between GlaxoSmithKline and Pfizer -- has also been working on a challenger to Stribild, dolutegravir. While dolutegravir's facing challenges of its own, Viiv has shown the drug to be effective in a phase 3 trial.

Regardless, I expect Gilead to continue to soar. The company's done quite well with its HIV portfolio as sales continue to rocket up, and its efforts to expand outside into oncology and hepatitis C, among other markets, will help to pace sales growth while ensuring a broader and more stable portfolio for the company. The stars are aligned for Gilead now -- and should the company continue to grow sales while capitalizing on its future in Stribild and sofosbuvir, investors can expect even more rewards from this soaring biotech.

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