Don't Worry for a Second About Gilead's Earnings Miss


Gilead Sciences shares have steadily risen more than 90% over the past year. The biotech announced first-quarter results after the market closed on Thursday, though, that weren't all that impressive. Will this be a problem for Gilead? I doubt it.

By the numbers
First quarter non-GAAP earnings came in at $801.9 million, or $0.48 per diluted share. That's up from $704.4 million, or $0.45 per diluted share, during the first quarter of last year. However, the average analysts' estimate called for earnings of $0.50 per share.

Gilead reported GAAP earnings for the first quarter of $722.2 million, or $0.43 per diluted share. This represents a large gain from the $442.0 million, or $0.28 per diluted share, reported in the same period for 2012.

Revenue for the quarter totaled $2.53 billion, an 11% increase year over year. However, that figure missed the $2.58 billion in revenue expected by analysts. $2.39 billion of that revenue stemmed from product sales. This amounts to an 8% bump from the first quarter of 2012.

The company listed $2.63 billion of cash, cash equivalents, and marketable securities on hand at the end of the first quarter. This reflects an increase from $2.58 billion recorded as of the end of 2012.

Behind the numbers
Newer HIV drugs Complera/Eviplera and Stribild were the stars of the first quarter. Complera/Eviplera sales increased by 184% year over year to $148.2 million. Meanwhile, Stribild racked up over $92 million in sales. That's more than double the $40 million in sales from fourth quarter for the drug, which was launched in the U.S. last August.

Viread also looked good. Sales for the drug totaled $210 million in the first quarter, up 10% from the same period in 2012.

Other HIV drugs lagged behind, though. Sales for Truvada fell by 8% year over year to $700 million. Atripla garnered sales of $877 million in the quarter, down 1% from first quarter of last year. These drugs were the culprits behind the earnings and revenue misses.

Gilead's cardiovascular drugs, while accounting for a relative small portion of total sales, also performed well. Sales for pulmonary hypertension drug Letairis jumped 35% year-over-year to $118 million. Angina drug Ranexa brought in $96 million during the quarter, up 16% from the same period last year.

Looking ahead
The biotech received bad news a few days ago. The U.S. Food and Drug Administration didn't approve HIV drugs elvitegravir and cobicistat, which were already approved as part of the Stribild quad pill.

I don't see this being a serious issue moving forward. The FDA's concerns related to quality testing procedures and should be relatively easily resolved.

Any worries that Teva Pharmaceuticals might be able to challenge Gilead in the near future were allayed in February, so that's not a pressing concern for now. The two companies settled litigation that allows Teva to begin marketing a generic rival to Gilead's HIV drug on Dec. 15, 2017.

While Gilead seems poised to continue dominating the HIV market, the buzz these days focuses more on the hepatitis C arena. Gilead announced great results today from a mid-stage study of its all-oral combo of sofosbuvir plus ledipasvir both with and without ribavirin.

This latest news confirms the view that Gilead has the pole position in the hep C race. AbbVieclaimed a victory last fall with a study showing that its four-drug regimen achieved a 99% cure rate after 12 weeks. Gilead's results included one arm of the study where patients were free of hep C after taking its drug combo after only eight weeks (and it did so with only three drugs at most, compared to AbbVie's four).

The strong performance from the sofosbuvir/ledipasvir combo also puts pressure on Vertex and Bristol-Myers Squibb. Vertex expects to announce results from its all-oral regimen featuring VX-135 later this year. Bristol plans to move into late-stage studies of its three-drug combo that doesn't rely on ribavirin this year as well.

For now, Gilead looks to be ahead of AbbVie, Bristol-Myers, and Vertex. Don't worry about that first-quarter earnings miss. I think Gilead's year-long run isn't over. This stock should keep on climbing.

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