Sunday, July 27, 2014

Gilead Sciences (GILD) 2nd Quarter Earnings Release July 23rd, 2014

Gilead surprised the market with total product sales of $6.41B, representing a 236% year over year (YoY) increase from $2.77B, and Non- GAAP EPS of $2.36, representing a 470% increase YoY from $0.50. These both beat analyst expectations of $5.86B and $1.79 respectively. These strong second quarter results had Sovaldi, the company’s HepC wonder-drug, in the driver’s seat leading Gilead’s product sales with $3.48B. The high profit margin gained from the strength of Sovaldi sales generated an operating cash flow for Gilead of $4.19B, of which it used $1.2B to repurchase 15.2M shares and has almost $2B left in its share buyback program which ends in September. The company also announced an additional $5B buyback program following the completion of the current one. In addition, the company updated its annual 2014 guidance revising forecasted total product sales of $11B to $21B-$23B. After all this news Gilead remained relatively flat around $90 in the following 24 hours as there are some questions looming about the pricing of Sovaldi.


Sovaldi sales in the second quarter came in at $3.48B compared to analyst estimates of $2.6-$2.9B. As it stands now Sovaldi is the fastest growing drug…ever and it’s sales could pass the world’s top grossing prescription drug from 2013, Humira (an arthritis drug from AbbVie) if it keeps its sales pace. Domestic (US) sales increased to $4.82B year to date (ytd), treating 70,000 patients, with Europe sales also increasing to $1.3B ytd, treating 10,000 patients. Patients in 34 different countries are now being treated which has resulted in 9,000 people to date being cured of HepC however some physicians are delaying the treatment (warehousing) in anticipation for an all-oral treatment. Gilead is also anticipating Sovaldi approval in Japan, in early 2015. As for pricing problems, two members of the Senate have requested price justification for Sovaldi after Medicaid and health insurance companies have been feeling the pressure of Sovaldi’s unwavering demand. One option being looked at is the duration of the treatment, which is currently at 12 weeks but if it was lowered to 6 weeks would cut the price in half to $42,000. Could it be that the reason Gilead is experiencing a price pushback is due to the fact that HepC is primarily caused by drug users and derived from the use of needles? As it stands now a financial support system has been setup that helps patients who are underinsured, have no insurance, or have financial need to gain access to Sovaldi, called Support Path. The competitive atmosphere in the HepC market is also rising as Merck, Bristol Meyer, and AbbVie all are coming out with HepC drugs in the next year. The market is a bit uncertain on Gilead as pricing problems have clouded the future. The outlook for the drug remains positive and even if the price comes down the company is still looking to have a bright future.


Gilead received FDA approval on July 23rd for Zydelig, which will treat three types of blood cancer. This was a breakthrough, however was overlooked by the market as Oncology is an area that receives high speculation. Gilead does have a drug currently in phase III, momelotinib, but the outlook is that they need to get more drugs in Oncology to really make a footprint in this segment.


Some of the risks associated with Gilead are:
-       Price justification
-       Delayed FDA approval
-          Warehousing (physicians delaying prescriptions)
-          Competitive drugs (AbbVie, Bristol Meyer, Merck)
-          General market acceptance (seeing with Oncology)