GILD:
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:
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.
Oncology:
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.
Risks:
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)
Source: Bloomberg
