Gilead Sciences’ (GILD) third quarter 2010 earnings of $0.85 (excluding special items but including stock-based compensation expense) was a penny above the Zacks Consensus Estimate and well above the year-ago earnings of $0.74. The improved showing in the reported quarter was mainly attributable to strong sales of antiviral products.
Revenues climbed 8% to $1.94 billion, marginally above the Zacks Consensus Revenue Estimate of $1.93 billion. Foreign exchange (Fx) fluctuations adversely impacted revenues by $44.2 million.
Revenues
Product sales climbed 13% to $1.87 billion driven by sales growth of antiviral products such as Atripla (up 23% to $742.7 million), Truvada (up 8% to $668.7 million) and Viread (up 9% to $184.3 million).
Antiviral product sales for the quarter grew 12% to $1.65 billion. While the US market contributed $922.6 million (up 14.6%) to antiviral product sales, Europe contributed $614 million (up 5.3%).
This is the fourth quarter in a row in which Atripla recorded higher sales than Truvada. Sales of both Atripla and Truvada benefited from volume growth in the US and Europe.
Other products such as Letairis and Ranexa recorded sales of $60.4 million (up 26%) and $60.3 million (up 23%), respectively. Cayston, which received US Food and Drug Administration (FDA) approval in February 2010, recorded sales of $14.7 million during the quarter.
Gilead’s royalty, contract and other revenues plummeted 52.7% to $72.1 million based on lower royalties from Roche (RHHBY) on Tamiflu sales. Tamiflu-related royalties during the quarter were $34.5 million as opposed to $113.5 million in the year-ago period.
Margin & Expenses
On the operational front (excluding special items), operating margin improved 50 basis points to 54.4%. While research & development (R&D) expenses declined 16.1% to $203.2 million, selling, general and administrative expenses increased 10.1% due to higher headcount and expanded commercial activities.
Share Repurchase Activities
Gilead announced that it has repurchased approximately $2.41 billion in common stock at the end of the reported quarterunder its new $5 billion share buyback plan that runs through May 2013.
2010 Guidance
Gilead reaffirmed its guidance for 2010 on all parameters apart from R&D. The company trimmed its projection for 2010 R&D spend to a range of $830 million to $840 million from a range of $850 million to $870 million.
Gilead also provided an update on its HIV franchise pipeline candidates and stated that during the quarter it submitted a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) seeking approval for its once daily, single tablet, fixed dose combination of Truvada and TMC278 (rilpivirine) as a HIV treatment for adult patients. Moreover, partner Johnson & Johnson (JNJ) submitted a New Drug Application (NDA) for TMC278 to the FDA in July 2010.
Neutral on Gilead
Even though we have a Zacks #2 Rank (short-term Buy rating) on the stock in the short-run, we have a Neutral stance on Gilead in the long-run. We remain optimistic on the growth prospects of the company’s HIV drugs, Truvada and Atripla. The company is also looking to increase its presence in the Asian hepatitis B virus (HBV) market, where the infection is quite prevalent.
We are also encouraged by the progress made by the company with its pipeline. However, we remain concerned about the pricing pressure in many European countries.
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