Earnings Scorecard: Gilead - Analyst Blog

First Quarter Highlights
 
On Apr 20, Gilead Sciences (GILD) reported first quarter fiscal 2010 earnings per share (EPS) of 92 cents. However, excluding non-recurring items and treating stock-based compensation as a regular expense, the company’s EPS of 95 cents surpassed the Zacks Consensus Estimate of 91 cents and the year-ago period’s 63 cents. Revenues during the quarter increased 36% year over year to $2.09 billion.
 
Although Gilead posted a strong first quarter, the company lowered its outlook for 2010 due to the healthcare reform. The company now expects net product revenues of $7.4 - $7.5 billion compared to the earlier guidance of $7.6 - $7.7 billion. However, guidance for gross margin, operating expenses, tax rate etc. remains unchanged.
 
For a full coverage on first-quarter earnings, read: Gilead Beats but Lowers Outlook
 
Agreement of Analysts
 
Following the release of first quarter results, estimate revision trends among the analysts depict a positive outlook for the forthcoming quarters. Over the last 30 days, 4 of the 13 analysts covering the stock have made upward revisions for the second quarter, third quarter, fiscal 2010 and fiscal 2011. Although no downward revision has been made for the next two quarters, estimates for fiscal 2010 and fiscal 2011 have been lowered by one analyst.
 
The positive bias is still continuing, which is evident from the upward revision in the past 7 days. No downward revision has taken place in this period.
 
There are a number of reasons for the positive sentiment regarding Gilead. The company reported robust revenue growth driven by strong product sales, especially the antiviral franchise. Antiviral products – Atripla, Truvada and Viread recorded strong growth in revenues.
 
Gilead, being a leading player in the HIV segment, is continuing to increase its patient base. In the fourth quarter of 2009, the number of patients treated with antiretroviral therapy grew by 4% on a moving annual total basis to approximately 581,000 patients.
 
We are also encouraged by the growth in royalty income. Moreover, we believe the US Food and Drug Administration’s (FDA) approval of Cayston for the treatment of lung infection in patients with cystic fibrosis will enable Gilead to diversify its revenue stream.
 
Apart from the lowering of its 2010 revenue outlook, there is another area of concern for Gilead. The company has witnessed price reduction in many European countries such as Turkey, France and Greece. Moreover, in Germany, there is a possibility of another 10% rebate on pharmaceutical products (most likely in the third quarter), which is likely to impact revenues. However, the company is confident of being able to tackle such situations primarily banking on the increasing patient base.
 
Magnitude of Estimate Revisions
 
The magnitude of revisions has been modest over the last 30 days. While estimates for the June quarter remained unchanged at 82 cents, estimates for the September quarter have gone up by a penny to 83 cents. Moreover, estimates for fiscal 2010 and fiscal 2011 have increased by 2 cents ($3.46) and 4 cents ($3.73), respectively.
 
Our Recommendation
 
Earnings over the past few quarters have been above expectations specifically on strong sales of the HIV franchise. Going forward, we remain optimistic on the growth prospects of Truvada and Atripla. The company has entered into many deals in the past to strengthen its pipeline.
 
Results from a phase III study of TMC278, co-developed with Johnson & Johnson (JNJ), are awaited. Positive data should allow Gilead to file regulatory approval for the drug by the third quarter of 2010. Moreover, a phase III study of the company’s four-in-one HIV pill, Quad, is expected to be initiated in the second quarter of 2010. Successful commercialization of these products will further boost the company’s top line.
 
We have a Neutral recommendation on the stock given the strong potential of the company, which is also supported by the Zacks Rank #3 (Hold).
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