GILD Gilead Sciences Inc

Gilead Sciences Inc. (GILD) is all set to announce its second quarter 2011 results on July 26, 2011 after the closing bell. The Zacks Consensus Estimate for the second quarter of 2011 is 96 cents, representing a year-over-year increase of 19%. Gilead has delivered mixed results over the last 4 quarters. The company has missed the Zacks Consensus Estimate twice and surpassed the estimate an equal number of times. The trailing four-quarter average is -2.45%.

First Quarter 2011 Recap

Gilead reported earnings per share of 82 cents for the first quarter of 2011, 10 cents below the Zacks Consensus Estimate of 92 cents and 13 cents below the year-earlier earnings. The disappointing earnings performance was due to a weak top-line performance.

First quarter revenues decreased 8% from the prior-year quarter to $1.93 billion. Total revenues were also much below the Zacks Consensus Estimate of $2.05 billion. Revenue performance was disappointing due to a weak performance of the antiviral (HIV) franchise and lower royalties from Roche on Tamiflu sales.

Product sales, at $1.86 billion, though up 4% over the prior year, were down 3% sequentially. The sequential decline in sales was due to weak performance of antiviral products like Atripla, Truvada and Viread in the US.

Antiviral product sales for the quarter though up 2% year over year to $1.63 billion were down 4% sequentially. The sequential drop was due to declines in wholesaler inventories in the US and purchase cutbacks by certain state funded AIDS Drug Assistance Program (ADAP) entities in Florida and Texas.

Agreement of Estimate Revisions

Estimate revisions for Gilead have been scarce over the past month. Over the past 30 days, only 2 of the 10 analysts covering the stock for the second quarter of 2011 have revised their earnings estimates. Both have trimmed their estimates. The annual estimates for 2011 too have not been revised by a great many of the analysts. Only 4 of the 11 analysts following Gilead for 2011 have revised their estimates, with one increasing the estimate whereas three others trimming theirs.

We note that many of the analysts following the stock had revised their estimates downward following the first quarter earnings miss. As the estimates were already revised, the stock has not seen significant estimate revisions thereafter. Most of the firms, however, acknowledge that the miss in the first quarter was due to one-time factors, which are unlikely to recur in the second quarter.

Magnitude of Estimate Revisions

Estimates for the second quarter of 2011 have remained static over the last 30 days due to the lack of significant revisions by the analysts following the stock. The current Zacks Consensus Estimate for the second quarter of 2011 is 96 cents. Earnings estimates for 2011 have gone down by 1 cent over the last 30 days. The current Zacks Consensus Estimate for 2011 is $3.77.

Our Recommendation

Currently, we have a 'Neutral' recommendation on Gilead. The stock carries a Zacks #3 Rank (short term 'hold' rating). Despite the disappointing performance in the sequentially preceding quarter, we remain optimistic on the growth potential of Gilead’s HIV franchise drugs, Truvada and Atripla. The fundamentals of the HIV franchise are strong as demonstrated by patient demand and prescription growth in the first quarter despite the declines. The ADAP fluctuation seems temporary and will reverse once the federal funding of ADAP increases. We expect to see a rebound in this current quarter.

However, we are concerned about patent challenges to its key HIV drugs. Accordingly, we prefer to remain cautious on the stock until we get better visibility on the ability of the current pipeline to replace the potential revenue loss from loss of patent protection.

 
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