HIV Franchise Drives Gilead - Analyst Blog
July 27 2011 - 10:45AM
Zacks
Gilead Sciences Inc.’s (GILD) adjusted earnings
per share of 95 cents for the second quarter of 2011 were 14 cents
above the year-earlier earnings of 81 cents. The earnings growth
was driven by a solid top-line performance in the reported quarter.
Earnings were however a penny short of the Zacks Consensus
Estimate.
Second quarter revenues were up 11% from the prior-year quarter
to $2.14 billion. Total revenues also topped the Zacks Consensus
Estimate of $2.10 billion. Revenue performance was driven by a
robust performance of the antiviral (HIV) and cardiovascular
franchises.
The Second Quarter in Detail
Product sales, at $2.04 billion, were up 13% over the prior year
due to a strong performance of antiviral products. Gilead’s product
sales crossed the $2 billion mark for the first time in the
company’s history.
Antiviral product sales for the quarter were up 11% year over
year to $1.76 billion driven by solid performance of Atripla and
Truvada. Sales bounced back from a weak showing in the sequentially
preceding quarter. The top-line weakness in the first quarter
emanated from declines in wholesaler inventories in the US and
purchase cutbacks by certain state funded AIDS Drug Assistance
Program (ADAP) entities in Florida and Texas.
Antiviral revenue in the US was $943.2 million in the relevant
quarter, up 6% over the prior year, driven by healthy patient
demand. In Europe, antiviral revenue was $697.6 million, up 16%
over the prior year also driven by greater demand.
Sales of Truvada, which is a fixed-dose, once-daily tablet
containing Gilead's Viread and Emtriva, were up 11% to $711.3.
Sales of Atripla, which combines Truvada and Bristol Myers
Squibb’s (BMY) Sustiva, were up 15% over the prior year to
$822 million. Higher sales of both the HIV products were egged on
by volume expansion in the US and Europe.
Viread for the treatment of HIV and chronic hepatitis B recorded
sales of $185.7 million, up 5% over the prior year as volume growth
in US and Europe offset weak sales in Latin America.
Other products such as Letairis (for the treatment of pulmonary
arterial hypertension) and Ranexa (for chronic angina) recorded
sales of $73.6 million (up 22% over the prior year) and $86.1
million (up 42%), respectively, also due to volume growth.
Letairis sales benefited from removal of potential liver
injury warning from its label in the US. In conjunction with the
label change, patients receiving Letairis will no longer require
monthly monitoring of liver function through blood tests.
Gilead’s royalty, contract and other revenues were down 19% to
$97.7 million based on lower royalties from Roche
(RHHBY) on Tamiflu sales. Tamiflu-related royalties during the
quarter were $50.6 million as opposed to $83.8 million in the
year-ago period. Demand for Tamiflu has declined significantly from
2009 levels due to the waning of the swine flu.
Guidance Reiterated
Gilead maintained its previously provided guidance for 2011. The
company expects product revenue in the range of $7.9 billion to
$8.1 billion in 2011, reflecting an increase of 7% to 10% over 2010
product sales. The Zacks Consensus sales estimate for 2011 is at
present $8.25 billion.
Product and Pipeline Update
In June 2011, Gilead announced that it has entered into a
license agreement with Tibotec Pharmaceuticals, a division of
Johnson & Johnson (JNJ), to develop and
commercialize a new fixed dose combination HIV drug. The
combination drug will bring together Gilead’s pipeline candidate
cobicistat and Tibotec's protease inhibitor Prezista (darunavir).
The companies are also negotiating the terms of a second
collaboration under which Gilead would be responsible to develop
and commercialize a future single-tablet regimen combining four
drugs (Prezista, cobicistat, Gilead’s marketed HIV drug Emtriva,
and its HIV candidate GS 7340). The agreements with Johnson &
Johnson, if finalized, would further strengthen Gilead’s ever
expanding portfolio of fixed dose combination drugs for HIV
treatment.
The US Food and Drug Administration is due to give its decision
on Gilead’s fixed dose combination of Truvada and Tibotec’s TMC278
(rilpivirine) for the treatment of HIV on August 10, 2011.
Moreover, Gilead has also submitted a Marketing Authorization
Application (MAA) to the European Medicines Agency (EMA) seeking
approval for the combo pill. The EMA is expected to deliver its
decision by the end of the year.
Gilead is expected to deliver data from late stage studies of
another HIV combination pill, Quad, later in the third quarter. The
much anticipated Quad pill is a combination of Gilead’s pipeline
candidate elvitegravir, cobicistat (GS 9350), and Truvada. We
believe these results will be the most significant catalyst for
Gilead in 2011. Gilead expects to file regulatory applications for
Quad in early 2012.
Our Recommendation
We currently have a Neutral recommendation on Gilead. The stock
carries a Zacks #3 Rank (short-term “Hold” recommendation). We are
optimistic on the growth potential of Gilead’s HIV franchise drugs,
Truvada and Atripla. Moreover Gilead’s strategy of creating
fixed-dose combinations of existing HIV drugs has yielded enormous
success. However, we are concerned about patent challenges to its
key HIV drugs. Hence, we maintain a cautious stance until the
current pipeline proves its worth compensating for lost revenues
from patent lapses.
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