Why Gilead Sciences Is a Good Buy

Gilead Sciences (GILD) announced second quarter ended June 30, 2016 total revenue of $7.8 billion, down 5 percent year-over-year from $8.2 billion during the same period last year. Going forward, the company estimates complete fiscal year 2016 total non-GAAP revenue to be in the range of $29.5 billion to $30.5 billion.

Analyzing the results

Gilead Sciences declared second quarter of 2016 non-GAAP net income of $4.2 billion or $3.08 per diluted share, down 14 percent year-over-year from $4.8 billion or $3.15 per diluted share in second quarter of 2015.
Moving ahead, the company estimates complete fiscal year 2016 diluted earnings per share to be in the range of $1.47 to $1.53.

The global biopharmaceutical company reported continued year-over-year decline in both its top and bottom lines primarily due to year-over-year reduction in antiviral product sales.

The year-over-year decline in top line growth for Gilead Sciences is primarily attributable to a fall in combined product sales across the globe.

The sequential and year-over-year decline in adjusted operating margin for the quarter is mainly due to 48% year-over-year and 35% sequential increase in adjusted R&D expenditures during the period. Further, greater R&D expenditure during the quarter over the same period last year is driven by general evolution of advanced clinical lessons and strategic procurement of a FDA precedence evaluation.

Gilead Sciences seems keenly focused on holding the continued product sales decline for the period while consistently increasing the research and development expenditures to develop newer medicines for chronic diseases at competitive prices.

Factors to drive growth  

Gilead reported $7.7 billion of total product sales for second quarter of 2016 as against $8.1 billion in second quarter of 2015. Net product sales in the U.S., Europe, Japan and several other locations were recorded at $4.9 billion, $1.6 billion, $619 million and $531 million respectively for second quarter of 2016. However, second quarter of 2015 total product sales in the U.S., Europe, Japan and other locations were recorded at $5.6 billion, $2.0 billion, $62 million and $515 million respectively. Antiviral net product sales including, products for Gilead's liver and HIV disease segments were $7.1 billion during the period as against $7.6 billion for the same period last year.

However, HIV and other innovative antiviral product sales for second quarter of 2016 were $3.1 billion as against $2.7 billion in second quarter of 2015 mainly due to significant sales growths in the company’s Odefsey® (tenofovir alafenamide 25 mg/rilpivirine 25 mg/emtricitabine 200 mg), Genvoya® (tenofovir alafenamide 10 mg/ emtricitabine 200 mg/ cobicistat 150 mg and elvitegravir 150 mg), tenofovir alafenamide (TAF) and Descovy® (emtricitabine 200 mg/tenofovir alafenamide 25 mg) centered products.

The year-over-year growth in HIV and differentiated antiviral product sales for second quarter of 2016 were somewhat offset by continued year-over-year product sales decline for antiviral drugs to treat HIV and liver diseases.

The year-over-year decline in second quarter of 2016 consolidated HCV product sales in U.S. is driven by weaker start of Harvoni patients, increasingly greater rebates for introducing access and weaker revenue achieved per patient due to a shift in the payer mix. The sequential sales growth is due to emerging robust Epclusa sales and strategic adjustment of $279 million worth sales return reserves somewhat offset by improved gross-to-net returns owing to favorable shift of the payor mix.

For Europe, sequential and year-over-year net HCV product sales decline is due to weaker patient beginnings and greater share of patient beginnings from nations having weaker average total price. For Japan, the sequential product sales decline is due to weaker Harvoni patient beginnings after the strategic warehouse expansion during the first quarter of 2016 and complete quarter effect of compulsory price lessening for Harvoni and Sovaldi. Gilead’s European revenue was negatively impacted by unacceptable $24 million quarter-over-quarter and unacceptable $104 million year-over-year foreign exchange translations.

Conclusion     

Overall, the investors are advised to “Buy” Gilead Sciences Inc. considering the company’s significant near-term and longer term growth prospects being supported by a solid financial position coupled with impressive return on equity, strong valuation level and growing profit margins. These strengths are believed to outweigh the company’s only weakness in poor net income growth. The gross profit margin of 89.57% is extremely impressive and notably outperforming the industry’s average margins.
Published on Aug 24, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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