Gilead Sciences Inc. (GILD, Financial), a research-based biopharmaceutical company, increased its full-year guidance even though second-quarter product sales dropped $0.7 billion from the prior-year quarter.
The California-based biotech company reported total sales of $7.1 billion and net income of $3.1 billion for the quarter, both slightly underperforming comparative values from second-quarter 2016. Although the company increased its total product sales in the U.S. and Europe, product sales in Gilead’s other regions dropped nearly 50% from its prior-year quarter value of $1.2 billion.
Brief summary of earnings report
Consolidated antiviral product sales tumbled $0.7 billion primarily due to lower sales in Harvoni and Sovaldi, two of Gilead’s chronic hepatitis C (HCV) products. Harvoni sales declined $1.182 million, or approximately 46.1% year over year, driven by lower product sales in the U.S., Europe and other regions. Sovaldi sales nosedived $1 billion, with a near 90% sales drop in the U.S. The sharp declines were offset by increasing Epclusa sales, which increased $800 million in the U.S. and $1.1 billion company wide.
Despite lower product sales, Gilead announced several antiviral updates that are expected to increase HCV product sales for the rest of the year, including Food and Drug Administration (FDA) approval of VoseviTM, a new drug for HCV-infected patients. The FDA also approved “supplemental indications for Harvoni and Sovaldi tablets for HCV treatment in adolescents and pediatric patients." Given these approvals, Gilead increased its HCV product sales guidance approximately $1 billion from its Feb. 7 guidance. Net product sales are expected to increase $1.5 billion from the previous guidance.
Company still has good growth and value potential despite lower revenues
Gilead has a strong profitability rank of 8 with margins and returns outperforming over 95% of global biotech companies. The company’s operating margin, which increased approximately 9.50% per year over the past five years, is approximately 17% higher than the 10-year median of 40.39%.
While the company’s share price is near a 52-week high, Gilead’s price valuations suggest moderate undervaluation. The company’s price-earnings ratio, price-book ratio and price-sales ratio are near their respective 10-year lows of 6.67, 4.1 and 2.94. Gilead’s P/E and P/S rank higher than 90% and 80% of global biotech companies.
Gilead’s share price increased approximately 0.61% as the company offered a promising revenue outlook for the rest of the year. The company’s share price of $74.19 is still near its 10-year minimum P/S valuation of $64.70.
John Linehan's T Rowe Price Equity Income Fund (Trades, Portfolio), Jerome Dodson (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) increased their Gilead positions during the second quarter as the company offers good growth and value potential for the rest of the year.
Disclosure: No position in Gilead.
