Gilead’s Sales Fall on Lower Prices of Bestseller Harvoni

Harvoni’s approval in Japan boosts sales to $619 million from $62 million

Source: Gilead
Source: Gilead

Biopharmaceutical company Gilead Sciences Inc. (NASDAQ: GILD) announced its Q2 FY16 financial results on July 25th, 2016. The Foster City, California-based company discovers, develops and commercializes innovative therapeutics and biopharmaceuticals in areas of unmet medical need. The Company’s mission is to advance the care of patients suffering from life-threatening diseases worldwide. Gilead has operations in more than 30 countries worldwide. Read more about Gilead’s financial results below.

Q2 FY16 financial highlights

Source: Company's Presentation
Source: Company’s Presentation

Gilead’s Q2 FY16 total revenue declined 5.6% to $7.8 billion from $8.2 billion in the year-ago period, mainly due to lower average prices for its top-selling hepatitis C drug Harvoni. Despite high prescription volumes for Harvoni, the launch of cheaper genotype 1 treatments by AbbVie Inc. (NYSE: ABBV) and Merck & Co. Inc. (NYSE: MRK) have forced Gilead to offer discounts. As a result, Harvoni sales fell 28.9% to $2.56 billion in Q2 FY16from $3.61 billion in Q2FY15.

Product Sales: Total product sales fell to $7.7 billion in Q2 FY16 from $8.1 billion in the year-ago period. In terms of geography, the U.S. was the largest contributor at $4.9 billion, followed by $1.6 billion in Europe, $619 million in Japan, and $531 million in other locations. Harvoni’s approval in Japan, in July 2015, boosted sales to $619 million in Q2 FY16 from $62 million in the year-ago period.

Antiviral product sales, which include Gilead’s HIV and liver disease drugs, declined to $7.1 billion in Q2 FY16 compared to $7.6 billion in Q2 FY15.The approval of TAF, a safer formulation of Viread used in Gilead’s combination HIV therapies, boosted HIV product sales to $3.1 billion Q2 FY16 compared to $2.7 billion in Q2 FY15.

Other product sales, which include Letairis (ambrisentan), Ranexa (ranolazine) and AmBisome (amphotericin Bliposome for injection), jumped to $525 million in Q2 FY16 from $495 million in the year-ago period.

Source: Company's Presentation
Source: Company’s Presentation

In Q2 FY16, Gilead’s cost of goods sold decreased to $864 million from $998 million, while non-GAAP cost of goods sold decreased to $653 million from $788 million, due to a reversal of the $200 million litigation reserve recorded in Q1 FY16 following a favorable court decision.

Gilead’s R&D and SG&A expenses jumped 45.6% in Q2 FY16 to $2.37 billion on a GAAP basis. On a non-GAAP basis, R&D jumped 48%, and SG&A grew 10.1% in Q2 FY16 mainly due to Gilead’s purchase of a FDA priority review voucher and the progression of clinical studies. Costs also grew due to higher expenses to support Gilead’s new product launches and the expansion of its business.

Source: Company's Presentation
Source: Company’s Presentation

Gilead’s net income declined to $3.5 billion, or $2.58 per diluted share, in Q2 FY16 compared to $4.5 billion, or $2.92 per diluted share, in Q2 FY15.Non-GAAP net income, excluding costs relating to acquisitions, up-front collaboration, stock-based compensation and other expenses, was also lower at $4.2 billion, or $3.08 per diluted share, in Q2 FY16, compared to $4.8 billion, or $3.15 per diluted share, in the year-ago period.

Source: Company's Presentation
Source: Company’s Presentation

Other highlights

As of June 30th, 2016, Gilead had $24.6 billion of cash, cash equivalents, and marketable securities compared to $21.3 billion as of March 31st, 2016. Cash flow from operating activities was $4.9 billion for the reporting quarter.

Among other highlights, Gilead appointed Kevin Young, CBE, as its Chief Operating Officer, and Martin Silverstein, MD, as its Executive Vice President, Strategy. Both Mr. Young and Dr. Silverstein will report to John F. Milligan, PhD, President and Chief Executive Officer.

During Q2 FY16, Gilead acquired Nimbus, a wholly owned subsidiary of Nimbus Therapeutics, and its Acetyl-CoA Carboxylase (ACC) inhibitor program. The Nimbus program includes the lead candidate NDI-010976, an ACC inhibitor, and other pre-clinical ACC inhibitors for the potential treatment of non-alcoholic steatohepatitis, hepatocellular carcinoma, and other diseases. NDI-010976 was granted Fast Track designation by the FDA in February 2016.

Stock repurchases

During Q2 FY16 and H1 FY16, Gilead utilized $1.0 billion and $9.0 billion on stock repurchases, respectively. Gilead had $11 billion of the January 2016 share repurchase program ($12 billion authorization) remaining as of June 30th, 2016.

Product and pipeline updates

Gilead gained FDA approval for Epclusa (sofosbuvir 400 mg/velpatasvir 100 mg; SOF/VEL), the first all-oral, pan-genotypic, single tablet regimen (STR) for the treatment of adults with genotype 1-6 chronic hepatitis C virus (HCV) infection.

Gilead also announced that the European Commission granted marketing authorization for the once-daily STR Odefsey (emtricitabine 200 mg/rilpivirine 25 mg/tenofoviralafenamide 25 mg) for the treatment of HIV-1 infection. Odefsey is Gilead’s second STR based on the Descovy backbone to receive marketing authorization in theEuropean Union and is currently the smallest STR for the treatment of HIV.

Gilead also announced positive data from four pre-clinical and Phase 1 studies evaluating bictegravir (GS-9883), a novel, unboosted, investigational once-daily integrase inhibitor.

The European Commission also granted marketing authorization for two doses of Gilead’s Descovy (200/10mg and 200/25 mg), a fixed-dose combination for the treatment of HIV-1 infection. Descovy is Gilead’s second TAF-based therapy to receive marketing authorization in the European Union.

Guidance for full year FY16

Gilead has cut its guidance for full year FY16 from that announced on April 28th, 2016. Accordingly, the company’s net product sales are expected to range between $29,500-$30,500 for FY16, while EPS is predicted to range between $1.47 and $1.53.

Stock Performance

G6Gilead’s stock stood at $81.79, gaining 0.91%, at the close on Wednesday, July 27th, 2016, having vacillated between an intraday high of $81.98 and a low of $81.06 during the session. The stock’s trading volume was at 14,092,533 for the day. The Company’s market cap was at $109.80 billion as of Wednesday’s close.

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