By Teresa Rivas
Gilead stock is falling after sales of its hepatitis C drug slid
more than expected in a mixed third quarter. That drop, however,
spells opportunity for investors.
Late Tuesday, Gilead Sciences (ticker: GILD) reported adjusted
earnings of $3.01 billion, or $1.84 per share, as revenue jumped
117.1% year over year to $6.04 billion. Excluding a 21-cent
per-share impact related to requirements of the Affordable Care
Act, adjusted earnings per share would have come in at $2.05.
Analysts were looking for the company to earn $1.92 a share on
revenue of $5.98 billion. Shares were recently down 1.9% to
$111.30.
In addition, Gilead boosted the low end of its full-year product
sales guidance by a billion dollars, saying it now expects to log
between $22 billion to $23 billion in sales.
Gilead is synonymous in many investors' minds with hepatitis C
treatments, but Sovaldi, its current offering, saw sales tumble 20%
to $2.8 billion in the quarter. The fall wasn't unexpected, as the
Food and Drug Administration recently approved Gilead's newest
hepatitis C drug, Harvoni, but it was steeper than analysts
anticipated.
It's not surprising that doctors would curb their prescriptions
of the $1,000-a-day Sovaldi, given that the approval of Harvoni has
been highly anticipated and removes the need for patients to take
other pills. And with Harvoni finally hitting the market, sales
should rebound by year's end.
S&P Capital IQ's Jeffrey Loo reiterated a $150 price target
on Gilead as he sees "a re-acceleration of Hepatitis C sales driven
by Harvoni in the fourth quarter and 2015. Gilead indicated the
Harvoni launch is proceeding well with a broader group of
physicians prescribing it, a faster rate of adoption, and the
potential for an 8-week treatment regimen."
Outside the U.S., Harvoni has already seen a brisk $20 million
in initial sales, and a number of European nations are slated to
start sales of the drug in the next few months.
Citigroup's Yaron Werber also maintained a bullish stance,
writing Wednesday that investors should "buy the dip as the
destocking in Sovaldi will be compensated by stocking in Harvoni in
the fourth quarter....We continue to expect material upside to
consensus estimates in 2015 for Hepatitis C and this drives our
conviction in the stock."
Nor will Sovaldi entirely disappear. On its conference call,
management said that the two drugs could "coexist" as Sovaldi
remains the best option for certain groups of hepatitis C patients
at present.
While hepatitis C is front and center on investors' minds,
Gilead has other offerings as well. The company's HIV treatments
are doing well and BMO Capital Markets' Jim Birchenough, who
boosted his target price to $170 following the report, highlights
drugs for hepatitis B and nonalcoholic steatohepatitis "as two
potential pillars of growth beyond Hepatitis C."
Trading at 11.5 times forward earnings, Gilead doesn't look too
pricey, despite touching a new high earlier this week. That
multiple is below many of its peers, and while some discount is
warranted given the uncertain outcome of many of its drugs, it
seems too cheap given that on average analysts expect the company
to log long-term EPS growth approaching 20%. Gilead also
repurchased $1.7 billion of its stock in the quarter.
Gilead is a volatile stock, and like many biotechs, it took
investors on a wild ride in 2014. Yet for those willing to stick it
out, today's drop looks like a good entry point.
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