Gilead Sciences, Inc. (NASDAQ:GILD) is one of the biggest companies in biopharma, but that hasn't kept investors from selling its shares this year. Stiffening competition in the market for hepatitis C treatment has caused sales of its multibillion-dollar hepatitis C drug Harvoni to falter, and that's crimping both sales and profit. What was the impact of these competitive headwinds in Q2? Here are seven figures from Gilead Sciences' second-quarter earnings release that suggest management has more work to do to overcome its challenges.
No. 1: $400 million.
Gilead Sciences' total revenue in the second quarter came in at $7.8 billion, down $400 million from the $8.2 billion it reported in the second quarter of 2015. The drop-off in sales is tied to lower average prices for its top-selling Harvoni, a hepatitis C drug that's become a go-to in genotype 1 patients.
No. 2: 28.9%.
Although Harvoni's prescription volume is supported by a global population of hepatitis C patients that exceeds 150 million people, the launch of cheaper genotype 1 treatments by AbbVie Inc. and Merck & Co. have forced Gilead Sciences to boost discounts. As a result, sales of Harvoni, Gilead Sciences' best seller, retrenched by 28.9% in Q2 versus a year ago. Harvoni revenue was $2.56 billion in Q2, down from $3.61 billion in Q2, 2015.
No. 3: $1 billion.
Slowing Harvoni sales resulted in fewer dollars dropping to the bottom line last quarter. Gilead Sciences' GAAP net income fell $1 billion year over year to $3.5 billion, or to $2.58 per share, from $4.5 billion, or $2.92 per share, in Q2, 2015. Even if you back out one-time items, non-GAAP net income still declined $600 million compared to a year ago.
No. 4: 45.6%.
A flurry of clinical trial activity and the roll-out of the company's new HIV therapies caused R&D and SG&A expenses to climb 45.6% in the past year to $2.37 billion on a GAAP basis. On a non-GAAP basis, R&D grew 48%, and SG&A grew 10.1%. If that increase in spending leads to new money-making drugs, then it isn't a bad thing, but only time will tell if that's the case.
No. 5: $400 million.
The approval of TAF, a safer formulation of Viread that's commonly used in Gilead Sciences' combination HIV therapies, is allowing the company to overhaul its HIV drug lineup. Because TAF poses less of a risk of liver damage than Viread, newly launched therapies including it can be used in more high-risk patients. As a result, the company's HIV product sales improved to $3.1 billion in the quarter from $2.7 billion a year ago.
No. 6: $619 million.
The drag on sales from Harvoni in the U.S. and Europe was partially offset by surging demand for the drug in Japan. Harvoni won approval in Japan last July, and Gilead Sciences' Japanese sales jumped to $619 million in Q2 from $62 million in Q2 2015. Now that we've celebrated the one-year anniversary of Japan's approval of Harvoni, though, the net benefit of Japan to total year-over-year Harvoni sales will decline.
No. 7: $24.6 billion.
After forking out $8 billion on stock buybacks in Q1, Gilead Sciences' management reined in repurchases last quarter to conserve cash. Because it spent only $1 billion on buybacks in Q2, management now has a $24.6 billion cash war chest it can use to finance acquisitions, up from $21.3 billion exiting March.
The FDA granted approval to Gilead Sciences' next-generation hepatitis C drug, Epclusa, last month. Epclusa is approved for use in all hepatitis C genotypes, but the company hopes to position it in genotype 2 and 3 so it doesn't cannibalize Harvoni sales.
If management's marketing strategy for Epclusa works, it may reinvigorate sales growth in hepatitis C, but Gilead Sciences' outlook for the rest of 2016 isn't overly encouraging. Following its second-quarter performance, management cut its full-year sales guidance to a range of between $29.5 billion and $30.5 billion from between $30 billion and $31 billion.
Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this. The Motley Fool owns shares of and recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.