Gilead Sciences' shares have been on the ropes this year as a maturing and increasingly competitive market for hepatitis C treatment takes a toll on revenue and profit.
In the past year, Gilead Sciences hepatitis C sales have fallen because the majority of pent-up demand from patients with advanced hepatitis C has been worked through. The launch of competing drugs targeting genotype 1 hepatitis C, the most common variation, by AbbVie Inc. and Merck & Co. have also led to lower realized prices across the indication, which has crimped sales. Furthermore, a larger proportion of healthier patients receiving treatment has shifted demand toward a lower-cost eight-week course of Gilead Sciences' top-selling Harvoni.
In Q3, those headwinds led to total hepatitis C sales falling significantly. Harvoni's sales dropped 44.2% to $1.86 billion from a year ago. Sovaldi sales fell 43.7% to $825 million. And those drops more than offset a positive $640 million contribution from Epclusa, which Gilead Sciences launched this summer.
Overall, the hepatitis C drag caused Gilead Sciences revenue to slump 9.6% year over year to $7.5 billion in the third quarter. It also led to non-GAAP EPS of $2.75, down 14.6% from last year.
Gilead Sciences' hepatitis C drug performance is taking the attention away from double-digit sales growth for the company's HIV drugs. The launch of combination therapies that are safer for HIV patients is increasing their use, and as a result, HIV revenue grew 21% year over year last quarter.
Nevertheless, the sheer size of the hepatitis C market means that it could be a few quarters before the positive impacts from the HIV business begin to help lift top- and bottom-line growth. In 2017, the comparisons will get a bit easier for Gilead Sciences, but there's no guarantee that competitors won't make additional inroads or that insurers won't demand greater price concessions.
Overall, Gilead Sciences is an industry Goliath in these indications, and it's kicking off plenty of cash flow that can support dividend growth. For that reason, Gilead Sciences is an intriguing stock for income investors to bargain hunt; however, growth investors may be better off focusing on other stocks with a better shot at revenue and profit upside.