Gilead Sciences (NASDAQ:GILD) reported third-quarter results on Oct. 24 that really won't do much for the stock. Revenue was flat year over year, as gains made in the HIV piece of the business were undermined by declines in hepatitis C drug sales.
Gilead cited heavy competition for the decline in chronic hepatitis C treatments. This falloff has been well documented over the past few years, as other companies have introduced hepatitis C drugs, with the resultant pricing competition forcing Gilead to look elsewhere for revenue. In the mean time, the stock has underperformed the S&P 500 for three years. More recently, as revenues have balanced out, the stock has been looking more appealing at its cheap valuation, prompting investors to ask when is the time to buy the stock. Yesterday's news took the shares down more than 4% today.
Shift to HIV sales
The rising star has been its HIV lineup. Drugs like Biktarvy helped Gilead report $4.2 billion in HIV product sales in the third quarter. The $500 million increase marked an 11.9% gain year over year. But hepatitis C product sales declined by $228 million year over year to $674 million.
In the past, these declines have outpaced the gains in HIV, causing a drop in revenue. Now that HIV drugs are the main breadwinner, things have balanced out. Total revenue is stable at $5.6 billion versus $5.59 billion a year ago. The stock carries a market cap of $80 billion.
Earnings were another story altogether.
Its collaboration with Galapagos NV (NASDAQ:GLPG) and substantial research and development (R&D) costs led to expenses totaling $3.92 billion. Overall, it reported a net loss of $1.2 billion in the quarter, for a loss of $0.92 per diluted share, versus earnings of $1.60 per diluted share a year ago.
The R&D expenses amounted to $2.40 per diluted share. Non-GAAP (adjusted) net income excluding the expenses came out to $2.2 billion -- a profit of $1.75 per diluted share, 4.9% lower than a year ago.
Investors have been waiting for the shift between growing HIV drug sales and declining hepatitis C to finally give Gilead some momentum.
Gilead gave updated guidance for the year. It now expects sales of $21.8 billion to $22.1 billion, versus initial guidance of $21.3 billion to $21.8 billion -- evidence that we have finally seen the end of the drop from hepatitis treatments. Full-year impacts of special items are anticipated to be $3.90 to $4 per diluted share.
The company deserves leeway since R&D is how biopharma companies produce their next meal ticket. The HIV segment remains strong, and Gilead is in phase 3 trials for filgotinib, a treatment for rheumatoid arthritis.
More progress with Yescarta would help. The immunotherapy treatment for various forms of cancer cost Gilead nearly $12 billion, but delivered a mere $118 million in sales during the third quarter. To be fair, the treatment is a new method, and sales will progress slowly. There were some doubts last year about whether or not Gilead will derive comparable value from the acquisition of the drugs creator, Kite Pharma. Long term, it seems plausible. But it's not the only company trying to build up these kinds of immunotherapy treatments, so it doesn't have the competitive edge it once had with its hepatitis C lineup.
Overall, expect the stock to have short-term volatility from the third-quarter news, then continue its normal trading range. Not much has changed. If you want a 3.8% dividend in pharma company with stabilized revenue streams, this isn't a bad buying point.