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What's Behind Gilead Sciences' Lackluster Q3 Earnings Results

By Keith Speights - Oct 25, 2019 at 5:00AM

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The big biotech delivered only a "meh" performance in Q3. Here's what to like -- and not like.

Has Gilead Sciences (GILD 0.65%) really turned the corner after several years of sinking revenue and earnings? That was the question for investors as the big biotech prepared to provide an update on its third-quarter performance.

Gilead announced its Q3 results after the market closed on Thursday. And the answer to the big question appears to be a shaky "yes" -- even though Gilead's performance in the quarter was lackluster overall.

Hand in blue glove holding a beaker with a $100 bill in it and $100 bills beneath it

Image source: Getty Images.

The key numbers

Gilead reported Q3 revenue of $5.6 billion. This reflected a slight improvement from the prior-year period revenue of $5.59 billion. It also was in line with the consensus Wall Street revenue estimate for the third quarter.

The company posted a Q3 net loss of $1.17 billion, or $0.92 per share, based on generally accepted accounting principles (GAAP). This marked a stark contrast to Gilead's earnings of $2.1 billion, or $1.60 per share, achieved in the same quarter of 2018. 

However, Gilead's non-GAAP bottom line looked much better. The biotech announced adjusted earnings of $2.22 billion, or $1.75 per share. Although Gilead's earnings fell from the $2.4 billion, or $1.84 per share, reported in the prior-year period, the company still managed to narrowly beat the average analysts' Q3 earnings estimate of $1.74 per share.

Gilead ended the third quarter with $25.1 billion of cash, cash equivalents, and marketable debt securities. The company generated operating cash flow of $2.6 billion in Q3. It repaid $1.5 billion of debt, bought back $223 million worth of its shares, and paid out dividends totaling $804 million.

Behind the numbers

Most people seem to prefer hearing the bad news first, so let's start there. Gilead's hepatitis C virus (HCV) franchise sales went in the wrong direction, falling 25% year over year and 20% quarter over quarter, to $674 million. The same competitive challenges that have been the thorn in Gilead's side for several years were still present during Q3. Sales also continued to plunge for the company's angina drug Ranexa and pulmonary arterial hypertension drug Letairis, with both drugs battling generic rivals.

We could put the biotech's net loss in the bad news category, as well, but it wasn't truly bad news. The loss stemmed from Gilead's $3.92 billion upfront payment related to its expanded collaboration agreement with Galapagos.

Now for the good news. Gilead's HIV franchise kept its momentum going strong, with overall sales jumping nearly 13% year over year, to $4.2 billion. Credit all of this growth to Biktarvy: Its sales soared 226% year over year, while each of Gilead's other HIV drugs experienced sales declines.

There was also some so-so news. Sales for the cancer cell therapy Yescarta jumped 57% year over year, to $118 million. However, this reflected a decline from the $120 million reported in the second quarter of 2019. 

Looking ahead

Gilead raised the lower end of its full-year revenue guidance to $21.8 billion from $21.6 billion. The upper end of this guidance is still $22.1 billion. 

The HIV franchise will remain the primary growth driver for Gilead for now. The company recently won approval in China for Biktarvy and U.S. approval for Descovy for HIV preexposure prophylaxis (PrEP).

The key to sustained success for biotech stocks is having strong pipelines. Gilead anticipates obtaining European approval for filgotinib in treating rheumatoid arthritis, and plans to soon file for U.S. approval of the drug. The biotech also awaits important results from its phase 2 studies evaluating its drugs targeting the treatment of nonalcoholic steatohepatitis (NASH).

Gilead seems to have turned the corner because its revenue has stabilized. But there's still a long way to go for the stock to return to its high-flying ways from several years ago. 

Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.

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