Gilead Sciences (NASDAQ:GILD) reported its third-quarter financial results after the market closed on Tuesday, and a quick glance at the stock's price would certainly lead you to think those results weren't good, as shares fell more than 3% immediately after the results were announced. Were Gilead's numbers really disappointing -- or is there more to the story? 

Source: Gilead Sciences.

By the numbers
First, let's look at the results themselves. Gilead's revenue for the third quarter jumped to $6.04 billion, compared with only $2.78 billion in the same quarter of 2013.The consensus estimate from analysts was for revenue of $5.99 billion. 

Meanwhile, earnings came in at $2.73 billion, or $1.67 per diluted share. That also reflects a big increase from the $788.6 million, or $0.47 per diluted share, reported for the third quarter of 2013. Gilead announced non-GAAP earnings of $1.84 per share. Analysts expected earnings of $1.92 per share, so Gilead delivered a $0.07-per-share earnings miss.

All eyes were on sales of Gilead's blockbuster hepatitis-C drug, Sovaldi. The biotech reported Sovaldi sales of $2.8 billion. While that's a whopping amount and was enough to help Gilead beat top-line expectations, it also was less than the $3.48 billion in sales reported for the second quarter of 2014.

A key culprit behind the earnings miss appears to be higher operating costs. Gilead's non-GAAP research and development expenses increased to $586.3 million, compared with $488.5 million in the same quarter last year. Non-GAAP selling, general, and administrative costs, though, were the bigger issue -- more than doubling year over year to hit $888.3 million in third quarter of 2014.

Beyond the numbers
Is Sovaldi in trouble after a sales drop-off of nearly 20% from last quarter? Not at all. Doctors and patients alike were anticipating approval of Harvoni, a hep-C regimen that combines Sovaldi with ledipasvir. It's a common syndrome in these scenarios that many opt to hold off for a better treatment. That appears to be what happened in this case.

Gilead also saw nice growth from multiple other fronts. HIV drugs Viread, Complera/Eviplera, and Stribild all achieved double-digit year-over-year sales increases. Stribild was the real star, with revenue jumping 128% compared with the third quarter of 2013.

The higher operating costs shouldn't be a huge concern at this point, either. One big factor was a catch-up payment of $337 million for the branded prescription drug fee imposed by the Affordable Care Act. That fee alone accounted for $0.21 per diluted share. Other drivers of the operating cost increase included expansion of clinical studies and the launch of Sovaldi and chronic lymphocytic leukemia drug Zydelig.

Looking ahead
Gilead tightened its full-year 2014 guidance for net product sales by bumping the low end of the range from $21 billion to $22 billion. The upper end of the net product sales range held steady at $23 billion. 

While the market was disappointed in the biotech's third-quarter results, it's always helpful to keep the big picture in mind. Two factors behind Gilead's earnings miss -- lower Sovaldi sales and an Obamacare tax catch-up -- were temporary issues. The other primary factor -- spending more money to launch new drugs -- is an investment that should pay off. Nothing in Gilead's results appear to diminish the company's value as a long-term pick for investors looking for strong growth.


Keith Speights owns shares of Gilead Sciences. The Motley Fool recommends and owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.