Investors are correct to be giddy about Gilead Sciences' (NASDAQ:GILD) second-quarter sales growth and its impact on the company's financials, but second-quarter sales aren't the only things that Gilead Sciences management offered insight into earlier this week.
The company also updated its outlook for its HIV program, its international sales, and its acquisition plans, too. Here are five quotes from Gilead Sciences' second-quarter earnings conference call that investors ought to be aware of.
1. "Our newest antiviral agent path, which is under review as part of multiple products for the treatment of HIV, has a superior safety profile compared to TDF. This is important because most newly diagnosed patients will now be treated for decades, and at the same time, many HIV-infected individuals who are in treatment, particularly in the U.S. and Europe, are advancing in age," said CEO John Martin.
Gilead Sciences is reinvigorating its highly successful HIV drug lineup with the launch of a new formulation of Viread, a long-standing HIV medicine that is incorporated into Gilead Sciences' top-selling HIV combination therapies. This new formulation, known as TAF, will replace Viread in Gilead Sciences' combination HIV drugs, and FDA decisions on two TAF combination therapies are expected on Nov. 5 and in March 2016, respectively. If they're approved, then the lower risk of kidney damage associated with TAF could lead to greater use of TAF-containing regimens than Viread-containing regimens, while also improving Gilead Sciences' patent portfolio.
Because Gilead Sciences' HIV sales totaled $2.7 billion last quarter, up 8% year-over-year, and 8 out of 10 newly treated HIV patients initiate therapy on a Gilead medication, investors shouldn't ignore the importance of this advance.
2. "Turning briefly to HCV, since the approval of Sovaldi in December 2013, approximately 470,000 patients globally have initiated treatment with Sovaldi or Harvoni," said Martin.
The launch of Sovaldi and Harvoni revolutionized patient treatment by reducing treatment duration, improving cure rates, and eliminating the long-standing reliance on side-effect-laden prior-generation therapies, such as interferon. But many investors worried that growing competition, including the launch of Harvoni competitor Viekira Pak, would lead to lower prices that would derail profit.
Instead, it appears that the introduction of competition and the resulting price cuts have increased the number of patients initiating treatment on Gilead Sciences' hepatitis C drugs.
Last quarter, 60,000 U.S. patients began taking Gilead Sciences' HCV therapies, up from 45,000 in Q4, and overall, roughly 130,000 U.S. patients have started taking a Gilead Sciences' HCV drug this year -- almost as many people as Gilead Sciences treated during all of 2014.
Expanding prescription volume and its ability to more than offset price headwinds is vitally important to investor, and given that patient counts are climbing in spite of competition and Gilead Sciences' market share remains roughly 90% in the indication, it would seem that worries are -- at least so far -- overblown.
3. "We are seeing a continued broadening of access and reimbursements across multiple European markets. Harvoni is now reimbursed in four of the five big EUMA countries. And in France, we completed pricing negotiations for Harvoni in June, opening access to all patients with a fibrosis score of F2 and to all HIV coinfected patients," said EVP Paul Carter.
In terms of patients, the market for hepatitis C drugs in Europe is even larger than it is in the United States, so growing reimbursement and sales volumes in the EU is likely to provide important long-term sales tailwinds for the company. At last count, roughly 9 million people in the EU have HCV, versus roughly 3 million people in America.
Last quarter, Gilead Sciences' European hepatitis C sales eclipsed $1.1 billion as over 30,000 new patients began receiving treatment. A lot of that patient script volume, particularly in Spain, Italy, and Portugal, is tied to Sovaldi, but deals for the reimbursement of Harvoni could expand sales even further as we get deeper into the year.
4. "We expect product sales to be in the range of $29 billion to $30 billion, an increase of 18% to 23% over 2014," said EVP and CFO Robin Washington.
Heading into 2015, management issued an overly cautious outlook for $26 billion to $27 billion in sales, up 4.5% to 8.4% from 2014. The company bumped up that outlook to between $28 billion and $29 billion exiting Q1, and following the Q2 results, management has increased its forecast yet again to between $29 billion and $30 billion. If Gilead Sciences delivers sales at the low end of this new range, then it will represent top-line growth of at least 18%, which is dramatically better than what the company was thinking in December.
Importantly, the increase in management's top-line forecast should mean that there's plenty of shareholder-friendly cash flow coming, especially given that the company expects profit margin to reach 88% to 90% this year, which is above its prior forecasts of between 87% and 90%. If the company can keep SG&A and R&D expenses in check, then there should be ample money in Gilead Sciences' cash stockpile for share buybacks, dividend increases, or acquisitions.
5. "I do think it is clear we're going to be active and we will be open to opportunities that can benefit our portfolio in the best way we think possible," said President and COO John Milligan.
A number of analysts questioned management about acquisitions during the second-quarter call, and for the most part, executives stayed pretty mum on their plans, but they did offer up some interesting insight.
In addition to restating their intention to keep doing deals, Milligan said that a lot of the run-up in biotech stocks is tied to "dramatic innovation" rather than overzealous investors, a claim that suggests he doesn't believe that biotech valuations are too out of whack to prohibit M&A. Additionally, Milligan said that while immuno-oncology is extremely crowded, he wouldn't rule out an investment in that area if the approach was novel or the benefit to patients great.
Tying it together
Gilead Sciences' market share leadership in HIV and HCV treatment gives it plenty of financial flexibility to fuel R&D on next-generation medicine and successfully launch newly approved medicines worldwide. Because sales are likely to benefit from a growing number of people gaining access to its drugs globally and management has again increased its financial outlook, the company appears to be in a perfect position to continue building shareholder value for years to come.
Todd Campbell owns shares of Gilead Sciences. Todd owns the equity research firm E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Gilead Sciences. The Motley Fool owns shares of 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.