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Gilead Sciences Inc.'s Outlook For 2016: What Investors Need to Know

By Motley Fool Staff – Feb 10, 2016 at 2:46PM

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The biopharmaceutical has some obstacles to overcome if it's going to deliver in 2016.

Motley Fool healthcare contributor Todd Campbell joins healthcare analysts Michael Douglass and Kristine Harjes to dig into Gilead Sciences' (GILD -1.43%) fiscal 2015 financial results and management's guidance for 2016. Can the company overcome the obstacles that have its C-suite thinking sales will flatline this year? Find out in this clip from Industry Focus: Healthcare

Listen to the full podcast by clicking here. A transcript follows the video.

This podcast was recorded on Feb. 3, 2016. 

Kristine Harjes: We're talking about Gilead Sciences, which is a personal favorite for all three of us. They reported earnings this morning. If you follow us on Twitter -- the handle, by the way, is @MFIndustryFocus -- then you already know I spent my morning commute Metro ride reading the call transcripts. This has been my entire day so far. We've been giddily chatting about it ever since. And we're going to give the biotech a grade in a little bit for how they did in 2015, but first, let's hear some numbers.

Todd Campbell: Alright. Let me dive in and give everyone the numbers they've been waiting for. Q4 revenue was $8.5 billion. That was up 16% from a year ago. Q4 adjusted earnings were $3.32 a share. That was up from $2.43 a year ago. And for the full year, sales were a whopping $32.6 billion, up from $24.9 billion in 2014. And, adjusted earnings per share were $12.61, which was up handsomely from the $8.09 they delivered in 2014.

Harjes: I'm just going to reiterate that $33 billion number, because I'm also going to compare it to the guidance that they gave a year ago, today. Feb. 3, 2015 revenue guidance was for $26 billion to $27 billion. Three different times during the year, they upped the guidance. It ended up being an estimate of $30 billion to $31 billion, and then they beat that, too.

Michael Douglass: Yeah. And I think, one of the big things you have to then think about is, OK, so, they, on this call, said, "OK, our guidance for 2016 is around $30 billion to $31 billion for revenue." OK, folks, after last year, remembering last year's lesson, I've got to think this is sandbagging. You look at that, you think, "OK, revenue's going to decline a little bit from 2015, that's not great." Yeah, except that this time last year, they were saying that they'd be $6 billion lower than they ended up getting.

Harjes: Yeah. I'm not personally disappointed at all with the 2016 guidance.

Douglass: Yeah. Well, I think ...

Campbell: Well, it would be nice, obviously, if they had jumped out and said, "Yeah, you know, we don't view any of these competing drugs as threats, and we think we're going to deliver $40 billion!" But, Gilead Sciences, as you know, tends to rein in the expectations a little bit. And I don't think that's a bad thing. I think, over time, it makes much more sense for management to be conservative than it is for them to be pie-in-the-sky.

Douglass: Yeah, especially because they are conservative, and then, at the very least, they deliver on that conservative estimate. And usually, they beat it handsomely. So, you've got managements that talk a big game, and you've got managements that actually play a big game, and this is definitely the latter.

Harjes: So, you can't just say, "We expect pretty flat revenue," without giving any good reasons for it. Let's dig into some of these reasons. Why such low guidance?

Campbell: There's a few different things that are going on here that are affecting guidance. You've got an increasingly competitive market here in the United States, you've got, obviously, Viekira Pak's been on the market since last January of 2015 ...

Harjes: A competing hepatitis C drug.

Campbell: ... you've got a recent approval -- what's that?

Douglass: A competing hepatitis C drug is what Kristine said.

Campbell: Correct.

Douglass: Although, I have to insert in there, yeah, but Viekira Pak's under 10% market share. So, so far, Gilead's having a pretty good run of it. But, sorry, I'll let you continue.

Campbell: Yeah, no, you're right. Again, they came into 2015 with the same kind of uncertainty, if you will, that they're coming into 2016 with. At the time, they had no idea whether or not Viekira Pak was going to take 10% of the market or 30% of the market. They didn't know whether or not they'd be able to negotiate price reimbursement throughout the European Union. They weren't sure whether or not or when they would launch in Japan.

They weren't sure whether or not government funding would drive patient starts from Medicaid and patients being treated at the VA. So, you look at '15, and you say, "OK, they had very tepid guidance." You look at '16, it's the same kind of issues: competitive threats, government payers, international launches. So, there are a lot of similarities. But at the same time, there are real risks. I think it makes sense for them to be conservative. We don't know how this is all going to shake out.

Kristine Harjes owns shares of Gilead Sciences. Michael Douglass owns shares of Gilead Sciences. Todd Campbell owns shares of Gilead Sciences and Twitter. The Motley Fool owns shares of and recommends Gilead Sciences and Twitter. 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.

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