Turnaround Letter Buy-rated Gilead Sciences (GILD) reported second quarter revenue and earnings that were modestly ahead of consensus expectations. Overall revenues were flat compared to a year ago while product revenues (98% of total revenues) increased 1%. Adjusted per-share earnings fell 5% from a year ago, as slightly higher adjusted operating margins combined with a much higher tax rate. Overall, the quarter provided limited but slightly positive incremental color on Gilead’s future.
Sales of Biktarvy were $1.1 billion, up from $185 million a year ago. This promising new HIV treatment continues to exceed the market’s expectations. Overall HIV revenues grew 10%. Sales of Hepatitis C treatments fell 16% in the quarter. Sales of lymphoma drug Yescarta were $120 million compared to $68 million a year ago, and grew 25% from the first quarter. The new product pipeline continues to look healthy.
The company modestly raised its full-year 2019 revenue guidance: higher statutory rebates and generally better product sales are more than offsetting some product-specific competitive issues.
Adjusted operating margins were slightly higher than a year ago and full-year cost guidance was unchanged.
New CEO Daniel O’Day is aggressively changing the senior management ranks. Since his arrival, the following positions will be turning over: CFO, head of R&D, head of Kite Pharmaceuticals subsidiary, chief commercial officer, head of HR and chief patent officer. The near-total change-over does carry risks, but should fully align the leadership’s loyalties to O’Day and position the company for stronger performance.
The recently announced collaboration with Galapagos offers an encouraging example of Gilead’s creativity in expanding its new drug opportunities in a risk-controlled manner.
The company’s cash balance was unchanged from the first quarter, even as it paid $800 million in dividends, repurchased $588 million in stock and repaid $500 million in debt.
Gilead Sciences had an encouraging first inning of its turnaround.
We continue to rate Gilead Sciences (GILD) shares a buy with a $105 price target
Disclosure Note: One or more employees of the Publisher own GILD shares.