What more can we say about Gilead (GILD)? The firm’s product line-up is so strong–namely its key hepatitis C virus drug Sovaldi–that it has the government worried about its impact on Medicare, Medicaid and other federal spending. Gilead’s primary areas of focus–HIV/AIDS, hepatitis B and C, as well as serious cardiovascular/metabolic and respiratory conditions–offer key long-term growth opportunities. The firm’s third-quarter report, released October 28, continued to showcase the firm’s expansion potential.
Total revenues in the period increased to $6.04 billion compared to $2.78 billion for the third quarter of last year. Net income for the third quarter of 2014 was $2.73 billion, or $1.67 per diluted share compared to $788.6 million or $0.47 per diluted share for the third quarter of 2013. Management noted, to date, approximately 117,000 patients have been treated with Sovaldi and spoke favorably about the introduction of Harvoni – “a single table regiment for the treatment of HCV-infected individuals which does not require either interferon or ribavirin.”
Sovaldi continues to be the primary driver behind sales increases (it represented ~50% of antiviral sales in the quarter). Overall, antiviral sales leapt an impressive 138% during the period thanks to a $2.8 billion incremental contribution from Sovaldi. The US Food and Drug Administration approved Sovaldi in December 2013, so the drug did not contribute to last year’s quarterly performance. Complera/Eviplera and Stribild also showed strong growth in the period, advancing 57% and 128%, respectively. Complera/Eviplera and Stribild were launched in 2012/2013, 2012/2013 and 2011, respectively. Cardiovascular product sales, though a much smaller portion of the firm’s revenue, grew 11%.
Looking ahead, Gilead raised the low end of its full-year 2014 guidance range to $22-$23 billion in revenue (was $21-$23 billion) and 86%-88% in product gross margin (was 85%-88%). The company’s SG&A spending will come in a little higher than previous expectations for the year, but we’re not reading too much into this particular upward revision. Gilead retains a war chest of cash on the balance sheet–approximately $7.7 billion at the end of the quarter–and the company is buying back shares at an aggressive pace. Since Gilead’s shares are cheap by almost every measure, we are in complete agreement with management’s capital allocation decisions regarding open-market purchases. Buying undervalued stock is value-creating for shareholders.
Gilead remains a key position in the Best Ideas portfolio – we recently added to the position.