Gilead Sciences Earnings Miss on Dwindling Sovaldi Sales

The company revised guidance for the 2014 full year to $22 billion to $23 billion in revenue from $21 billion to $23 billion, as well as a product gross margin between 86% to 88% from the previous level of 85% to 88%. The consensus estimates are $8.05 in earnings per share and $24.26 billion in revenue.

Net income for the third quarter was $3.01 billion, up from to $879.1 million in the same period of the previous year.

In the previous quarter, Gilead posted a strong beat on earnings due to the production and sales of its hepatitis C treatment, Sovaldi. The sales from this drug in the third quarter were $2.79 billion, compared to $3.48 billion in the second, and $8.55 billion for the nine months ending in September.

Gilead has developed a second-generation hepatitis C drug called Harvoni, which combines Sovaldi with ledipasvir, another drug produced by Gilead. The FDA approved Harvoni earlier in October.

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Treatment with Harvoni is slightly more expensive than Sovaldi, but there is a distinct advantage in that it does not require supplemental treatment to deal with the effects of Sovaldi, making it more attractive. Harvoni treatment costs in the area of $94,000 for a 12-week period, compared to the costs Sovaldi treatment of roughly $84,000.

In the second earnings report, CEO John Martin mentioned that more than 80,000 patients in the United States and Europe had been prescribed Sovaldi. He had this to say about its growth:

To date approximately 117,000 patients have been treated with Sovaldi and with the introduction of Harvoni — a single tablet regimen for the treatment of HCV-infected individuals which does not require either interferon or ribavirin — many more patients will have the potential to be cured of HCV infection.

Nomura reiterated a Buy rating for Gilead with a $141 price target on October 15. FBR Capital Markets has an Outperform rating for Gilead and raised its price target to $130 from $125. Bank of America initiated coverage of Gilead with a Buy rating and a $130 price target on October 1.

Shares of Gilead closed Monday up 0.6% at $113.32. Following the earnings report, the initial reaction in the after-hours market was negative and shares were down over 2% at $111.15. The share price dropped to $110.65 in Wednesday’s premarket.

The shares have a consensus analyst price target of $118.08 and a 52-week trading range of $63.50 to $114.11. Gilead has a market cap of $170 billion.

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