UPDATE: Why Gilead's shares are tumbling despite stellar Q4 earnings
- Gilead Sciences announced Q4 earnings on Tuesday that easily beat analyst expectations, including $7.31 billion in sales and $2.43 EPS. Net income was $3.49 billion, compared to $719 million in Q4 2013. But shares tumbled in after-hours trading and opened down nearly 10% on Wednesday, likely due to investor concerns over hep C franchise profit margins.
- The company's red-hot hepatitis C drug sales were up 36% from the previous quarter and about 170,000 patients worldwide have been treated with either Sovaldi or Harvoni. Furthermore, for every patient on Sovaldi, three have begun treatment with Harvoni. Gilead also said that it could wind up treating 250,000 U.S. patients with its products in 2015 across all hep C genotypes.
- Sales of Harvoni exceeded $2.1 billion despite only winning FDA approval in October 2014. But a fierce pricing battle means the company's had to promise big discounts to payers, driving down the drugs' margins per prescription. The question is, can Gilead's early capture of big portions of the hep C market overcome the discounts it's had to provide in order to capture that market share?
Gilead execs also announced that the company would be launching a $15 billion share buyback program and declared a $0.43-per-share dividend for Q2 2014.
It's a solid earnings report and underscores the fact that Gilead's first-to-market advantage over products like AbbVie's Viekira Pak (and its aggressive deal-cutting with some of the largest U.S. insurers in the wake of Express Scripts' exclusive deal with AbbVie) is ensuring its products' success.
But issuing the sorts of discounts necessary to capture that market share is expected to drive down margins significantly, as the company explicitly admitted in Tuesday's earnings call. There's already evidence that investors are nervous about the near-term profits outlook, considering that Gilead shares fell sharply in after-hours trading and continued to slide on Wednesday morning.
The company also noted that hepatitis C drug inventories could draw down in Q1 2015 (due to high wholesaler inventories at the end of last year) before balancing out for the rest of the year. Gilead will also be conducting trials involving Sovaldi and other investigational compounds this year, and launch a cheaper generic in developing nations later this year (if ongoing patent battles go the company's way).