Gilead Sciences, Inc. (NASDAQ:GILD) announced its results of operations for the second quarter ended June 30, 2016. The financial results that follow represent a year-over-year comparison of second quarter 2016 to the second quarter 2015. Total revenues were $7.8 billion in 2016 compared to $8.2 billion in 2015. Net income was $3.5 billion or $2.58 per diluted share in 2016 compared to $4.5 billion or $2.92 per diluted share in 2015. Non-GAAP net income, which excludes amounts related to acquisition-related, up-front collaboration, stock-based compensation and other expenses, was $4.2 billion or $3.08 per diluted share in 2016 compared to $4.8 billion or $3.15 per diluted share in 2015.

   
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions, except per share amounts)   2016   2015   2016   2015
Product sales   $ 7,651   $ 8,126   $ 15,332   $ 15,531
Royalty, contract and other revenues     125     118     238     307
Total revenues   $ 7,776   $ 8,244   $ 15,570   $ 15,838
Net income attributable to Gilead   $ 3,497   $ 4,492   $ 7,063   $ 8,825
Non-GAAP net income*   $ 4,177   $ 4,845   $ 8,451   $ 9,449
Diluted earnings per share   $ 2.58   $ 2.92   $ 5.11   $ 5.68
Non-GAAP diluted earnings per share*   $ 3.08   $ 3.15   $ 6.11   $ 6.08

* Non-GAAP net income and non-GAAP diluted earnings per share exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 8 and 9.

Product Sales

Total product sales for the second quarter of 2016 were $7.7 billion compared to $8.1 billion for the same period in 2015. Product sales for the second quarter of 2016 were $4.9 billion in the U.S., $1.6 billion in Europe, $619 million in Japan and $531 million in other locations. Product sales for the second quarter of 2015 were $5.6 billion in the U.S., $2.0 billion in Europe, $62 million in Japan and $515 million in other locations.

Antiviral Product Sales

Antiviral product sales, which include products in Gilead’s HIV and liver disease areas, were $7.1 billion for the second quarter of 2016 compared to $7.6 billion for the same period in 2015.

  • HIV and other antiviral product sales were $3.1 billion compared to $2.7 billion for the same period in 2015 primarily due to increases in sales of our tenofovir alafenamide (TAF) based products, Genvoya® (elvitegravir 150 mg/cobicistat 150 mg/emtricitabine 200 mg/tenofovir alafenamide 10 mg), Descovy® (emtricitabine 200 mg/tenofovir alafenamide 25 mg) and Odefsey® (emtricitabine 200 mg/rilpivirine 25 mg/tenofovir alafenamide 25 mg).
  • HCV product sales, which consist of Harvoni® (ledipasvir 90 mg/sofosbuvir 400 mg), Sovaldi® (sofosbuvir 400 mg) and Epclusa® (sofosbuvir 400 mg/velpatasvir 100 mg), were $4.0 billion compared to $4.9 billion for the same period in 2015 primarily due to a decline in sales of Harvoni.

Other Product Sales

Other product sales, which include Letairis® (ambrisentan), Ranexa® (ranolazine) and AmBisome® (amphotericin B liposome for injection), were $525 million for the second quarter of 2016 compared to $495 million for the same period in 2015.

Cost of Goods Sold

During the second quarter of 2016, compared to the same period in 2015, cost of goods sold decreased to $864 million from $998 million and non-GAAP cost of goods sold* decreased to $653 million from $788 million, reflecting the reversal of the $200 million litigation reserve recorded in the first quarter of 2016 following a favorable court decision.

Operating Expenses

  Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions)   2016   2015   2016   2015
                 
Research and development expenses (R&D)   $ 1,484   $ 818   $ 2,749   $ 1,514
Non-GAAP research and development expenses*   $ 1,040   $ 702   $ 1,809   $ 1,353
Selling, general and administrative expenses (SG&A)   $ 890   $ 812   $ 1,575   $ 1,457
Non-GAAP selling, general and administrative expenses*   $ 838   $ 761   $ 1,476   $ 1,361

* Non-GAAP Cost of Goods Sold, R&D and SG&A expenses exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 8 and 9.

During the second quarter of 2016, compared to the same period in 2015:

  • Research and development expenses and non-GAAP research and development expenses* increased primarily due to Gilead’s purchase of a U.S. Food and Drug Administration (FDA) priority review voucher and the overall progression of Gilead’s clinical studies. Research and development expenses for the second quarter of 2016 also include Gilead’s purchase of Nimbus Apollo, Inc. (Nimbus).
  • Selling, general and administrative expenses and non-GAAP selling, general and administrative expenses* increased primarily due to higher costs to support Gilead’s new product launches and geographic expansion of its business.

Cash, Cash Equivalents and Marketable Securities

As of June 30, 2016, Gilead had $24.6 billion of cash, cash equivalents and marketable securities compared to $21.3 billion as of March 31, 2016. Cash flow from operating activities was $4.9 billion for the quarter. During the second quarter and the first six months of 2016, Gilead utilized $1.0 billion and $9.0 billion on stock repurchases, respectively.

Revised 2016 Full Year Guidance

Gilead revised its full year 2016 guidance, which it initially provided on February 2, 2016:

(In millions, except percentages and per share amounts)   Initially Provided
February 2, 2016
Reiterated
April 28, 2016
  Updated
July 25, 2016
Net Product Sales        
Non-GAAP*   $30,000 – $31,000   $29,500 – $30,500
Product Gross Margin   88% – 90%   88% – 90%
R&D Expenses   $3,200 – $3,500   $3,600 – $3,800
SG&A Expenses   $3,300 – $3,600   $3,100 – $3,300
Effective Tax Rate   18.0% – 20.0%   18.0% – 20.0%
Diluted EPS Impact of Acquisition-related, Up-front Collaboration, Stock-based Compensation and Other Expenses   $1.10 – $1.16   $1.47 – $1.53

* Non-GAAP Product Gross Margin, R&D and SG&A expenses and effective tax rate exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP full year 2016 guidance is provided in the tables on page 10.

Corporate Highlights

  • Announced that Kevin Young CBE was appointed Chief Operating Officer, and Martin Silverstein, MD was appointed Executive Vice President, Strategy. Both Mr. Young and Dr. Silverstein will report to John F. Milligan, PhD, President and Chief Executive Officer.
  • Announced that Gilead acquired Nimbus, a wholly-owned subsidiary of Nimbus Therapeutics, and its Acetyl- CoA Carboxylase (ACC) inhibitor program. The Nimbus program includes the lead candidate NDI-010976, an ACC inhibitor, and other pre-clinical ACC inhibitors for the potential treatment of non-alcoholic steatohepatitis, hepatocellular carcinoma and other diseases. NDI-010976 was granted Fast Track designation by FDA in February 2016.

Product & Pipeline Updates announced by Gilead during the Second Quarter of 2016 include:

  • Announced that FDA approved Epclusa (sofosbuvir 400 mg/velpatasvir 100 mg; SOF/VEL), the first all-oral, pan-genotypic, single tablet regimen (STR) for the treatment of adults with genotype 1-6 chronic hepatitis C virus (HCV) infection. Epclusa is also the first STR approved for the treatment of patients with HCV genotype 2 and 3, without the need for ribavirin (RBV). Epclusa for 12 weeks was approved in patients without cirrhosis or with compensated cirrhosis (Child-Pugh A), and in combination with RBV for patients with decompensated cirrhosis (Child-Pugh B or C). FDA granted Epclusa a Priority Review and Breakthrough Therapy designation, which is given to investigational medicines that may offer major advances in treatment over existing options. Additionally, the Committee for Medicinal Products for Human Use, the scientific committee of the European Medicines Agency, adopted a positive opinion on the company’s Marketing Authorization Application and in July 2016, the European Commission granted marketing authorization for Epclusa.
  • Announced that the European Commission granted marketing authorization for the once-daily STR Odefsey (emtricitabine 200 mg/rilpivirine 25 mg/tenofovir alafenamide 25 mg) for the treatment of HIV-1 infection. Odefsey combines Gilead’s emtricitabine and tenofovir alafenamide (marketed as Descovy) with rilpivirine, marketed by Janssen Sciences Ireland UC, one of the Janssen Pharmaceutical Companies of Johnson & Johnson. Odefsey is Gilead’s second STR based on the Descovy backbone to receive marketing authorization in the European Union and is currently the smallest STR for the treatment of HIV.
  • Announced positive data from four pre-clinical and Phase 1 studies evaluating bictegravir (GS-9883), a novel, unboosted, investigational once-daily integrase inhibitor. The studies, which examined the antiviral potency, resistance profile, pharmacokinetics and safety of bictegravir, were presented at the American Society of Microbiology Microbe 2016 Conference.
  • Presented data at the 51st Annual Meeting of the European Association for the Study of the Liver, which included the announcement of:
    • Positive results from the open-label, Phase 3 ASTRAL-5 study evaluating once-daily SOF/VEL for 12 weeks among patients with HCV genotype 1-6 who are co-infected with HIV demonstrated that SOF/ VEL was well-tolerated and resulted in high SVR12 rates.
    • Positive results from three Phase 2 trials evaluating SOF/VEL plus voxilaprevir (VOX), a pan-genotypic protease inhibitor (Studies 1168 and 1169 and TRILOGY-3). Studies 1168 and 1169 evaluated 6 weeks of SOF/VEL plus VOX among treatment-naïve patients, 8 weeks of SOF/VEL plus VOX, with or without RBV, among treatment-naïve patients, and 12 weeks of SOF/VEL plus VOX among patients who failed prior treatment including those previously exposed to a direct acting antiviral (DAA) regimen. Study 1168 evaluated genotype 1 patients and Study 1169 evaluated genotype 2-6 patients. TRILOGY-3 featured data from the Phase 2 trial evaluating 12 weeks of a fixed-dose combination of SOF/VEL/ VOX, with or without RBV, among genotype 1, DAA-experienced, HCV-infected patients, including patients with cirrhosis.

Announced that the European Commission granted marketing authorization for two doses of Descovy (200/10 mg and 200/25 mg), a fixed-dose combination for the treatment of HIV-1 infection. Descovy is Gilead’s second TAF-based therapy to receive marketing authorization in the European Union. Descovy was approved by FDA and is indicated in combination with other antiretroviral agents for the treatment of HIV-1 infection in adults and pediatric patients 12 years of age and older. (Original Source)

Shares of Gilead Sciences are down 3.5% to $85.46 in after-hours trading. GILD has a 1-year high of $120.37 and a 1-year low of $77.92. The stock’s 50-day moving average is $84.53 and its 200-day moving average is $88.32.

On the ratings front, Gilead has been the subject of a number of recent research reports. In a report issued on July 14, Jefferies Co. analyst Brian Abrahams reiterated a Hold rating on GILD, with a price target of $97, which implies an upside of 12.0% from current levels. Separately, on July 8, Maxim Group’s Jason Kolbert reiterated a Hold rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Brian Abrahams and Jason Kolbert have a total average return of 5.3% and -16.0% respectively. Abrahams has a success rate of 61.1% and is ranked #590 out of 4000 analysts, while Kolbert has a success rate of 29.9% and is ranked #3999.

The street is mostly Bullish on GILD stock. Out of 13 analysts who cover the stock, 8 suggest a Buy rating and 5 recommend to Hold the stock. The 12-month average price target assigned to the stock is $112.00, which represents a potential upside of 29% from where the stock is currently trading.