Gilead Sciences (NASDAQ: GILD) dropped roughly 10% in morning trading on Wednesday, February 4th following the announcement of its fourth quarter 2014 earnings results the prior evening.
Although the company’s earnings results for the fourth quarter and full year exceeded all expectations, investors were turned off by the amount of discounts Gilead plans to give on its new hepatitis C drugs, Sovaldi and Harvoni, in 2015. The company plans on offering an average discount of 46% on Sovaldi and Harvoni this year, up from 22% in 2014. Investors fear that Gilead’s bigger discount is due to increasing competition from AbbVie (NYSE: ABBV), who already has a hepatitis C drug on the market, and Merck & Co, (NYSE: MRK) who currently has a hepatitis C treatment in testing.
However, Gilead President and COO tried to assure investors that the rise in discounts is not because of an increase in competition, stating “I’m not at all concerned about future competition that people seem to be concerned about. I think it is a very strong category for us with our profile.”
Highlights from Gilead’s report include earnings of $2.43 per share on a Non-GAAP diluted basis, up 341.8% year-over-year. The company more than doubled in revenue to $7.31 billion, up from $3.12 billion the same quarter a year prior.
Sales specifically from Sovaldi and Harvoni reached $3.84 billion for the quarter and $12.4 billion for the full year, far exceeding analysts’ estimates and marking the best launch for new drugs in history.
Because of its wildly successful year, Gilead announced plans to start paying a dividend of $0.43 cents a share starting in the second quarter of 2015.
Gilead Sciences Chairman and CEO John Martin said of the company’s earnings report and dividend plans, “The past year was marked by the launch of our first oncology product, second HCV medication, regulatory filings for the next generation HIV medicine, E/C/F/TAF, and a doubling of product revenues relative to 2013. We are entering 2015 with financial strength, a portfolio of 19 marketed products that are addressing significant unmet medical needs and a pipeline for which we expect a number of milestones and data readouts during the coming year…Today’s announcement reflects the Board of Directors and senior management’s confidence in Gilead’s future.”
According to SmarterAnalyst, Piper Jaffray analyst Joshua Schimmer weighed in on Gilead Sciences on February 4th following the company’s fourth quarter earnings, reiterating an Outperform rating on the stock but slashing its price target from $120 to $116. Schimmer noted, “While new guidance leaves room for upside, the company also noted a number of obvious factors driving uncertainty in the outlook for Sovaldi/Harvoni. Most disappointing to us was the company’s continued refusal to help investors gauge prospects for sustainable earnings growth, instead offering some verbal commitment to fund a R&D pipeline which we view as undervalued but in need of improvement… While not a favorite stock, we still believe GILD can grind out >10% share appreciation this year.”
Joshua Schimmer has rated Gilead Sciences 7 times since February 2010, earning an 83% success rate recommending the company and a +20.1% average return per recommendation. Overall, Schimmer has a 66% success rate recommending stocks and a +20.1% average return per recommendation.
Similarly, J.P Morgan analyst Cory Kasimov maintained an Overweight rating on Gilead Sciences on February 4th with a price target of $116, as reported on SmarterAnalyst. Kasimov was quick to note the discount increase from 22% to 46% “caught just about everyone by surprise.” In regards to the increase, the analyst explained “These discounts seem to be largely contingent on increased patient volumes that should help offset the impact in the near term but again call into question the HCV tail. The volume offset is highlighted by 2015 net product sales guidance of $26-27B vs. our previous $26.7B estimate.” Furthermore the analyst wrote, “Assuming patient volumes do in fact make up for discounts (even if not completely), the bottom line is that GILD’s HCV business will still be a significant source of revenue and earnings growth as well as cash flow generation.”
Cory Kasimov has rated Gilead Sciences 7 times since December 2014, earning a 100% success rate recommending the company and a +7.3% average return per recommendation. Overall, Kasimov has a 60% success rate recommending stocks and a +11/1% average return per recommendation.