Investors were left scratching their heads as Gilead Sciences (GILD) reported a surprising beat in its third-quarter earnings, causing a significant drop in the company’s stock value on Wednesday. The unexpected star of the show was Gilead’s COVID-19 treatment, Veklury, which defied expectations.
Veklury sales, while still substantial, experienced a 31% decline, settling at $636 million for the quarter. Remarkably, analysts surveyed by FactSet had predicted much lower sales, estimating a mere $323.5 million. RBC Capital Markets analyst Brian Abrahams pointed out that Gilead’s improved full-year outlook was primarily a result of the unexpected boost from Veklury.
However, the world of COVID-19 is inherently unpredictable, and as analysts emphasized, the sales of Veklury can be subject to fluctuation based on the number of COVID-19 hospitalizations.
Edward Jones analyst John Boylan expressed his disappointment with the quarter, saying, “This was an uninspiring quarter, with a good portion of this quarter’s upside being due to a lower tax rate and better-than-forecast Veklury sales. Veklury sales are difficult to predict and likely will fluctuate with COVID-19 infection rates.”
Surprisingly, Gilead reported total revenue of $7.05 billion, remaining steady despite predictions of $6.81 billion according to FactSet. The adjusted earnings per share came in at $2.29, surpassing expectations of $1.92, marking a remarkable 20.5% year-over-year increase.
Nonetheless, Third Bridge analyst Lee Brown noted that many of Gilead’s products failed to meet expectations. Brown stated, “Despite Gilead’s results topping consensus at both the top and bottom line, the performance was entirely unsatisfying with the exception of Trodelvy and Biktarvy, with the latter expected to face increasingly more difficult year-over-year comparisons.”
Trodelvy, a treatment for bladder and breast cancer, achieved impressive sales of $283 million, soaring by 57%. Total cancer treatment sales increased by 33%, reaching $769 million, although slightly below the expectations of FactSet-polled analysts, who had forecasted $788 million.
Gilead’s HIV treatment Biktarvy managed to bring in $3.09 billion in sales, growing by 11.5% and surpassing analysts’ expectations, which ranged from $2.86 billion to $3.08 billion. On the other hand, revenue from Descovy, another HIV drug, was relatively soft at $511 million, with a modest 2.2% increase compared to the year-earlier period.
RBC’s Abrahams mentioned, “We note the company indicated some of this (Biktarvy beat) was likely due to inventory and channel dynamics. The rest of the HIV franchise was in-line or slightly lower than our/Street estimates despite also benefiting from (favorable) channel dynamics.”
Abrahams maintained his sector perform rating and a $78 price target on GILD stock, while Boylan from Edward Jones suggested that Gilead’s stock is now fairly valued. He added, “Overall, we believe Gilead is making the right steps to diversify its business, such as with cancer. We also like that it is spending more in research and development to support that diversification. However, these efforts will likely take some time, effort, and costs before that goal is fully realized.”
Gilead raised its outlook for the year, now anticipating product sales of $26.7 billion to $26.9 billion, excluding licensing and other revenue sources. The company also expects Veklury to generate $1.9 billion in sales, up from the guidance issued three months ago, which predicted $1.7 billion. Additionally, Gilead forecasts earnings of $6.65 to $6.85 per share on an adjusted basis.
