UPDATED: Gilead's hep C juggernaut continues in Q4, even as U.S. sales fall

Gilead Sciences ($GILD) and its hep C juggernaut continued to churn out big sales in Q4 and bested Wall Street expectations, but it took strong growth overseas to overcome an expected falloff of sales of Sovaldi and Harvoni in the U.S. While execs said there is lots of growth left in the hep C market, they acknowledged on Tuesday that the company needs to be looking for M&A opportunities in areas such as oncology.

The Foster City, CA, drugmaker reported total product sales in Q4 of $8.4 billion, up 16% compared to the same quarter a year ago. Product sales in the U.S. were $4.8 billion compared to $5.5 billion in Q4 of 2014, as sales of Sovaldi and Harvoni fell 25% in the U.S. to $2.367 billion from $3.179 billion in the quarter a year ago. For the year, Gilead revenues were $32.6 billion compared to $24.9 billion for 2014. Sales of Harvoni and Sovaldi for the full year were $19.1 billion, up 54% from $12.4 billion for all of 2014.

The U.S. sales were offset by international sales that came in slightly higher than Wall Street expectations, Evercore ISI analyst Mark Schoenebaum pointed out. In Europe, sales of all of Gilead's products were $1.7 billion compared to $1.4 billion in the fourth quarter of 2014. Sales in other international locations increased to $1.9 billion compared to $373 million in the fourth quarter of 2014, primarily due to huge sales of Sovaldi and Harvoni in Japan. In a conference call, company execs said that a change in payer rules in Japan may result in lower reimbursements for the drugs going forward.

Gilead beat the Street's earnings-per-share expectations handily at $3.32, 10% above the consensus of about $3, Schoenebaum pointed out in a note to investors. Gilead forecast 2016 revenues of $30 billion to $31 billion, which brackets consensus of $30.7 billion.

Gilead EVP Paul Carter

Executive VP Paul Carter said during a call with investors that the company still expects big growth this year from its hep C treatments, with millions of people worldwide who are still untreated for hepatitis C and millions more who have the disease but have yet to be diagnosed.

Carter remained confident that the breakthrough drugs, with cure rates of up to 99%, will remain strong even in the face of new competition.

The meds have already been competing with AbbVie's ($ABBV) combo Viekira Pak, but it has done little to dent the runaway success of Gilead's products. Viekira Pak had about $48 million in sales in Q4 but is expected to reach about $2.5 billion for all of 2016.

Potentially more concerning is Merck's ($MRK) new combo pill, Zepatier. Approved by the FDA last week, it is coming into the market with a list price at $54,600 for a 12-week regimen, well below the $94,500 for Harvoni.

Carter said even though there is a new competitor with a much lower price, Gilead is finding that "payers are being very thoughtful," considering the real-world experience of Sovaldi and Harvoni and their ability to cure most patients. "They are not being dazzled by the headlines" about a cheaper rival, he said.

Gilead also hopes to launch its newest hep C drug, which just recently received breakthrough status from the FDA, this year. The combo pill, which includes Sovaldi and investigational compound velpatasvir, treats genotypes 1-6 of the virus.

Much of the challenge going forward will fall on John Milligan, who is taking over as CEO from John Martin. Martin is becoming executive chairman next month after two decades as CEO.

Milligan acknowledged to analysts that Gilead needs to look beyond hep C products and its HIV drug franchise and will be interested in taking a look at other assets this year. He mentioned oncology as one area of interest. He said that the huge increases the hep C products have added in the company's revenues provide Gilead with a huge opportunity and it is time to take advantage of that.

"The answer is yeah, we're very interested in acquiring assets through partnerships or potentially acquisition that could help us grow … and with the tripling of our revenue over the last few years, the need to do so sooner rather than later is heightened," Milligan said. "We have to go outside of antivirals for continued growth."

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