Gilead ready to take the cash from hep C superstars and buy something

Gilead Sciences ($GILD) brushed aside any concerns about the effects of discounting of superseller hepatitis C drugs Sovaldi and Harvoni by blasting past analysts' earnings estimates of how much the drugs would sell, total revenues, earnings per share, and just about any other measure the markets could dig up. And flush with cash, Gilead execs say, it just may be time to go out and buy some stuff.

Gilead COO John Milligan

The California drugmaker has largely stayed out of the M&A binge that others have been trading in and not done a sizeable deal since it bought Pharmasset in 2011 for $11 billion. Gilead has just been too busy getting Sovaldi to market and following right up with combo drug Harvoni. But COO John Milligan said on a conference call late Thursday, Gilead is feeling the urge.

"I think with our position as a company with the cash flow that we have and with our appetite to continue to do more things for more patients around the world, there are some good opportunities. It would be a good time for Gilead to consider wide range of things," Milligan said. "But I can't tell you that we have an appetite for things large or small, it has to be kind of the right fit for Gilead."

To that he means something where Gilead can influence Phase III and accelerate a product to approval and generally in the treatment areas Gilead is in.

"So, we are open to suggestion; there have been many mentioned out there." Still, the COO acknowledged, the urge has grown "as each month and quarter goes on," and the company gained more ability to do those things.

And a quarter it was. It earnings per share when one-time costs were factored in nearly doubled to $2.94 a share from $1.48 a year earlier, way beyond the consensus forecast of $2.31, Evercore ISI Group analyst Mark Schoenebaum pointed out in a note to investors. Revenue soared 52% to $7.59 billion, with sales of Sovaldi and Harvoni combined raking in $4.55 billion of that amount. That was $1 billion more than analyst consensus.

The quarter was so big that the traditionally conservative drugmaker upped its forecast for the year to $28 billion to $29 billion from $26 billion to $27 billion it forecast just a quarter earlier, pointed out Schoenebaum, who summed up the results to investors with the exclamation, "Wowza."

Last quarter investors got spooked when sales fell short of some estimates and the drugmaker said that discounting for the drugs was averaging 46%. The company found itself embroiled in price war when AbbVie ($ABBV) hit the market with the second all-oral hep C product and immediately struck an exclusive deal with benefits manager Express Scripts ($ESRX), a vocal critic of Gilead's drug pricing.

But Thursday CFO Robin Washington provided data to suggest all of those special deals have not done a lot to blunt the uptake of Gilead's drugs. In the U.S., about 70,000 patients initiated treatment with the Gilead HCV product in the first quarter, a 50% jump from last quarter and since debuting in December 2013, more than 210,000 U.S. patients have started on a sofosbuvir-based therapy. The company says at least 90% of genotype 1 HCV patients beginning treatment in the quarter started therapy on Harvoni.

That is not to say that there are not challenges for Gilead. Besides Abbvie's Viekira Pak combo, Merck & Co. ($MRK) has an anticipated hep C candidate that might make it to market yet this year and ratchet up the pricing pressure. And Schoenebaum did ask Gilead execs about an apparent chink in the armour, noting that IMS Data indicates a "flattening and then a decline in the new prescriptions which has now translated to an apparent flattening to decline in the total prescriptions."

Paul Carter, Gilead's EVP of commercial operations, acknowledged the data does imply that but with "patient warehousing" and new payer contracts coming online, deals still be worked out in Europe as well as a new direct to consumer advertising campaign, he said it is hard to know what the data means longer term.

- here's the earnings release
- here's a transcript from Seeking Alpha (reg. req.)
- get the Bloomberg story