Gilead's hep C slowdown cues Q1 miss on sales, profit

Gilead Sciences

Gilead Sciences ($GILD) has been dealing with a slowdown for its hep C franchise and the trend took its toll on the company in Q1. Gilead reported earnings that missed analysts’ expectations, mostly due to slumping sales for its hep C drugs.

The company’s hep C meds Sovaldi and Harvoni brought in $1.28 billion and $3.02 billion in sales, respectively. The Street had predicted $1.37 billion in sales for Sovaldi and $3.13 billion for Harvoni.

Profit excluding some costs came to $3.03 a share, short of analysts’ estimates of $3.15. Total revenues also missed the Street’s predictions, with $7.79 billion in revenue compared to analysts’ prediction of $8.12 billion.

Part of the reason for Gilead’s hep C sales miss is due to greater discounts to payers, Paul Carter, the company’s EVP for commercial operations, said on the Q1 earnings call. After Merck’s ($MRK) rival hep C treatment Zepatier entered the market, Gilead offered some payers “a little bit of discount” to keep Harvoni on formularies without restricting patients’ access, Carter said.

But other reasons also contributed to the slowdown, Leerink analyst Geoffrey Porges said in a note to investors, including shorter treatment durations and flat patient volume.

That’s not the only headache Gilead is dealing with for its hep C franchise. In March, a federal judge ordered the company to pay Merck $200 million in damages for infringing on patents for Merck’s hep C treatments.

The award, while lower than what analysts predicted, still deals some unfavorable cards to Gilead. The court proceedings are not complete, though, and “the losing party will appeal once the court enters judgment,” Gilead CFO Robin Washington pointed out during the company’s earnings call.

Meanwhile, Gilead has some ideas about how to get things back on track, and dealmaking features heavily. The company will “continue to be opportunistic in M&A,” new CEO John Milligan said on the earnings call. “We will continue to aggressively look for opportunities to deploy our cash in investing in things other than Gilead.”

If and when a deal comes around, Gilead is not afraid to play hardball. The company prefers friendly acquisitions, but it’s not “unwilling to go hostile,” Milligan said. With $26 billion in its coffers, Gilead can afford to take some chances.

And though the quarter may have been a bleak one, it doesn’t mean things will stay that way forever, Porges noted. The drugmaker’s Q1 results are “disappointing” but “it is worth remembering that every 18 months or so, Gilead lays an egg, so to speak, in quarterly results and typically rallies strongly on more favorable results in the following periods,” he said.

- here’s Gilead’s earnings statement (PDF)
- get the Q1 earnings call transcript from Seeking Alpha

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