Gilead Sciences Inc. (GILD) is scheduled to report fourth quarter 2010 results on Tuesday, January 25, 2010. The Zacks Consensus Estimate for fourth quarter 2010 is 89 cents, representing a year-over-year decrease of 1.12%. The Zacks Consensus Estimate for fiscal 2010 is $3.52, representing a year-over-year increase of 21%.
Third Quarter Recap
Gilead Sciences’ third quarter 2010 earnings of 85 cents per share (excluding special items but including stock-based compensation expense) were a penny above the Zacks Consensus Estimate and well above the year-ago earnings of 74 cents per share. The improved showing in the quarter was mainly attributable to strong sales of antiviral products.
Revenues climbed 8% to $1.94 billion, marginally above the Zacks Consensus Revenue Estimate of $1.93 billion. Foreign exchange (Fx) fluctuations adversely impacted revenues by $44.2 million.
Product sales climbed 13% to $1.87 billion driven by sales growth of antiviral products such as Atripla (up 23% to $742.7 million), Truvada (up 8% to $668.7 million) and Viread (up 9% to $184.3 million).
Antiviral product sales for the quarter grew 12% to $1.65 billion. Sales of both Atripla and Truvada benefited from volume growth in the US and Europe.
The company maintained its FY10 net product guidance of $7.3 million to $7.4 million. The company continues to expect a $200 million sales impact from US health care reform in 2010, followed by a 5–6% impact on 2011 sales. The company, however, trimmed its projection for 2010 R&D spend to a range of $830 million to $840 million from a range of $850 million to $870 million.
Agreement of Estimate Revisions
Over the past seven days, only one of the 12 analysts covering Gilead increased their earnings estimate for the fourth quarter as well as for fiscal 2010 with no movements in the opposite direction.
Over the last seven days, only one of the 12 analysts covering the stock increased their earnings estimate for fiscal 2011 with one analyst moving in the opposite direction.
Magnitude of Revisions & Earnings Surprise
The magnitude of revisions over the past seven days is 1 cent for the fourth quarter and 2 cents for fiscal 2010. The Zacks Consensus Estimates for the fourth quarter and fiscal 2010 currently stand at 89 cents and $3.52, respectively.
Gilead has surpassed expectations in three of the past four quarters except for a marginal decrease in the June 2010 quarter. The average earnings surprise for the last four quarters was a positive 3.53%.
For the fourth quarter, Gilead could deliver a positive surprise of 4.49%. Better-than-expected performance of antiviral products like Atripla and Truvada could boost results. In the quarter, Gilead filed a New Drug Application (NDA) with the US Food and Drug Administration (FDA) seeking approval for its fixed dose combination of Truvada and TMC278 (rilpivirine) as a HIV treatment for adult patients. We believe approval of the combo drug will help to reduce the impact of generic competition against Gilead’s HIV franchise.
We currently have a Neutral recommendation on Gilead, which is supported by a Zacks #3 Rank (short-term “Hold” rating). We remain optimistic on the growth potential of Gilead’s HIV franchise drugs, Truvada and Atripla, and are impressed by the company’s progress with its pipeline. However, the company’s HIV drugs are under the threat of patent challenges from companies seeking to launch generic versions. Issues raised by the FDA regarding contamination at Gilead’s San Dimas production facility could further add pressure on the company’s top line. Pricing pressure in Europe and currency fluctuation are also points of concern. Accordingly, we prefer to remain on the sidelines on the stock.