Following the release of fourth quarter and full year 2010 results on January 25, 2011, the number of analysts making downward revisions to their earnings estimates for Gilead Sciences Inc. (GILD) for 2011 and 2012 is higher than those making upward revisions. The downward revisions are mainly in response to poor top-line performance in the fourth quarter and an unfavorable guidance for 2011 with revenues expected to disappoint and expenses accelerate.
Fourth Quarter Review
Gilead reported earnings per share of 90 cents for the fourth quarter of 2010, a penny ahead of both the Zacks Consensus Estimate and the year-earlier figure of 89 cents. The lackluster earnings performance stemmed from lower revenues and higher expenses.
Fourth quarter revenues decreased 1.5% from the prior-year quarter to $2 billion. Total revenues only marginally topped the Zacks Consensus Estimate of $1.98 billion. Revenue performance was disappointing due to lower royalties from Roche (RHHBY) on Tamiflu sales.
For full year 2010, Gilead reported earnings per share of $3.52, much above the $2.91 earned in the prior year. The full year 2010 earnings per share were, however, in line with the Zacks Consensus Estimate. Full year 2010 revenues increased 13% over the prior year to $7.95 billion. The Zacks Consensus Sales Estimate for fiscal 2010 was $7.91 billion.
In addition to presenting earnings results, Gilead announced that the US Food and Drug Administration (FDA) has issued a refuse-to-file notice for its New Drug Application (NDA) for its once daily, single tablet, fixed dose combination of Truvada and TMC278 (rilpivirine) as a HIV treatment for adult patients. We believe the combo pill is key to long-term growth at Gilead and the FDA rejection is a major disappointment. However, Gilead believes even with the delay it can still launch the combo pill by the second half of 2011, as previously expected.
The company expects product revenue in the range of $7.9 billion to $8.1 billion in 2011, reflecting an increase of 7% to 10% over 2010 product sales. The guidance includes an adverse 5-6% impact from US health care reform, as well as the impact of pricing pressures in some countries in the European Union.
We have discussed the quarterly results at length here.
Agreement of Estimate Revisions
Over the last 30 days, 3 of the 13 analysts following the stock raised their estimates for 2011 whereas 5 have reduced the same. Meanwhile, 3 of the 12 analysts following Gilead have raised their estimates for 2012 while 4 showed a negative revision.
Earnings estimates are on the whole down for the March quarter with 2 of the 12 analysts following Gilead reducing their estimates over the past 30 days. None of the analysts have moved in the positive direction during this time period.
There have been no estimate revisions in the past 7 days for March quarter, full year 2011 and 2012.
Some of the factors that would adversely impact overall revenues in 2011 include the U.S. health care reforms, EU pricing pressures and the loss from generic 3TC launching across EU during 2011. Gilead has not provided any earnings guidance. However, the company has guided for increased expenses in 2011.
Magnitude of Revisions
A generally negative directional movement has led to a downward revision to 2011 forecasts. Estimates for full year 2011 have gone down by 3 cents over the last 30 days. 2012 estimates are, however, up by 1 cent.
Meanwhile, estimates for the March quarter have remained unchanged since the last 30 days.
Currently, we have a Neutral recommendation on Gilead, which is supported by a Zacks #3 Rank (short-term Hold). We remain optimistic on the growth potential of Gilead’s HIV franchise drugs, Truvada and Atripla, and the company’s overall progress with its pipeline, both HIV and other. However, the potential delay to the Truvada/TMC 278 combo pill is a major setback for the company. Moreover, the company’s HIV drugs are facing patent challenges from companies seeking to launch generic versions of the drugs. Further, Gilead’s revenues continue to be unfavorably impacted by pricing pressure in Europe and currency fluctuation.