Gilead’s Profit, Hepatitis C Drugs Sales Miss Estimates

  • Sovaldi, Harvoni sales disappoint after competitors appear
  • Company is `aggressively' seeking investment opportunities

Gilead Sciences Inc.’s profit missed analysts’ estimates in the first quarter as sales of its blockbuster hepatitis C treatments were lower than expected.

The slowing of its key franchise is raising pressure on the biggest U.S. biotech to bolster its pipeline. Gilead is looking “aggressively” for ways to invest its cash, including potential acquisitions, Chief Executive Officer John Milligan said on a conference call Thursday with analysts.

The company will boost returns to shareholders “through stock repurchases and dividends and of course continue to be opportunistic in M&A,” Milligan said. “We will continue to aggressively look for opportunities to deploy our cash in investing in things other than Gilead.”

Profit excluding some costs totaled $3.03 per share, falling short of the $3.15 average analysts’ estimates compiled by Bloomberg. The drugmaker’s hepatitis C pills, Sovaldi and Harvoni, brought in $4.29 billion in the first quarter, Gilead said in a statement, compared with the $4.57 billion average of estimates. While the drugs have been among the fastest-selling medications of all time, AbbVie Inc. and Merck & Co. now offer similar products.

To keep up growth, Gilead has struck deals to build up its pipeline of experimental drugs. In December, Gilead said it would pay $725 million to acquire a stake in Galapagos NV, buying into the Belgian drugmaker’s experimental treatment for rheumatoid arthritis. In April, it said it would pay $400 million for a drug from closely held Nimbus Therapeutics LLC to add to its portfolio of treatments for the fatty liver disease known as nonalcoholic steatohepatitis, or NASH.

Going Hostile

Those deals are small compared to the $11 billion purchase of Pharmasset Inc. in 2011 that brought Sovaldi to Gilead. The drugmaker has ample firepower for a bigger acquisition today, sitting on more than $26 billion in cash and equivalents.

While the company prefers friendly acquisitions, it is not “unwilling to go hostile,” Milligan said.

Harvoni’s lower-than-expected sales were in part due to greater discounts to payers, said Paul Carter, executive vice president for commercial operations. With Merck’s entry into the market, Gilead gave some payers “a little bit of discount” so Harvoni would remain on formularies with no restrictions on access, he said on the call.

Stunning Decline

“We have expected a decline in the HCV franchise in the United States as patients are treated and competing products enter the market, but the magnitude of the decline is stunning,” said Steven Violin, senior vice president and portfolio manager at Wellesley, Massachusetts-based F.L.Putnam Investment Management Co., in an e-mail. F.L.Putnam has $1.4 billion under management and owns Gilead shares.

Gilead fell as much as 7.1 percent to $90.10 in trading after the close of the market in New York.

Details of the company’s first-quarter performance:

  • Sales rose 2.6 percent to $7.79 billion from a year earlier; analysts had estimated $8.07 billion
  • Net income fell to $3.57 billion, or $2.53 a share, from $4.33 billion, or $2.76 a share, a year ago.
  • Sovaldi brought in $1.28 billion while Harvoni, its successor, generated $3.02 billion
  • All other antiviral products, including the HIV drug Truvada, posted $2.89 billion in sales
  • Gilead raised its dividend 9.3 percent to 47 cents a share
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