A Look At Gilead Prior To Earnings

| About: Gilead Sciences, (GILD)

Summary

Gilead Reports earnings after the close today and I expect them to beat earnings.

I used a four-step process to estimate earnings for this quarter.

Based on my estimates I am predicting GAAP EPS of $2.59 and non-GAAP EPS of $3.25.

In this article, I will be providing my estimate for Gilead Sciences (NASDAQ:GILD) earnings for the upcoming quarter. After a lengthy process of data collection, I estimated that Gilead GAAP EPS will be higher then the 1 st quarter of 2016 and that non-GAAP EPS should be well above Wall. St estimates. To estimate earnings for Gilead I used a four-step process as detailed below.

A second item I noticed in my data is that Gilead is closing in on parity between revenues of HCV products and non-HCV products and if the current trend continues, in Q3 of 2016, non-HCV revenues have a strong possibility to eclipse HCV revenues.

Step #1: Estimating Harvoni & Sovaldi Sales

To estimate sales for Harvoni, I looked back at the 1st quarter transcript and the earnings release to compile the following data. Table 1 shows the patient start numbers that were given by Gilead on the conference call, which totaled 121,000. Table 2 shows the sales for Harvoni and Sovaldi with a combined total for the two as well as the percentage of combined sales that each product accounts for. Finally, the third table combines data from table 1 and table 2 to arrive at a revenue/patient start of just under $35,487.60.

Table 1

Patient Starts

US

55,000

Europe

31,000

Japan

30,000

Other

5,000

Total Patient Starts

121,000

Table 2

% of Combined Sales

Harvoni Sales

$3,017

70.26%

Sovaldi Sales

$1,277

29.74%

Combined Sales Total

$4,294

Table 3

Revenue/Patient Start

Total Patient Starts

121,000

Combined Sales

$4,294,000,000

Revenue/ Patient Start

$35,487.60

Current Price of Harvoni & Sovaldi

To estimate the current Revenue/Patient Start I used goodrx.com to look at what the prices of Harvoni and Sovaldi were with discounts. I chose to use a very large city [Los Angeles] for looking at prices and I recorded prices from Rite Aid (NYSE:RAD), CVS (NYSE:CVS) and Walgreens (NASDAQ:WBA). I then took an average price of Harvoni and Sovaldi and multiplied those values by the percentage of combined sales to get a weighted price, which I will be using in my calculation for HCV product sales. The third and final table below shows my assumption that patient starts would remain flat and combined with pricing data, I arrived at my estimate of $3.835 billion for HCV product sales.

Harvoni & Sovaldi Pricing Data

Harvoni

Sovaldi

Rite Aid

$33,082.50

Rite Aid

$29,407.50

CVS

$32,896.50

CVS

$29,242.50

Walgreens

$32,365.30

Walgreens

$28,770.10

Average

$32,781.43

Average

$29,140.03

Estimated Revenue/Start

% of Combined Sales

Average price

Harvoni

70.26%

$32,781.43

$23,032.51

Sovaldi

29.74%

$29,140.03

$8,666.00

Weighted Price

$31,698.51

HCV Product Sales

Weighted Price

$31,698.51

Patient Starts

121,000

HCV Product Revenues

$3,835,519,850.71

Step #2: Estimating Non-HCV Product Sales

To estimate sales of Non-HCV products I looked at data provided in the last four earnings releases to calculate the growth rate of the portfolio of non-HCV products. What is difficult to estimate is how much sales of will be pulled away by new products like Descovy & Odefsey, which were approved during this quarter and at the end of the first quarter. I used the launch of Genvoya as a template to estimate revenues for the two new product launches.

I took the approval data and counted the days remaining in that quarter along with the reported sales figures to come up with revenue/day after approval. As a reference, I found the average price of Genvoya on Goodrx to compare the price to Descovy and Odefsey. To estimate the sales those two new products I took the average price for that drug and divided it by the average price of Genvoya, then I multiplied that by the revenue/day after approval to arrive at the estimated revenue/day for Descovy and repeated the process for Odefsey. I then took that revenue/day estimate and multiplied that by the days after approval or in the case of Odefsey, the days in the second quarter to arrive at my estimate for revenues of $39.59 million for Descovy & $66.57 million for Odefsey. This process can be seen in the following three tables.

Genvoya

Genvoya

Sales in Quarter of Approval

45,000,000

Approval Date

11/5/2015

Days In quarter After Approval

56

Revenue/Day after Approval

803,571

Genvoya Goodrx Avg Price

Rite Aid

$2,714.04

CVS

$2,701.58

Walgreens

$2,656.27

Average

$2,690.63

Descovy

Descovy

Approval Date

4/4/2016

Days In quarter After Approval

87

Descovy Goodrx Avg Price

Rite Aid

$1,547.26

CVS

$1,508.52

Walgreens

$1,514.83

Average

$1,523.54

Estimated Rev/Day After Approval

455,013

Estimated Q2 Revenue

39,586,096

Odesfy

Odesfy

Approval Date

3/1/2016

Days In quarter After Approval

91

Odefsey Goodrx Avg Price

Rite Aid

$2,470.66

CVS

$2,459.58

Walgreens

$2,418.17

Average

$2,449.47

Estimated Rev/Day After Approval

731,548

Estimated Q2 Revenue

66,570,838

Putting all Non-HCV Products Together

After calculating the estimates for the two new products, I calculated the growth rate of existing products to be 1.63%/quarter, which I then applied to the most recent quarter's non-HCV revenues. After adding in the new products sales estimates I arrived at a grand total of $3.548 billion in non-HCV sales.

2016 Q1

2015 Q4

2015 Q3

2015 Q2

Truvada

$898

$936

$903

$849

Atripla

$675

$800

$818

$782

Stribild

$477

$511

$511

$447

Complera / Eviple

$381

$380

$360

$367

Viread

$272

$306

$297

$271

Genvoya

$158

$45

$0

$0

Other Antiviral

$28

$16

$15

$16

Other Products

$498

$523

$509

$495

Non-HCV Revenue

$3,387

$3,517

$3,413

$3,227

Existing Products 2016 Q2 Revenues

$3,442.08

Descovy Est. Rev

$39.59

Odefsey Est. Rev

$66.57

Total Non-HCV 2016 Q2 Estimated Revenues

$3,548.24

Step #3: Estimating Shares Repurchased

To estimate the shares repurchased during the quarter I took the average price of Gilead stock during the quarter and assumed that Gilead would spend the same amount in Q2 as they did in Q1, which was $8 billion. The average stock price during the quarter was $88.75, which means if Gilead used $8 billion to repurchase stock at that average price, the share count would be reduced by just over 90 million shares.

Shares repurchased estimate

Gilead Avg Price During the Quarter

$88.75

Buyback amount

8,000,000,000

Estimated Shares Repurchased

90,140,845

Step #4: Putting It all Together: Income Statement

For the income statement below, I used the total revenues from HCV products in step #1, non-HCV products in step #2 as well as the same value of royalties from the previous quarter. For COGS, R&D and SG&A I used the percentage of sales those totals represents in the 1st quarter of 2016 to apply to my estimate. In addition, I used taxes as a percentage of income from operations to determine taxes for Gilead. Finally, I used the estimated share count reduction calculated in step #3 above to calculate shares outstanding.

What is important to notice is that I calculated both GAAP EPS, and non-GAAP EPS. Last quarter Gilead reported GAAP EPS of $2.53, however, the headline EPS number that reported was non-GAAP and totaled $3.03. For this quarter based on all the data I collected, I am estimating GAAP EPS of $2.59 and non-GAAP EPS of $3.25. Last quarter was impacted negatively by a $200 million charge, which was since thrown out, therefore that will be a positive for Gilead this quarter.

In addition, when calculating non-GAAP earnings, one key item stuck out and that was that up-front collaboration expenses influenced earnings positively. Gilead paid a $400 million up-front fee for its Nimbus Therapeutics acquisition during the quarter, which can be counted on its non-GAAP earnings. With the new lower share count from share buybacks during the quarter, non-GAAP earnings by should be positively impacted by $0.30/share.

2016 Q2 Estimate

Product Sales

$7,383.76

Royalty, contract and other revenues

$113.00

Total Revenues

$7,496.76

2016 Q1 % of Sales

15.31%

Cost of Goods Sold

$1,147.50

16.23%

R&D

$1,216.76

8.79%

SG&A

$658.88

Total Costs & Expenses

$3,023.13

Income From Operations

$4,473.62

Interest Expense

-$230.00

% of Net Income

Other income (expense), net

$81.00

20.10%

Provision for income taxes

$899.34

Net Income

$3,425.28

Net income (loss) attributable to noncontrolling interest

$1.00

Net income attributable to Gilead

$3,424.28

Diluted Shares Out

1322

GAAP EPS

$2.59

Non-GAAP Items/Share

Up-front collaboration expenses

$400.00

0.30

Acquisition related-amortization of purchased intangibles

$204.00

0.15

Acquisition related-IPR&D impairment

$0.00

0.00

Stock-based compensation expenses

$64.00

0.05

Other(1)

$0.00

0.00

$200 Million Litigation Charge Adjustment

$200.00

0.15

Non-GAAP EPS

$3.25

Closing Thoughts

In closing, I believe that Gilead will easily beat Wall St. earnings estimates, which currently stand at $3.02 for non-GAAP EPS according to Estimize. One thing to watch out for is revenues that come in below estimates. Currently on Estimize, Wall St. estimate for revenues are $7.85 billion, which is higher than my estimate of $7.5 billion. If revenues do in fact come in light of expectations, that could cause some pain in the stock after the headline EPS that is likely to beat is released.

What I will also be looking at are the GAAP EPS numbers, to see if they come in above the 2016 Q1 total of $2.53/share and how close revenues are to the consensus estimate.

As I noted, the next quarter should be the quarter where non-HCV sales overtake HCV sales. If my estimates are close, non-HCV products + royalty revenue in this quarter would total $3.66 billion and HCV revenues would total $3.83 billion. With HCV revenues declining and non-HCV products growing, the next quarter will be a transitional quarter for Gilead.

If Gilead falls after earnings this quarter because of lower than estimated revenues it will most likely be a buying opportunity as in the third quarter Gilead will be likely be repriced [on the positive side] to reflect the fact that its new largest segment [non-HCV products] will be growing compared to the current environment, where its largest segment [HCV products] is declining. If Gilead does have a large sell-off after earnings, I will possibly be adding to my position because I can see that very soon the growing part of its business will be more in focus going forward.

Disclaimer: See here.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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