A Look At Gilead Prior To Earnings

| About: Gilead Sciences, (GILD)


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









Total Patient Starts


Table 2

% of Combined Sales

Harvoni Sales



Sovaldi Sales



Combined Sales Total


Table 3

Revenue/Patient Start

Total Patient Starts


Combined Sales


Revenue/ Patient Start


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



Rite Aid


Rite Aid














Estimated Revenue/Start

% of Combined Sales

Average price









Weighted Price


HCV Product Sales

Weighted Price


Patient Starts


HCV Product Revenues


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.



Sales in Quarter of Approval


Approval Date


Days In quarter After Approval


Revenue/Day after Approval


Genvoya Goodrx Avg Price

Rite Aid










Approval Date


Days In quarter After Approval


Descovy Goodrx Avg Price

Rite Aid








Estimated Rev/Day After Approval


Estimated Q2 Revenue




Approval Date


Days In quarter After Approval


Odefsey Goodrx Avg Price

Rite Aid








Estimated Rev/Day After Approval


Estimated Q2 Revenue


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
















Complera / Eviple















Other Antiviral





Other Products





Non-HCV Revenue





Existing Products 2016 Q2 Revenues


Descovy Est. Rev


Odefsey Est. Rev


Total Non-HCV 2016 Q2 Estimated Revenues


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


Buyback amount


Estimated Shares Repurchased


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


Royalty, contract and other revenues


Total Revenues


2016 Q1 % of Sales


Cost of Goods Sold








Total Costs & Expenses


Income From Operations


Interest Expense


% of Net Income

Other income (expense), net



Provision for income taxes


Net Income


Net income (loss) attributable to noncontrolling interest


Net income attributable to Gilead


Diluted Shares Out




Non-GAAP Items/Share

Up-front collaboration expenses



Acquisition related-amortization of purchased intangibles



Acquisition related-IPR&D impairment



Stock-based compensation expenses






$200 Million Litigation Charge Adjustment





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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