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A group of earnings reports from several high-profile biotechnology companies is set to shape the direction of this red-hot sector for the coming months. And if the news from Gilead Sciences (NASDAQ: GILD) is any indication, that direction will be decidedly positive.
Gilead’s second-quarter earnings report was released Tuesday after the closing bell, and the results were quite strong.
Analysts were expecting earnings per share of $2.71, an increase of nearly 15% compared to the $2.36 per share the company earned in the same quarter last year. Not one to disappoint, Gilead reported earnings of $3.15 per share, a whopping 16% higher than what analysts were expecting.
The huge EPS number reported by Gilead also means that the company grew earnings by nearly 33.5% year-over-year.
The Gilead earnings report was a high-quality earnings beat, with revenue also surpassing analyst expectations by a wide margin Gilead generated $8.24 billion in revenue during the quarter, more than $600 million higher than the consensus forecast of $7.61 billion.
The company also upped its full-year product guidance slightly, from a range between $28 billion and $29 billion to a range between $29 billion and $30 billion.
Gilead surpassed expectations in one more key area, an all-important metric that investors have watched closely in recent quarters. The company derives an outsized percentage of its profits from its two high-profile Hepatitis C treatments – Harvoni and Sovaldi.
Hepatitis Drugs Out Front
How important are these two drugs to Gilead’s business? These two drugs accounted for nearly 60% of the company’s revenue in both of the first two quarters of 2015.
Considering how expensive these treatments can be and how important they are to Gilead’s earnings, mounting pressure from government payers like Medicare and Medicaid in the U.S. and government health-care programs abroad has raised fears that the company would be forced to discount the products in the future.
Though this remains an ongoing concern, Gilead shareholders can take comfort in the fact that both drugs turned in sales figures that surpassed analyst expectations.
Analysts were predicting revenues of $3.47 billion and $928 million for Harvoni and Sovaldi respectively. The company reported that the two drugs generated $3.6 billion and $1.3 billion respectively.
The stock jumped higher in after-hours trading, up as much as 3.5% during the session. Such a move is particularly noteworthy when you consider that the stock had already risen 20% in 2015 prior to Tuesday afternoon’s earnings report and that the market may have already priced in an earnings beat – the company has beaten revenue expectations in each of the last eight quarters.
Handsome Rewards
Considering that the S&P 500 index has only risen 1.7% during the same period, Gilead’s shareholders have been rewarded handsomely for sticking with the stock despite concerns over discounting of its Hepatitis C treatments.
Meanwhile, the company’s pipeline remains strong and the stock has actually traded at a discount to the even more red-hot biotechnology sector. Piper Jaffray analysts published a note to clients the Friday before Gilead’s Tuesday earnings report pointing out that the stock trades at roughly 11 times 2016 earnings, the lowest in its class.
The next few days should reveal whether the strong Gilead earnings report will be enough of a catalyst to drive the stock higher and close the gap between Gilead and its biotechnology peers.
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