Gilead Sciences Inc. posted a 34 per cent increase in fourth-quarter profit, trouncing Wall Street expectations, as sales of its blockbuster hepatitis C drugs soared in Japan and offset lower sales in the U.S.
The maker of Harvoni, the first once-daily, single-pill regimen for hepatitis C, and predecessor drug Sovaldi, has been propelled by the lucrative franchise since Sovaldi was launched at the end of 2013. They’re the main reason the company’s revenue has tripled in just two years, a rare accomplishment in the industry.
The two drugs still account for nearly 58 per cent of Gilead’s revenue, though only about 770,000 patients worldwide have been treated with the drugs to date. Worldwide, an estimated 185 million people are infected with the liver-destroying virus.
However, Harvoni and Sovaldi sales in the U.S. appear to have begun an expected slowdown, with insurers demanding discounts as high as 45 per cent off the pills’ eye-popping prices for a course of treatment — $94,000 for Harvoni and $83,000 for Sovaldi. Some insurers and government health programs also are limiting the number of new patients they clear to start treatment, particularly the Veterans Administration. As a result, total sales in the U.S., Gilead’s biggest market, dipped 13 per cent to $4.8 billion in the fourth quarter.
On Tuesday, the Foster City, California-based company reported fourth-quarter net income of $4.68 billion, or $3.18 per share. That’s up from $3.49 billion, or $2.18 per share, a year earlier.
Earnings, adjusted for one-time gains and costs, were $3.32 per share. The average estimate of 11 analysts surveyed by Zacks Investment Research was for earnings of $2.99 per share.
Gilead, which also dominates the market for HIV drugs, posted revenue of $8.51 billion in the period, up 16 per cent from a year ago. Analysts expected $8.11 billion.
“2015 was an exceptional year for Gilead,” CEO John Martin, who is stepping down after two decades, told analysts on a conference call.
Martin will be replaced by another longtime Gilead executive, President and Chief Operating Officer John Milligan.
“The sales were strong,” said Edward Jones analyst Ashtyn Evans, but she cautioned, “Sales are going to decline unless they can make new product acquisitions or arrange partnerships.”
Besides tightening reimbursements for its hepatitis C drugs, Gilead faces a new competitor with the approval last week of Merck’s drug, Zepatier.
While Gilead marketing head Paul Carter said that won’t affect pricing for Gilead’s hepatitis C drugs, Evans disagreed.
“It will certainly have an impact,” the analyst said. “The curveball was the price that Merck decided to give,” a list price of $54,600 for a 12-week treatment regimen.
It’s unclear how much of a discount insurers will demand from Merck, though, added Evans, who has a “Hold” recommendation on Gilead stock.
Gilead forecast 2016 revenue of $30 billion to $31 billion, slightly below its 2015 revenue. That’s a departure because forecasts in recent quarters have all been for significantly higher sales.
For all of 2015, Gilead posted revenue of $32.64 billion. Net income was $18.11 billion, or $11.91 per share.
The company said earnings per share would be reduced by $1.10 to $1.16 due to acquisition and other charges. It did not forecast earnings per share for the year.
In regular trading Tuesday, Gilead shares fell $1.35, or 1.6 per cent, to $82.71. In after-hours trading, shares partially rebounded, rising $1.06, or 1.3 per cent, to $83.77, on a day when the broader markets fell sharply.
Gilead shares have decreased 18 per cent since the beginning of the year, while the Standard & Poor’s 500 index has declined roughly 7 per cent.
Meanwhile, the company’s board of directors approved the repurchase of an additional $12 billion of company stock, once the $15 billion buyback authorized in January 2015 is completed. About $8 billion of that remained at the end of 2015.
The board also approved a cash dividend of 43 cents per share for the first quarter and raised the dividend to 47 cents starting in the second quarter.
Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research
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This story has been updated to correct the number of hepatitis C patients treated with Gilead drugs to 770,000 and to correct its 2016 forecast to state that charges will reduce earnings per share by $1.10 to $1.16 and the company did not give a forecast for total 2016 earnings per share.