Gilead Sciences (GILD) fourth quarter 2018 results included some more stable changes. What I mean is sales declines weren't as bad as we've seen. Revenues have started to level out a bit as sales within their HIV segment seem to be finally helping offset the weaker performance of their once mighty Hepatitis C drugs. Looking at operating income, I do have some concerns about expenses relative to value that the company is actually creating for shareholders. Full year 2019 guidance doesn't exactly indicate anything that would provide GILD stock with a big bull case. As a whole, I'd rate GILD a "hold."
Gilead earned $1.44 per share in the fourth quarter. Analysts were expecting $1.70. Shares were down nearly 4% in after-hours trading.
In the fourth quarter, revenues declined a marginally small 1.7% to $5.8 billion. The revenue stream is comprised mainly of sales from HIV and Hepatitis drugs. HIV is now the prominent form of income for Gilead, with $4.1 billion in sales in the fourth quarter. On a full year basis, HIV product sales were $14.6 billion compared to $13 billion in 2017. That's a solid 12.3% annual increase. The product lineup doesn't experience the rapid growth rates that we saw in Hep C, but the nature of HIV as a "maintenance treatment" versus a cure, means the revenue stream is much more stable. Hepatitis C related drug sales were $738 million versus $1.5 billion a year earlier. That roughly 50% decrease is no surprise as the product lineup has been declining for a while. Full year sales declined 59.3% to $3.7 billion. The company noted the declines were the result of lower sales prices, lower patient starts, etc. As the products become a smaller piece of the business, I think they'll hold less meaning in performance moving forward.
Yescarta, the company's foray into immunotherapy oncology resultant from its acquisitions of Kite Pharmaceuticals, finished the year with $264 million in sales. The T cell therapy treatment currently used for lymphoma has big promise. We should hope it lives up to that promise considering the company paid almost $12 billion to get their hands on it. We should not forget though that there are competitors for Gilead within this burgeoning way of treating cancer. Novartis (NVS) has their own treatment and they are gaining approvals in countries around the globe. That's not to say that Gilead doesn't have massive potential for its oncology segment. But it pays to mind competition. Of course a paltry $264 million doesn't mean much in relation to HIV sales of $14.6 billion. Given time, I think this will become a larger and larger piece of Gilead's revenues.
Alas, the future doesn't always help the present. Gilead reported operating income of $1.14 billion vs. $2.29 billion in Q4'17. From that cash, Gilead reported net income of a meager $3 million. On a diluted earnings per share basis, that breaks down to less than a penny in earnings per share. Granted, this is an improvement year over year. Gilead reported a loss of $2.96 in the fourth quarter of 2017. For the full year, net income rose 17.8% to $5.45 billion. Diluted earnings increased 18.8% for the year to $4.17 a share. At $4.17, GILD is trading at roughly 16.3x full year earnings.
Overall, I think we've seen the brunt of the bleeding. Gilead's position in terms of sales is looking more flat, and the reliance on the much more stable HIV lineup should provide some consistency that has been somewhat lacking. As a whole, I'm struggling to see the catalyst that will drive Gilead's stock higher.
Guidance for 2019 forecasts sales revenue of $21.3-$21.8 billion. The low end of that guidance would mark virtually zero change from 2018's full year results. This does signal that things seem to be evening out. Furthermore, R&D guidance is expected to be lower than 2018. That would be welcome news. At the same time, the company is forecasting $1.40 to $1.50 whack to earnings as a result of acquisition expenses, stock based compensation, and other things.
What does all this mean for the stock?
The earnings were certainly not enough to drive the stock higher, and I worry that investors are looking at another year of stagnation. It becomes a question of patience. If you're all in for the oncology potential, coupled with a strengthening HIV business, then there isn't really a reason to sell. At the same time, I don't see Gilead stock experiencing huge appreciation in pricing based on current news. Where is the driver for a bullish case? Yescarta sales are taking a while to heat up, and I expect Hepatitis will keep declining. Medicine is a slow business. I view Gilead Sciences as a "hold" for now.