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Gilead Sciences: High Gross Margins despite Weak Sales

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Overview

Gilead Sciences (GILD) registered falling sales in recent quarters, but the company’s gross margins witnessed steady growth. In 2Q16, the company’s revenue fell ~5.7% YoY (year-over-year). Its earnings also fell due to weakness in the sales of the company’s HCV (Hepatitis C) antivirals. The sales across the US, Europe, and Japan were weighed down due to increased rebates and discounts and lower HCV patient starts. However, the strong uptake of Gilead Sciences’ TAF-based (Tenofovir Aalafenamide) products in the US and Europe partially offset the fall in sales. To learn more about Gilead Sciences’ recently launched TAF-based HIV drug Genvoya, read Genvoya Becomes Most Prescribed Regimen for HIV Patients in US.

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Gilead Sciences registered a strong gross margin of around 92%. This compares to the company’s gross margin of ~90% in 2Q15. Sequentially, the gross margin improved by ~5%. Gilead Sciences’ gross margins in 2Q16 had a positive impact of around a $200 million litigation charge reversal due to a favorable decision in the Merck (MRK) case in 1Q16. Gilead Sciences expects to register product gross margins of 88%–90% for fiscal 2016.

Peer estimates

According to analysts’ estimates, Gilead Sciences’ 2016 adjusted gross margin is expected to be around 88%. Peers such as Abbvie (ABBV), Amgen (AMGN), and Biogen (BIIB) are expected to register adjusted gross margins of ~81.2%, 86.5%, and 87.9%, respectively, in 2016. Investors can consider investing in the iShares Core S&P 500 ETF (IVV) for exposure to Gilead Sciences. IVV has ~0.59% of its total holdings in Gilead Sciences.

In the next part of the series, we’ll discuss the company’s inorganic growth strategy going forward.

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