Is Gilead Sciences, Inc. (GILD) Still A Buy?

Gilead Sciences, Inc. (NASDAQ:GILD) reported a relatively rare earnings miss in the first quarter on May 2. The biotech announced earnings of $0.48 per share while analysts were expecting $0.50 per share. Should investors buy stock in Gilead anyway, or was there more to this miss?

Time of transition
Examination of Gilead Sciences, Inc. (NASDAQ:GILD)’s sales numbers shows why earnings weren’t at expected levels. Two of the company’s top-selling drugs experienced revenue declines during the quarter. Sales for Atripla, which is the world’s best-selling HIV drug, fell 1% year-over-year during the first quarter to $877 million. Sales for Truvada dropped 8% compared to the same period in 2012, coming in at $700 million.

Gilead Sciences, Inc. (NASDAQ:GILD) really isn’t worried about these declines. I don’t think investors should be, either.

Keep in mind that Atripla was first introduced in 2006. That’s quite a while back considering the quick pace of changes in HIV drug development. The drug is a combination of Gilead’s Truvada and Bristol Myers Squibb Co. (NYSE:BMY)‘s Sustiva. Both companies anticipated that sales could weaken as Sustiva faces possible generic rivals in Europe and Canada this year and in the U.S. next year. With this recognition and the introduction of newer products by Gilead Sciences, Inc. (NASDAQ:GILD), the two companies discontinued joint coordination of marketing efforts in 2011.

The decrease in Truvada sales stems from a couple of factors. First, Gilead noted in the fourth quarter that there were significant sales volumes — to the tune of $80 million to $100 million — that were purchased ahead of demand. The company said after the most-recent earnings release that Truvada was especially affected by this.

Second, patients are shifting from Truvada to newer regimens Complera and Stribild. Gilead Sciences, Inc. (NASDAQ:GILD) expects patients will switch from both Atripla and Truvada to the new treatments, but the transition from Truvada will likely be at a faster rate.

Continued strength
Gilead’s stock has more than doubled in the past year and is up more than 40% so far in 2013. I think it’s still a good buy.

The company should continue to be a dominant force in the HIV drug market. AbbVie Inc (NYSE:ABBV) continues to lose market share with Kaletra. Gilead Sciences, Inc. (NASDAQ:GILD) could face a serious challenge, though, from ViiV Healthcare, a joint collaboration between GlaxoSmithKline plc (ADR) (NYSE:GSK), Pfizer Inc. (NYSE:PFE), and Japanese drugmaker Shionogi.