Gilead Sciences (GILD) posted strong third quarter results yesterday. The company’s earnings per share of 74 cents was well above the Zacks Consensus Estimate of 69 cents and last year’s profit of 52 cents. Gilead reported $1.8 billion of revenues during the quarter, an increase of 31% compared to $1.37 billion in the prior-year period of 2008 on strong product sales, especially of the antiviral franchise. Revenues were hampered by a $51 million of unfavorable foreign exchange movement.

Product sales increased 23% to $1.65 billion driven by the year-over-year growth in sales of antiviral products such as Atripla (growth of 42% to $605.3 million), Truvada (growth of 13% to $620.6 million), Viread (growth of 9% to $156 million) and the inclusion of Ranexa in the portfolio, following the $1.4 billion purchase of CV Therapeutics Inc. in April.

Gilead’s royalty, contract and other revenues recorded a massive increase of more than 360% based on higher royalties from Roche related to Tamiflu sales. Royalties from Tamiflu during the quarter were $113.5 million compared to $8.6 million in the corresponding period last year – a robust increase attributable to the worldwide preparations to combat swine flu. Since Tamiflu royalties are recognized one quarter in arrear, Gilead expects it to touch about $195 million in the next quarter based on Roche’s reported third quarter sales of the drug.

On the operational front, operating margin declined 90 basis points primarily on account of an increase in both R&D and SG&A expenses. While R&D expenses recorded an increase of 43% due to the reimbursement of R&D expenses related to Gilead’s collaboration with Tibotec Pharmaceuticals; SG&A expenses increased 20% due to higher headcount and expanding commercial activities.

Based on a robust performance, Gilead further strengthened its balance sheet. At the end of the third quarter, the company had $3.29 billion of cash, cash equivalents and marketable securities compared to $3.24 billion at the end of December 2008. The company had approximately $242 million remaining for share buybacks under its $3 billion share repurchase program scheduled to expire at the end of 2010.

In addition to posting a strong performance, Gilead has raised its guidance for net product revenues and now expects approximately $6.35 billion, compared to the prior view of $6.1 billion – $6.2 billion.

We have a Neutral rating on the stock.

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