Gilead Sciences beat analysts' fourth-quarter expectations Tuesday but gave weak 2015 sales guidance, as the biotech suffers pricing pressures on its blockbuster hepatitis C drugs.

Earnings leaped 342% to $2.43 a share, 21 cents above the consensus. Revenue jumped 134% to $7.31 billion, more than $500 million above Wall Street's view.

However, Gilead (GILD) sees full-year net product sales of $26 billion to $27 billion, falling below some forecasts and appearing light vs. the Street's average estimate for total revenue of $28.65 billion. It did not offer EPS guidance, though it did guide some expenses.

Shares dropped 5% in after-hours trading.

Gilead also initiated a dividend of 43 cents and a $15 billion share buyback program.

The standout in Q4 was the hepatitis C combo pill Harvoni, which clocked $2 billion in sales that quarter even though it was launched in October. Its Q4 sales outstripped the $1.7 billion predecessor Sovaldi took in that quarter. Sovaldi had had the biggest drug launch of all time after its December 2013 approval.

Competition Hits Revenue

Evercore ISI analyst Mark Schoenebaum remarked in an email that "Harvoni beat by a wide margin while Sovaldi missed by a small margin." Overall, the hepatitis C virus (HCV) franchise took in $3.8 billion in the quarter vs. the consensus view of $3.5 billion.

But on the conference call with analysts, Paul Carter, Gilead's head of commercial operations, acknowledged that new competition is affecting the company's HCV revenue.

On Dec. 19, AbbVie (ABBV) won U.S. approval for its drug combo Viekira Pak, which has similar effectiveness to Harvoni but has a more complicated regimen than Harvoni's single pill per day. Days later, AbbVie announced a deal with major pharmacy benefit manager Express Scripts (ESRX) that all but excluded Gilead's drugs from its national formulary in favor of Viekira Pak.

Since then AbbVie and Gilead have reached a series of competing deals with payers. The most recent, in fact, was announced just hours before Gilead's earnings report, as Catamaran (CTRX) said that Sovaldi and Harvoni are the exclusive options on its formularies.

However, negotiating these deals has costs. Carter said that by the end of this year, the expected gross-to-net adjustment — i.e., the percentage of revenue paid back in rebates — on the HCV franchise will be 46%, more than double the percentage at the end of last year.

Outlook Seen As Conservative

For patients funded by Medicaid and the Veterans Affairs department, the adjustment will pass 50%, he said. So while the formal price of Sovaldi is still $84,000 for 12 weeks of therapy, and Harvoni's is $94,500, nearly half of that is going away.

"These higher levels of rebates are tied directly to opening up access and streamlining the process of starting a patient on therapy," Carter said. "We think there is capacity to treat at least 250,000 patients across all genotypes.

This intensifying competition likely explains the light sales guidance, although both Schoenebaum and RBC Capital Markets analyst Michael Yee pointed out that Gilead has a history of issuing conservative guidance that it then beats.

"Backing out around $12.5 billion in 'other,' we get implied HCV of around $13.0—14.5 billion in sales vs. consensus $15 billion," Yee wrote in a research note. "This will likely be debated but our initial view is that this is just management being conservative at the beginning.

The dividend and the share buyback were also noteworthy for their use of capital, as many on the Street have been hoping that Gilead will make another major acquisition to ensure its post-HCV future.

Gilead CFO Robin Washington said there will still be plenty of money for that, adding that the dividend and buyback "underscore our belief in the strength of our future cash flow."