Analyst Conference Summary

conference date: April 20, 2010 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2010 (first quarter)

Forward-looking statements

Overview: Another good quarter with 36% revenue growth over Q1 2009.

Basic data (GAAP) :

Revenues were $2.09 billion, up 3% sequentially from $2.03 billion and up 36% from $1.53 billion in the year-earlier quarter.

Net income was $854.9 million, up 6.5% sequentially from $802.2 million and up 45% from $589.1 million year-earlier.

Earnings per share (EPS) were $0.92, up 6% sequentially from $0.87 and up 46% from $0.63 year-earlier.

Guidance:

Full year 2010 guidance: product sales $7.4 to $7.5 billion, down by $200 million due to U.S. healthcare reform legislation impact on HIV patients. 75 to 77% product gross margin remains unchanged. Effective tax rate 25% to 26%.

Conference Highlights:

Strong growth of Atripla and Truvada, as well as ramping of Ranexa, drove revenues. Healthcare reform law impact was accounted for as a reduction in revenue of $29.4 million. Will not release healthcare law impact going forward, but estimate for full year is $200 million.

Non-GAAP numbers were: net income $914.8 million, EPS $0.99, up 48% and 50% y/y respectively. 59.6% operating margin, favorably impacted by increase in royalties.

Product sales were $1.8 billion. Royalties, (mainly $246 million for Tamiflu), were $297.8 million.

In Q4, in the U.S., HIV patients taking antiviral therapy grew by 4% y/y. 85% of patients new to therapy took either Truvada or Atripla.

Foreign currency exchange had a positive impact of $2 million compared to year-earlier, but a negative impact of $22.7 million sequentially.

Cayston was approved by the FDA in February fro treatment of cystic fibrosis patients with P. aeruginosa produced respiratory symptoms. Now available in Canada, Britain, Australia.

Tamiflu sales for Q2 to drop to about $78 million, due to seasonality of flu.

Pipeline saw some significant advances as well as disappointments. Quad for HIV moved into Phase III. New Cayston data being presented. GS9411 Phase I studies completed, but data does not support going further. GS9667 diabetes data better, progressing to Phase Ib. See also Gilead Pipeline.

Cost of good sold were $440.4 million. Research and development $218.7 million. Selling general and administrative expense $265.6 million. Total costs and expenses $924.7 million, leaving income from operations for $1.161 billion. Other expense 1.3 million.

$671 million operating cash flow. Balance $4.6 billion of cash and securities. $162 million spent on share repurchases out of new $1 billion allocation.

During the quarter we saw international governments using various measure to reduce actual payments for therapies. Turkey, France and Greece forced price reductions, and Germany has a plan to. But launch of Atripla in Belgium.

Viread for Hepatitis B has great potential is Asia, where marketing is underway.

Q&A:

ADAP (state purchasing programs)? Seemed that lower sales in some states in Q1 was due to phasing, but was still basically in line with retail growth. Base budgets for fiscal 2010 were slightly up from 2009, supplemental grants still to go out.

Price decreases in Europe, effects on 2010? A few countries have national decreases across the industry. Turkey 12% rebates increased to 20%. Germany is considering an additional 10% rebate; it is very likely.

Why was Q1 healthcare reform impact less than the annual rate? There is a two-quarter lag of some components.

2011 impact of healthcare reform impact? Medicaid rebate was increased by 8%; that is the main impact. In addition to increase due to our own revenue growth in 2011 is the Part D donut hole discount and an excise tax.

Strategy for cash use? We have a strong positive cash flow. Pipeline investments are being eyed. We are developing the diabetes drug because we think it is worth more if we can prove the concept.

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