Analyst Conference Summary

conference date: October 19, 2010 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2010 (third quarter)

Forward-looking statements

Overview: Another solid growth quarter, despite lower Tamiflu royalties than year-earlier.

Basic data (GAAP) :

Revenues were $1.94 billion, up slightly sequentially from $1.93 billion, and up 7% from $1.80 billion in the year-earlier quarter (Q3 2009).

Net income was $704.9 million, down 1% sequentially from $709.1 million, but up 5% from $673.0 million year-earlier.

Earnings per share (EPS) were $0.83, up 5% sequentially from $0.79, and up 15% from $0.72 year-earlier.

Guidance:

Lowering R&D spending guidance to $830 to $840 million due to timing of clinical trials. All other 2010 guidance unchanged.

Conference Highlights:

Total revenues were a record. Non-GAAP net income was $759.7 million or $0.90 per share. Strong growth in patients and market share in U.S. HIV market.

Product sales were $1.87 billion, up 13% y/y, with antiviral products responsible for $1.65 billion. Royalty, contract and collaboration revenues was $72.1 million, down from $152.4 million year-earlier because of lower Tamiflu royalties ($34.5 million v. $113.5 million in Q3 2009).

55% non-GAAP operating margin achieved by careful expense reduction.

Foreign exchange rates had a negative $44.2 million impact on revenues compared to Q3 2009.

In the quarter $2.41 billion of common stock was repurchased at an average of $33.84 per share, leaving about $2.6 billion authorized for repurchases. Year-to-date about 10% of Gilead's total common stock has been repurchased.

Cash balance ended at $5.05 billion. Cash flow was $739.5 million. Long term liabilities ended at $2.99 billion.

A marketing authorization application for a fixed dose combination of Truvada and TMC278 (rilpivirine) for HIV was submitted in September to the European Medicines Agency. Positive results for Phase II "Quad" regimen for HIV and cobicistat-boosted atazanavir plus Truvada for HIV were presented in September. Phase III trial data could be available by Q4 2011.

Tenofovir (Viread) gell is being tested for topical microbicide for HIV infections.

HCV pipeline has 7 candidates, 5 are nearing Phase 1 trials.

See also Gilead Pipeline.

Cost of Good Sold was $477.6 million. Research and Development $230.4 million. Selling General and Administrative $250.6 million. Total expenses of $958.6 million left $979.1 million income from operations. Net interest expense was $18 million, income tax provision $258.9 million.

Stock buy backs continue to be our strategy for returning value to shareholders.

Q&A:

Adoptation of new HIV guidelines in U.S. is looking very positive. In Europe we are not seeing as material of an effect. However, France, Gilead's number 2 market, have moved up the start of anti-retroviral treatment to 500 level.

FTC versus 3TC. We have not seen any generic 3TC launch in the U.S. yet. Our single tablet regimens have a very strong position, which you can see in revenue growth. There are some differences between FTC and 3TC showing it is more effective.

Non-retail purchasing in quarter? Really, really solid ADAP sales in U.S. Texas up from Q2.

Pharmaceutical excise tax in 2011? Expect tax to be no greater than $50 million for full year. Clearly it will have an impact on SG&A and operating margin, but we won't have guidance until January.

Impact from healthcare reform this quarter? Difficult to break out, but about $200 million impact for full year. There was a higher ramp of these costs in Q3, should flatten in Q4.

We have over 600,000 patients now on anti-retroviral therapy. We are seeing a variety of trends, including earlier testing, affecting our overall market, in addition to healthcare reform.

We don't see tenofovir gell as a significant commercial opportunity at this point.

Hepatitis C, HCV, we are looking for an all-oral 3 drug cure, which will leapfrog the field. We believe we have the assets in place to execute on that.

We did not spend as much on R&D as we would have liked in 2010 due to two programs being stopped. So that could effect margins long term. But money will be spent frugally and judiciously.

Patient assistance/copay program impact? We had a price freeze with ADAP. Copay private patient assistance card increased to $200. What is driving growth is physician adoptation of guidelines for starting patients on therapy earlier.

Hepatitis B versus C? In Hep B in most cases cure is now not likely, but we do have a program for a B cure.

Atripla versus B tripla to be introduced next year? Bristol-Meyer will split off in January to do independent marketing. Truvada + TMC278 profile is very strong for treatment-naive patients. Some Atripla patients struggle with tolerability, so Truvada 278 could be good for them.

We could also partner with other companies for HVC if that would speed up introduction of a product. We are having discussions with various organizations. But the only thing we are uncertain about our internal compounds is their human safety.

Aging is a hot topic in HIV. 40 to 50% of patients are now over 50. So looking for advantages for long term care of these patients.

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