Analyst Conference Summary

conference date: April 20, 2011 @ 2:30 PM Pacific Time
for quarter ending: March 31, 2011 (first quarter, Q1)

Forward-looking statements

Overview: Revenues down y/y on no repeat of last year's Tamiflu panic buying.

Basic data (GAAP) :

Revenues were $1.93 billion, down 4% sequentially from $2.00 billion and down 8% from $2.09 billion in the year-earlier quarter.

Net income was $651.1 million, up 4% sequentially from $626.4 million, but down 24% from $852.1 million year-earlier.

Earnings per share (EPS) were $0.80, up 5% sequentially from $0.76, but down 13% from $0.92 year-earlier.

Guidance:

For full year 2011, expects net product sales of $7.9 to $8.1 billion, with 74% to 76% non-GAAP gross margin. Non-GAAP expenses of $1.95 to $2.05 billion, tax rate 25% to 27%. Acquisition and stock-based compensation impact of $0.25 to $0.28 per share. [This is unchanged from when announced in January]

Conference Highlights:

"Total revenues, GAAP and non-GAAP net income and diluted earnings per share decreased for the first quarter of 2011 due primarily to a $235.2 million or 95% decrease in Tamiflu royalties resulting from a decline in pandemic planning initiatives worldwide." Several issues specific to the quarter had impacts, including wholesale inventory reductions. Underlying growth for HIV products remains robust.

Product sales were $1.86 billion, down 3% sequentially, but up 4% y/y despite price reductions from healthcare reform in the U.S. and austerity measures in Europe.

Royalty and contract revenues were $62.5 million, down 79% y/y mainly on Tamiflu, which dropped to $11 million in royalties.

50.4% operating margin in the quarter, down due to Tamiflu.

Expenses were up due to the new pharmaceutical excise tax, acquisitions, and R&D increases.

Topline results from elvitegravir for HIV were good. Single tablet Truvada plus TMC278 has a FDA decision date (PDUFA) of August 10, 2011.

Agreed to acquire Calistoga Pharmaceuticals for $375 million plus payments based on milestones.

Cash balance ended at $6.36 billion. Cash flow from operations was $820.5 million. Stock repurchases in the quarter were $548.5 million. Another $5 billion buy has been authorized. Issued $1 billion in debt at 4.5% in the quarter.

Cash will allow for further merger and acquisition activity.

Florida and Texas had budget strains that led to less ADAP purchases. However, federal ADAP budget for 2011, passed recently, has increased.

Europe revenues were up despite restraints in Greece, Turkey and Spain. Atripla is ramping well.

Letairis is gaining market share, but had an inventory drawdown in Q1. Monthly liver function tests are no longer required with it. Rival requires testing.

Liver disease (hepatitis) product portfolio data is accumulating and being reported at conferences. An all-oral study will be launched this quarter. See also Gilead Pipeline.

Q&A:

Government funding effects on HIV drug sales? Q1 prescriptions were healthy, and the wait list lengthened. The new funding bill for ADAP was more than expected by $50 million. 23% of our business is ADAP. The discounts we implemented are set until 2013. Money was released on April 1 to make sure ADAP programs would not run out.

Aren't the patient numbers on the Gilead regimen down this quarter? 619,000 patients are now on HIV antivirals. There are still fluctuations on a quarter basis. Prescriptions looked good in Q1.

SG&A expense was impacted by southern Europe and new excise tax.

Letairis program? We have an education program for the PDH physicians on the improved label. About 30% of our starts are from patients switching medications. The new label is increasing both switches and new patients.

Is 2.5 days or $25 million inventory miss about right? Q4 inventory was at the higher end. Change was actually 4 days at $10 million per day.

Europe was steady, which was good considering the turmoil there. UK increased its VAT for Q1, so hospitals stocked inventory in Q4.

Hepatitis C quad oral regimen safety data? We think the data so far is very encouraging. 9451 has gone into a 150 patient Phase II study, which seems to indicate the safety data is good. We think the FDA will allow us to initiate a study in a few months.

Guidance dependence on payer mix? It is a matter of seeing how these things play out between private payers, Medicaid, and ADAP. Ratios have been basically stable, but changes are possible.

Calistoga, why get back into oncology after exiting it a few years ago? We now have a nice portfolio for cancer and inflamation. We believe the cancer field has changed dramatically towards targetted therapies, so it is an opportunity for us.

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