Analyst Conference Summary

conference date: February 2, 2012 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2011 (fourth quarter, Q4)

Forward-looking statements

Overview: After lagging for years as an undervalued stock, Gilead Sciences had another good quarter and is beginning to be better appreciated by investors. See also my past writings on Gilead Sciences.

Basic data (GAAP) :

Revenue was $2.20 billion, up 4% sequentially from $2.12 billion and up 10% from $2.00 billion in the year-earlier quarter.

Net income was $665.1 million, down 10% sequentially from $741.1 million, but up 6% from $629.4 million year-earlier.

Earnings per share (EPS) were $0.87, down 8% sequentially from $0.95, but up 14% from $0.76 year-earlier.

Guidance:

Includes Pharmasset. $8.6 to $8.8 billion in product sales for full year 2012. Includes U.S. launch of Quad in second half of year. 73-75% non-GAAP product gross margin. $1.325 to $1.4 billion non-GAAP R&D expense. Non-GAAP SG&A expense $1.225 to $1.3 billion. Tax rate 26% to 28%. Net interest expense re Pharmasset around $230 million.

Expects some continued short term headwinds in European markets.

Conference Highlights:

In 2011 several Gilead therapies hit record revenues, and overall Gilead gained market share in the HIV therapy market. New therapies are likely to be brought to market in 2012. Believes Pharmasset acquisition will be transformative for Gilead.

Non-GAAP numbers: net income $743.1 million; EPS $0.97, up 2% y/y. For the full year 2011 EPS was $3.86, up 5% from $3.69 for 2010.

Gross margins were impacted by bad debts in "certain southern European countries," as well as acquisition-related, currency exchange rates, the new U.S. pharmaceutical excise tax, and R&D expenses.

Cash and equivalents ended at $9.96 billion. $5.90 billion was raised with new debt issues. After the quarter ended, on January 17, 2012, Gilead purchased Pharmasset for $11.1 billion. Operating cash flow was near $1 billion.

During the quarter Gilead made agreements with Boehringer Ingelheim for rights to its integrase inhibitors; with GlobeImmune for products for hepatitis B; with Bristol-Myers Squibb for a new fixed dose combination HIV therapy comgining agents from the two companies; and with Tibotec Pharmaceuticals for another HIV combination therapy.

Product sales of $2.13 billion were up 10% from $1.93 billion year-earlier. Antiviral product sales were $1.86 billion, up 9% from $1.70 billion year-earlier. 74.8% product non-GAAP gross margin, a slight decline.

13% of product revenues are now outside of the antiviral segment, led by revenue growth for Ranexa and Letairis.

Royalty, contract and other collaboration revenues were $67.0 million, down 2% from $68.4 million year-earlier.

A new drug application (NDA) was submitted to the FDA in October for the Quad HIV tablet regimen, with a target review (PDUFA) data of August 27, 2012. 90% of patients respond well to Quad, a record for an HIV drug. Three new Quad Phase III studies are being initiated.

In November the European marketing authorization for Eviplera for HIV-1 was granted.

Phase 3 data showed cobicistat, which boosts blood levels of other HIV medicines, was non-inferior to ritonavir. Also Phase 3 data showed integrase inhibitor elvitegravir for HIV-1 was non-inferior to raltegravir. These will help Gilead in multi-drug formulations.

A supplemental NDA was submitted for Truvada for prophylaxis use to prevent HIV-1 infections.

A phase 3 clinical trial was initiated for RIVER-PCI (ranolazine (Ranexa) for incomplete vessel revascularization post-percutaneous coronary intervention).

See also Gilead Pipeline.

Cost of goods sold was $584.4 million. Research and development expense was $402.2 million. Selling, general and administrative expense $346.2 million. Leaving $867.5 million income from operations. Net interest expense ws $48.6 million. Income tax provision $157.1 million. Loss attributable to non-controlling interest was $3.4 million.

Q&A:

2012 guidance, margin impact from Quad launch? We did include product launch costs in our guidance.

Foreign exchange in guidance? That is included in the revenue range. It could have an impact of $150 million.

Hepatitis single pill regimen formulations will depend on data results that are not yet in. A combination has to hit both genotype 1 and genotype 2-3.

Lower gross margins for 2012 despite higher margin product mix? Complera and Quad would have higher margins, but revenues will only begin to ramp in 2012. You would see more impact in 2013.

Criticisms by competitors of Quad? Awareness of quad is high. The demand for single tablet regimens is high. Quad label will be for treatment naive patients.

R&D guidance? This is a year of investment for us, including for liver disease. There may be some rationalization among the Gilead Phase II candidates, but any impact from that would be in the second half of the year.

European budget constraints and pricing? Ongoing uncertainty. Assuming 2 to 3% income impact from pricing in 2012. Bad debt situation is included in guidance, but its true extent for 2012 is unknown.

A once daily hepatitis drug appears to be far closer to success than we thought just one year ago, based in part on GS-7977. We should start seeing some data in a little over a month.

Excise tax was near $50 million in 2011, but in 2012 projected at $80 to $100 million.

We suspended share repurchases in late 2011 to help fund the Pharmasset acquisition. We will resume repurchases to offset stock based compensation in 2012. We will also be paying down the debt we incurred.

Both Gilead and Pharmasset had a number of backup nucleotides that are pre-clinical but could be brought forward.

Complera launch, naive versus pre-treated patients? Just four months since launch. About 30% are naive, 70% are switch. About 1/3 of switches are from Atripla.

Advisory committee for the quad? FDA sees cobicistat is a first-in class molecule; the policy recommends committee review. At same time FDA expressed that the review is not because of efficacy or safety concerns.

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