Analyst Conference Summary

conference date: October 23, 2012 @ 1:15 PM Pacific Time
for quarter ending: September 30, 2012 (third quarter, Q3)

Forward-looking statements

Overview: Improving revenues without improving profits. Increased revenue guidance for the year.

Basic data (GAAP) :

Revenue was $2.43 billion, up 1% sequentially from $2.41 billion and up 14% from $2.12 billion in the year-earlier quarter.

Net income was $675.5 million, down 5% sequentially from $711.6 million, and down 9% from $741.1 million year-earlier.

Earnings per share (EPS) were $0.85, down 7% sequentially from $0.91 and down 10% from $0.95 year-earlier.

Guidance:

Increasing product revenue guidance $9.1 to $9.2 billion. Acquisition related expenses negative impact now estimated $0.62 to $0.65 per share. EPS guidance unchanged.

Conference Highlights:

The drop in profits was due to a large increase in R&D expense, particularly for liver disease and oncology, and related to the Pharmasset acquisition in Q1.

Stribild (for HIV), approved in August by FDA, launch sales exceeding Complera launch curve. Covered by most insurance already.

Non-GAAP numbers: net income was $788.9 million, up 3% sequentially $767.3 million, and down 1% from $795.2 million year-earlier.

Europe Q3, as usual, was impacted by the summer holidays. Still rolling out Complera in various European nations.

Product sales were $2.36 billion, up 2% sequentially from $2.32 billion, and up 14% from year-earlier. Antiviral product sales increase 13% to $2.04 billion from $1.79 billion year-earlier, with U.S. sales up 19% and European sales up 6%.

Royalty, contract and other revenues were $68.6 million, up 23% from $55.8 million year-earlier.

Cash ended at $2.65 billion.

Compared to 2011, currency exchange impact was negative $20.5 million in sales.

Gilead and partners agreed to collaborate on low-cost generic version of Gilead's HIV medicine emtricatabine for developing nations.

Q&A:

Stribild launch? Pleases, but only 2 months after launch, so much was inventory fill to wholesalers. Got access to ADAC very quickly. Prescriptions running ahead of Complera at equivalent time. Seeing more Stribild use in naive setting than in switching, where it is at the expense of the protease inhibitors. Positioning for new patient use.

Phase III Hepatitis program? No news except were easily able to enroll first set of patients. Should complete enrollment in March 2013. Second Phase III study design will develop over the next few months.

Will 7340 reduce renal adverse events? That is exactly what we are hoping to be able to show. Using one-tenth the dose of Viread, so should be very safe. Phase II data should be available in a month of so, then we will know how to power the Phase III study.

7977 has never seen a breakthrough, and only saw resistance when used as a single agent. In theory going to 24 weeks should increase the response rate, but so far it has not. It looks like 7977 is very potent, but you have to add something else. Ribavirin helps, but does not bring it up to 100%. We will need to add at least one ingredient more potent than ribavirin.

9669 is potent, but we are not sure what its place would be in hepatitis C therapy. So we are not pursuing it as aggressively as some other compounds. It might be useful as a third agent, perhaps to get the treatment time down.

Not sure if hepatitis Phase II interim data will be released to the public.

We expect to see high SVRs from a number of candidates, both ours and competitors, but that there will be other factors that affect commercialization of hepatitis products.

The data available by spring should be enough to decide if the final hepatitis product will be dosed for 12 weeks in the second Phase III study. But it all has to hang together and be confirmed.

Flat Atripla trends? Atripla is coming down. 34% of naive market in Q2. 90% of naive market is Gilead products. Complera gets 25% of prescriptions from switches from Atripla. Product sales shift Q3 from Q2 was because ADAP ordered a lot of Atripla in Q2, but not in Q3.

Complera vs. Stribild dynamics? We are very pleased with Complera, we hear anecdotal feedback on how well patients tolerate it. We are positioning Stribild as the first choice for new patients, so we would expect it to take over. 96 week data will be presented soon, and hopefully that will give it a preference in guidelines.

Our hepatitis goal is to have one pill once daily without ribavirin, because of its issues. The question is when, and with what regimen. It should be possible to do this with just 2 drugs, but with 3 drugs you might be able to decrease duration of therapy.

Cash management? We did repurchase shares, under $200 million, but that is now secondary to paying down the debt, about $350 million this quarter. By mid 2013 hope to have short-term debt down to $1.5 billion.

Stribild was priced very competitively from a regimen price point of view.

Europe slowness? Some companies are having trouble, but we are doing relatively well because of the nature of our products. For us Italy and Spain would be the most difficult nations.

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