Analyst Conference Summary

conference date: May 2, 2013 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2013 (first quarter, Q1 2013)

Forward-looking statements

Overview: Solid quarter, but focus is on potential Hepatitis C therapies.

Basic data (GAAP) :

Revenue was $2.53 billion, down 2% sequentially from $2.59 billion, but up 11% from $2.28 billion in the year-earlier quarter.

Net income was $722.2 million, down 5% sequentially from $762.5 million, but up 63% from $442.0 million year-earlier.

Earnings per share (EPS) were $0.43, down 9% sequentially from $0.47, but up 54% from $0.28 year-earlier.

Guidance:

Reiterated the full-year guidance given February 4, 2013: product sales of $10.0 to $10.2 billion. Non-GAAP gross margin 74% to 76%. R&D expense $1.8 to $1.9 billion. SG&A expense $1.55 to $1.65 billion. Effective tax rate 26% to 28%. Non-GAAP impact of acquisition, restructuring, and stock-based compensation expense on EPS $0.21 to $0.24. From which you can make a non-GAAP EPS estimate.

Conference Highlights:

Increase in Q1 2013 over 2013 revenue was mainly driven by Complera/Eviplera and Stribild sales. In the quarter the acquisition of YM BioSciences was completed. The inventory build by wholesalers & agencies of Q4 was reversed in Q1, resulting in the sequential revenue decline. Preparing to launch sofosbuvir before end of 2013 (if approved by FDA) with application made on April 8.

Non-GAAP numbers: net income was $801.9 million, down 3% sequentially from $823.4 million but up 14% from $704.4 million year-earlier. Non-GAAP EPS was $0.48, up 7% from $0.45 year-earlier.

Product sales were $2.39 million, down 5% sequentially from $2.51 billion, but up 8% from $2.21 billion year-earlier. Royalty revenue was $138 million.

Cash and equivalents ended at $2.63 billion. Operating cash flow was $672 million. Long-term debt was $8.13 billion. Share repurchases used $82.2 million, but were suspended in February, pending reaching debt target goals.

Sofosbuvir (7977) plus ledipasvir (5885) and ribavirin for Hepatitis C Phase 2 ELECTRON trial for genotype 1 null responders showed a sustained virologic response for all patients at four weeks after stopping therapy. Phase 3 trials (ION-1 and ION-2) were initiated for this regimen. Patients also enrolled in LONESTAR Phase 2 trial for treatment-naive patients and patients who had previously been treated with a protease inhibitor.

Results from the Phase 3 FISSION study for sofosbuvir plus ribavarin in HCV genotype 2 or 3 patients met the primary endpoint of non-inferiority to peg-interferon plus ribavirin, with both arms having 67% sustained response. Results from Phase 3 NEUTRINO study of sofosbuvir, ribavirin and peg-interferon for genotypes 1, 4, 5, or 6 met the primary efficacy endpoint, with 90% of patients showing sustained virologic response. For hep C patients with treatment experience and chronic type 2 or 3 infections, FUSION Phase 3 met its primary efficacy endpoint of over 25% sustained response.

Gilead is establishing a presense in Japan because the Hepatitis C opportunity there is so large.

There were also some positive results in the quarter for HIV and cardiovascular therapies.

Gilead is suspending share repurchase activity until debt reduction goals (1.5 ratio) are met.

Cost of goods sold was $634.4 million. Research and development expense was $497.6 million (up from $458.2 million year-earlier). Selling, general and administrative expense was $374.3 million (down from $443.1 million year-earlier). Income from operations was $1.025 billion. Interest expense was $81.8 million. Other expense was $3.3 million. Income tax provision wwas $222.4 million. Net loss attributable to noncontrolling interest was $4.5 million.

Q&A:

Complera and Stribild mix of purchases by ADAP, VA? The inventory effect was on the bulk purchases of the higher volume products. Did not effect new products like Complera and Stribild significantly.

Sofosbuvir safety is very similar to placebo. The single relapsed patient was remarkable given this is the first oral therapy for these very difficult to treat patients.

Sofosbuvir launch? We will be able to launch with riba or peg+riba in three genotypes. We don't expect too many physicians to wait for an all-oral therapy. We will not be holding back at all. Twelve weeks of therapy is very acceptable to patients.

Duration of HCV therapy? Data is still emerging, but eight weeks is probably the lower limit for sofosbuvir plus ledipasvir.

We are going to open up some compasionate use now that the FDA and EMA applications are in.

5816 is a little bit behind, it is going into Phase II later this year.

ION 3 noninferiority margin? There will be a three-step comparison. One is 12 week arm compared to historical control of 60%. If superior compare 12 week to two 8 week arms, with a margin of 8%. Third comparison is between the two 8-week arms.

Capacity for patients if approved? We think U.S. total is about 100,000 per year, could go up to 150,000 with new agents on market.

At outstanding 483 does not preclude the approval of new drugs.

Pricing of sobosbuvir? There are a lot of considerations for pricing. The rival therapy is in the $60 to $90 thousand range. We also have to take the views of the payers into account, and want to treat as many patients as possible.

Would not be surprised if there was a FDA advisory committee meeting on sobosbuvir.

We are doing and planning a number of studies hoping to get better results for subtype 3 of HCV.

The main component of the SG&A increase this year would be for the launch of sobosbuvir, and that would be back-end loaded.

OpenIcon Analyst Conference Summaries Main Page

Gilead Investor Relations page

More Gilead analyst conference summaries

Search

More Analyst Conference Pages: