Analyst Conference Summary

biotechnology

conference date: May 2, 2017 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2017 (first quarter, Q1 2017)

Forward-looking statements

Overview: As expected, revenue continued to decline, largely on price discounting for Harvoni. Still on track to meet 2017 guidance.

Basic data (GAAP) :

Revenue was $6.51 billion, down 11% sequentially from $7.32 billion and down 16% from $7.79 billion in the year-earlier quarter.

Net income was $2.70 billion, down 13% sequentially from $3.10 billion and down 24% from $3.57 billion year-earlier.

Earnings per share (EPS, diluted) were $2.05, down 12% sequentially from $2.34 and down 19% from $2.53 in the year-earlier quarter.

Guidance:

reiterated full 2017 guidance

Conference Highlights:

Sales for HIV and HBV therapies grew y/y, while HCV revenue declined. Holds $34 billion in cash and equivalents, a remarkable amount. Genvoya launch has set a record for an HIV therapy.

There was some loss of HCV therapy market share, but mainly patient starts continue to decline, with those who do get therapy trending to earlier stage disease. Believes about 3 million people in the U.S. are infected with HCV, but only about half are diagnosed. In Europe negotiated new agreements with France and Italy to treat HCV patients regardless of cirrhosis scores.

John Milligan, CEO, said "The ongoing reduction of patient starts continues to be the main factor impacting our revenue. . . NASH is increasingly understood as a serious health issue for patients. We shared proof of concept data for GS 0976 in an oral late breaker presentation." GS 0976 has progressed to a Phase 2 study.

Non-GAAP numbers: Net income was $2.95 billion, down 18% sequentially from $3.59 billion and down 31% from $4.27 billion year-earlier. Non-GAAP EPS was $2.23, down 17% sequentially from $2.70 and down 26% from $3.03 year-earlier.

Product sales were $6.38 billion, down 12% sequentially from $7.22 billion and down 17% from $7.68 billion in the year-earlier quarter. $4.5 billion U.S. product sales. $1.3 billion European sales, down due to unfavorable HCV dynamics. $ million sales in Japan. Rest of world $ million.

Royalty, contract and other revenue was $128 million, up sequentially from $104 million, and up from $113 million year-earlier.

Cash and equivalents ended at $34.0 billion, up sequentially from $32.4 billion. $2.9 billion cash flow from operations. $565 million was used for repurchase shares. $687 million paid in dividends. Long term liabilities were $28.5 billion.

Gilead is prioritizing cash use to invest in partnerships and acquisitions.

During the quarter Gilead announced positive results for a number of HIV trials, plus a preclinical study of HIV capsid inhibitors. Submitted a marketing application for single tablet HCV regimen of sofosbuvir, velpatasvir and voxilaprevir (SOF/VEL/VOX) in Europe, with the U.S. decision from the FDA for that combo due by August 8, 2017.

Vemlidy for hepatitis B was approved in the U.S., Europe and Japan and showed first revenue in Q1.

Gilead has 3 cancer therapies in Phase 3, and many more at earlier stages of the pipeline. Collaboration with other companies, notably with AstraZeneca for combinations with checkpoint inhibitors, are also underway.

GS-4997 in NASH planning for Phase 3 studies. GS-9674 and GS-0976 for NASH are in Phase 2 studies.

Filgotinib is now in Phase 3 trials for rheumatoid arthritis, Crohn's, and ulcerative arthritis. Six additional Phase 2 study across a range of diseases are planned with partner Galapagos.

Numerous other studies are underway or planned; see Gilead pipeline.

Cost of goods sold was $0.96 billion. Research and development expense was $0.93 billion. Selling, general and administrative expense was $850 million. Income from operations was $3.77 billion. Interest expense $261 million. Other income was $111 million. Income tax provision was $918 million.

Q&A:

HIV % of U.S. revenue is Medicaid funded? Public side is about 55%, private side is about 45%. About 20% of the 55% is ADAP.

Pricing competition from generic Viread? We expect to see the effects of generics in Europe in the second half of this year on a country to counrty basis. We hope to convert more countries to TAF based regiments, away from TDF, before generics become available. HIV has tended to be more volume driven than price driven. We are already heavily in deeply discounted markets in the U.S., so the generics have relatively little advantage. But there will be some level of impact. This is all included in our guidance.

HIV Prep typical length of use? CDC data shows persistency in line with anti-retroviral treatment. We see Prep as a significant growth driver, so far 90% is out of just five U.S. cities.

Cash and deal strategy? We do look for things that could have a high operating margin, and a medical need for a sustainable business.

TAF regimens in Germany? Consistent with other early launch markets. Rapid acceptance.

Bictegravir, will it accelerate the TAF adoption curve? Yes. It is the first single-table regimen without tradeoffs.

Are you doing anything to drive NASH diagnosis? Histology is a primary endpoint in Phase 3 studies. That might be a way to include the data in the label. We want to get away from doing biopsies, towards serum markers.

HCV trend vs. Q1 revenue and 2017 guidance? HCV is still a large opportunity, but declining. Our guidance is a very realistic view. 150,000 to 175,000 patient starts is a very solid number. But revenue has a number of components, starts can vary by quarter. We see no reason to change our guidance right now.

It is clear we are looking for another avenue to increase revenue and help patients, and we have been looking in oncology, but we are looking at other things as well. We are thinking of what we want to have a decade from now.

TAF 2025 patent expiration, or later? Yes, the patent goes to 2025, we have longer patents on the combination products. We will continue to create new drugs for HIV drugs. For instance Bictegravir would expire in 2033.

HCV diagnoses in 2016, Veteran's Administration %? The diagnosis data is not available yet. For the VA we are seeing a steady gradual decline in the number of treated patients. They were efficient and effective in getting their folks into care, so their % of the overall treated population is expected to decline.

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