Analyst Conference Summary

biotechnology

conference date: May 1, 2018 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2018 (first quarter, Q1 2018)

Forward-looking statements

Overview: Revenue and profits continue y/y declines.

Basic data (GAAP) :

Revenue was $5.09 billion, down 14% sequentially from $5.95 billion and down 22% from $6.51 billion in the year-earlier quarter.

Net income was $1.54 billion, up sequentially from negative $3.87 billion and down 43% from $2.70 billion year-earlier.

Earnings per share (EPS, diluted) were $1.17, up sequentially from negative $2.96 and down 43% from $2.05 in the year-earlier quarter.

Guidance:

Reiterated full year guidance, but cash flow in Q2 will be impacted by tax payments.

Conference Highlights:

HIV antiviral product sales increased slighly y/y, but HCV product sales declined. Believes the HCV market will stabilize in the second half of this year.

Biktarvy (Bictagravir) FDA approval was announced on February 7, 2018. It is a single-tablet HIV therapy. Biktarvy should become the number 1 HIV therapy over time.

Yescarta launching is ramping, with more centers certified and a growing number of patients treated. Reimbursement coverage has been good.

Dividend of $0.57 per share announced for Q2, to shareholders of record on June 15, and payed on June 28.

Could file as many as 4 new drug applications in 2019.

Gilead continues to look for business development opportunities to expand its pipeline.

Non-GAAP numbers: Net income was $1.96 billion, down 16% sequentially from $2.34 billion and down 34% from $2.95 billion year-earlier. Non-GAAP EPS was $1.48, down 17% sequentially from $1.78 and down 34% from $2.23 year-earlier.

Product sales were $5.00 billion, down 14% sequentially from $5.84 billion and down 22% from $6.38 billion in the year-earlier quarter. $3.5 billion U.S. product sales. $1.0 billion European sales. Rest of world $469 million.

Royalty, contract and other revenue was $87 million, down sequentially from $112 million, and down from $128 million year-earlier.

Cash and equivalents ended at $32.1 billion, down sequentially from $36.7 billion. $2.3 billion cash flow from operations. $1.0 billion was used for repurchase shares. $753 million paid in dividends. Long term liabilities were $34.1 billion. $4.5 billion was used to repay loans used to acquire Kite.

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.

Selonsertib for NASH is in 2 slightly different Phase 3 studies, with data available in first half of 2019. GS-9674, and GS-0976 for NASH are in Phase 2 studies in combination with selonsertib. GS-0976 has reported positive Phase 2 results as a monotherapy. Gilead is developing non-invasive tests to find patients needing treatment, to replace liver biopsies.

Filgotinib is now in Phase 3 trials for rheumatoid arthritis, Crohn's, and ulcerative arthritis, all of which are fully enrolled. Phase 2 data in second half of 2018, and Phase 3 data in first half of 2019. Six additional Phase 2 study across a range of diseases are planned with partner Galapagos, with some data available later this year.

More Yescarta data is expected in 2020. KITE 319 results were presented at ASH. 17 of 24 patients had complete remissions.

Numerous other studies are underway or planned; see Gilead pipeline. The Kite Pharma pipeline is now also part of Gilead.

Cost of goods sold was $1.00 billion. Research and development expense was $0.94 billion. Selling, general and administrative expense was $1.00 billion. Income from operations was $2.15 billion. Interest expense $290 million. Other income was $170 million. Income tax provision was $494 million.

Q&A:

Filgotinib is very selective for JAK1 and has had a low incidence rate of adverse events.

HIV franchise, underlaying demand? 80% of Biktarvy scripts come from switches, 20% naive, about what we predicted. We had about 8 weeks of launch in the quarter, and about half of sales were related to inventory build.

Inventory impact on HIV results? There was a drawdown in inventory in the quarter, part of it normal seasonality, and it was greater than expected. Viread generic availability impacted inventory. 12% script growth y/y.

HCV results v. reiterated guidance? HCV results are playing out in line with expectations. Pricing has largely stabilized, our market share should stabilize in second half. We believe HCV is a long and durable market and we will continue to compete aggressively.

80% of potential Yescarta patients should be covered by end of year, given our expansion to new centers.

Do you think Gilead is in an earnings trough? 2018 is progressing as we expect. "We then expect to be able to grow off of our 2018 basepoint going forward."

Bictarvy prior authorizations? Guidelines place Bictarvy in the top tier of regimens, so we have had relatively few problems with prior authorization requirements from insurers.

HIV pricing for branded therapies in Europe, given generic entries? Viread generics have had an impact in Europe. But over 50% of EU revenue comes from TAF based products, so we have largely switched over. Genvoya has price parity with Stribild.

HCV sales outside the U.S. have always been more competitive, and market shares vary markedly by nation. Our competitor has done very well in Japan, but we are doing well in other nations.

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