Analyst Conference Summary

biotechnology

Gilead Sciences
GILD

conference date: October 25, 2018 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2018 (third quarter, Q3 2018)


Forward-looking statements

Overview: Revenue down y/y, but better than expected, and increased 2018 revenue guidance.

Basic data (GAAP):

Revenue was $5.60 billion, down 1% sequentially from $5.65 billion and down 14% from $6.51 billion in the year-earlier quarter.

Net income was $2.10 billion, up 15% sequentially from $1.82 billion and down 23% from $2.72 billion year-earlier.

Earnings per share (EPS, diluted) were $1.60, up 15% sequentially from $1.39 and down 22% from $2.06 in the year-earlier quarter.

Guidance:

Raised full year 2018 product sales revenue estimate to $20.8 to $21.3 million. Lowered tax rate to 18% to 20%. Otherwise unchanged.

Conference Highlights:

John Milligan will step down as President and CEO.

"We had very strong execution in the third quarter . . . HIV therapies had record quarterly sales." commented Robin Washington, CFO.

Descovy-based regimens now accounts for 75% of Gilead's U.S. HIV prescription volume. Biktarvy launch is very strong. But HIV sales in Europe were down due to generic competition. Biktarvy has launched in Germany with good uptake so far.

Gilead plans to launch an authorized generic versions of Epclusa and Harvoni in the United States in January through a newly created subsidiary, Asegua Therapeutics LLC. List prices will be comparable to current net prices of branded versions.

Dividend of $0.57 per share announced for Q4: payable December 28 to shareholders of record on December 14.

Non-GAAP numbers: Net income was $2.40 billion, down 4% sequentially from $2.49 billion and down 20% from $2.99 billion year-earlier. Non-GAAP EPS was $1.84, down 4% sequentially from $1.91 and down 19% from $2.27 year-earlier.

Product sales were $5.46 billion, down 1% sequentially from $5.54 billion and down 15% from $6.40 billion in the year-earlier quarter. $4.13 billion U.S. product sales. $0.87 billion European sales. Rest of world $451 million.

Gilead Revenues by product ($ millions):
  Q3
2018
Q2
2018
Q3 2017 y/y increase
Atripla
258
349
439
-41%
Truvada
757
765
811
-7%
Viread
70
82
274
-74%
Stribild
146
187
229
-36%
Genvoya
1,176
1,160
988
19%
Biktarvy
386
185
0
na
Complera
139
199
237
-41%
Descovy
406
403
316
28%
Odefsey
423
385
296
43%
AmBisome
102
103
92
11%
Ranexa
178
208
164
9%
Letairis
241
244
213
13%
Vosevi
103
109
123
-16%
Harvoni
311
331
973
-66%
Epclusa
477
500
882
-46%
Zydelig
20
39
40
-50%
Yescarta
75
68
0
na
Vemlidy
87
76
37
135%
Other
64
115
273
-77%

Royalty, contract and other revenue was $141 million, up sequentially from $108 million, and up from $110 million year-earlier.

Cash and equivalents ended at $30.8 billion, down sequentially from $31.7 billion. $2.2 billion cash flow from operations. $449 million was used for repurchase shares. $742 million paid in dividends. Long term liabilities were $31.2 billion. $1.8 billion was used to repay notes due in September 2018.

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. But discontinued selonsertib for severe alcholic hepatitis.

Filgotinib is now in Phase 3 trials for rheumatoid arthritis, Crohn's, and ulcerative colitis, all of which are fully enrolled. Reported positive data in rheumatoid arthritis. More Phase 3 data expected in first quarter of 2019. An NDA filing, however, is dependent on the separate Manta trial. Six additional Phase 2 study across a range of diseases are planned with partner Galapagos, with more data available later this year. Phase 2 study of psoriatic arthritis achieved is primary endpoint.

More Yescarta data is expected in 2020. KITE 319 results were presented at ASH. 17 of 24 patients had complete remissions. Received regulatory approval of Yescarta in Europe, so building a new facility in Netherlands. An ongoing Phase 3 study, if successful, could expand the label to earlier lines of therapy.

Licensed the Trianni transgenic human monoclonal antibody discovery platform. Also announced a collaboration with Gadeta for gamma delta T cell receptor therapies for cancer.

Discontinued Andecaliximab for gastric cancer, which had been in Phase 3.

Liver disease data including for NASH will be presented at a medical meeting next month.

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

Cost of goods sold was $1.09 billion. Research and development expense was $0.94 billion. Selling, general and administrative expense was $0.95 billion. Income from operations was $2.62 billion. Interest expense $264 million. Other income was $305 million. Income tax provision was $565 million.

Q&A:

Bictavy switches? Most prescriptions coming from switches, including from other Gilead therapies.

Descovy v. Truvada for prep? People prefer Descovy as the better drug.

Filgotinib v. competitors? Efficacy is as good or better than any other drug in the class, including biologics, including non-responders. In safety we are good, need to see if it holds up in Phase 3.

Hep C market stabilization? Pricing has become stable this year, but number of patients has continued to decline. We think the authorized generic will boost us, including with access to Medicaid population. So we see the market as stable into 2019 and beyond.

Leadership change? We have a lot of interested CEO candidates, we hope to have an announcement before the end of the year.

We don't have a timeline for completing the Manta trial. We continue to talk to regulators.

Atlas Phase 2b NASH study will provide a look at week 24. If there is clear separation without biopsy we could move on to Phase 3.

Hep B combinations? We are never satisfied, we are looking internally and externally as well. We are watching the srRNA field carefully.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2018 William P. Meyers