Analyst Conference Summary

biotechnology

conference date: May 2, 2019 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2019 (first quarter, Q1 2019)

Forward-looking statements

Overview: Revenue up y/y, first time in a while.

Basic data (GAAP):

Revenue was $5.28 billion, down 9% sequentially from $5.80 billion but up 4% from $5.09 billion in the year-earlier quarter.

Net income was $1.98 billion, up sequentially from $0.0 billion and up 29% from $1.54 billion year-earlier.

Earnings per share (EPS, diluted) were $1.54, up sequentially from $0.00 but up 32% from $1.17 in the year-earlier quarter.

Guidance:

Reiterated prior 2019 guidance.

Conference Highlights:

The Board of Directors named Daniel O'Day Chairman of the Board and CEO, effective March 1, 2019. He expressed his enthusiasm about the company's potential. Kite will become a separate business unit with its own CEO. Filgotinib is positioned to become a major revenue contributor, if approved.

Biktarvy sales ramp is the strongest Gilead HIV therapy launch ever. This drove an overall increase in HIV therapy revenue.

Hep C revenues continued to decline along with prices.

Filgotinib monotherapy reported positive Phase 3 results in rheumatoid arthritis, as well as in the Phase 3 study in RA when combined with methotrexate. Will submit application for approval in Europe later this year. Will discuss more with FDA before giving a timeline for US application.

Gilead launched 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 $0.63 per share announced for Q2: payable June 27 to shareholders of record on June 14.

Non-GAAP numbers: Net income was $2.26 billion, up 21% sequentially from $1.87 billion and up 15% from $1.96 billion year-earlier. Non-GAAP EPS was $1.76, up 22% sequentially from $1.44 and up 19% from $1.48 year-earlier.

Product sales were $5.20 billion, down 8% sequentially from $5.68 billion and up 4% from $5.00 billion in the year-earlier quarter. $3.8 billion U.S. product sales. $882 million European sales. Rest of world $522 million.

Royalty, contract and other revenue was $81 million, down sequentially from $114 million, and down from $87 million year-earlier.

Cash and equivalents ended at $30.1 billion, down sequentially from $31.5 billion. $1.4 billion cash flow from operations. $834 million was used to repurchase shares. $817 million paid in dividends. $750 million was used to repay debt. Long term liabilities were $31.3 billion.

Selonsertib for NASH Phase 3 study did not reach its primary endpoint.

Gilead made a licensing and collaboration agreement with Yuhan Corporation to co-develop novel therapeutic candidates for the treatment of advanced fibrosis due to NASH.

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.

Lost exclusivity for Letairis and Ranexa.

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

Cost of goods sold was $0.96 billion. Research and development expense was $1.06 billion. Selling, general and administrative expense was $1.03 billion. Income from operations was $2.24 billion. Interest expense $254 million. Other income was $367 million. Income tax provision was $382 billion.

Q&A:

How much of a priority is NASH portfolio? NASH is a significant and growing unmet medical need. It needs scientific advancements. It may very well require combination therapies, and we expect readouts later this year. We are also working towards a cure for Hep B.

Filgotinib differentiation versus competitors? We have the full data package. We see deep efficacy responses in broad patient populations. The safety profile is very strong. We showed we could slow the rate of functional damage. We will talk to the FDA, then get the drug approved as quickly as we can.

Capital allocation thoughts? Prioties in order: supplementing portfolio through M&A; dividend; share repurchases when they make sense. Over time, with variations, we have returned roughly 50% of cash flow to investors.

Prioritizing pipeline expansion? Activity is led by science. Oncology, liver diseases, HIV, but we scan the entirety of the enviroment. We need to look at our late-stage portfolio, including accelerating some therapies earlier in the pipeline.

Mentioned the addition of a bispecific oncology program from Agenus.

Do you see revenue growing into 2020? It is premature to talk about sales in 2020. We will develop that later in the year. HIV business is strong and growing. HCV has become smaller but more predictable. Filgotinib is a potential upside to the base. Inflamation in general can become another leg for Gilead. And we have lots of readouts coming with Yescarta.

Long acting HIV regimens? We would like to have a sub-cutaneous therapy administered every 3 months. We are focused on maintaining our leadership position, and on prevention.

Pricing presures in HIV? Protected class Medicare population, part B benefit, what is most important is access and rapid treatment. For commercial, we are pleased with the coverage we have achieved with Biktarvy. We have always tried to bring innovation to the market and priced appropriately. Biktarvy is priced very competitively. Our revenue is driven by volume.

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