Analyst Conference Summary

biotechnology

conference date: July 30, 2019 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2019 (second quarter, Q2 2019)

Forward-looking statements

Overview: Flatish quarter overall.

Basic data (GAAP):

Revenue was $5.69 billion, up 8% sequentially from $5.28 billion and up 1% from $5.65 billion in the year-earlier quarter.

Net income was $1.88 billion, down 5% sequentially from $1.98 billion and up 3% from $1.82 billion year-earlier.

Earnings per share (EPS, diluted) were $1.47, down 5% sequentially from $1.54 but up 6% from $1.39 in the year-earlier quarter.

Guidance:

Raided full year 2019 revenue guidance slightly to $21.6 to $22.1 billion.

Conference Highlights:

Daniel O'Day, CEO said "I am also very excited about the progress we are making to strengthen our pipeline, including the recently announced Galapagos collaboration, to bring forward our next generation of products. We saw strong revenue growth quarter-over-quarter, primarily driven by our HIV medicines and the rapid adoption of Biktarvy. Based on this momentum and our confidence in the outlook for the coming months, we are raising our full-year product sales guidance for 2019."

Yescarta and Biktarvy sales growth was highlighted. Also sees a lot of growth potential in Descovy for PrEP. But generic versions of Letairis were introduced in the quarter, so sales are expected to decline.

Galapagos collaboration deal was covered.

Filgotinib monotherapy for rheumatoid arthritis now has positive data and a plan to submit to the FDA for approval in 2019.

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 Q3: payable September 27, 2019 to shareholders of record on September 13.

Non-GAAP numbers: Net income was $2.33 billion, up 3% sequentially from $2.26 billion and down 6% from $2.49 billion year-earlier. Non-GAAP EPS was $1.82, up 3% sequentially from $1.76 and but down 5% from $1.91 year-earlier.

Product sales were $5.6 billion, up 8% sequentially from $5.20 billion and up 2% from $5.5 billion in the year-earlier quarter. $4.1 billion U.S. product sales. $1.0 billion European sales. Rest of world $466 million.

Royalty, contract and other revenue was $78 million, down sequentially from $81 million, and down from $108 million year-earlier.

Cash and equivalents ended at $30.2 billion, down sequentially from $30.1 billion. $2.2 billion cash flow from operations. $588 million was used to repurchase shares. $800 million paid in dividends. $500 million was used to repay debt. Long term liabilities were $31.5 billion.

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

Cost of goods sold was $1.00 billion. Research and development expense was $1.16 billion. Selling, general and administrative expense was $1.10 billion. Income from operations was $2.43 billion. Interest expense $248 million. Other income was $228 million. Income tax provision was $535 million.

Q&A:

HIV pipeline timeline and opportunity? Breakthrough designation capsid inhibitor 6207 is exciting for a small segment of the population with high unmet medical needs. It is first in class, so no pre-existing resistance. Also, is long-acting. Will get more clarity on moving the therapy forward in the next few weeks.

Capsid inhibitor combos? Dosing? We believe the capsid will need to partner with a second agent. We are considering a number of other agents. 6207 is very potent, that is why we can give enough for long term. We are not sure what the actual dosing frequency will look like yet, it does depend on the combo partner.

R&D plans, Galapagos? We have had HIV progress and clarity on Filgotinib. Our emphasis is on long-term growth balanced across our stages of development. Two Galapagos products are late-stage, and the acquisition roughly doubles our research capability. Oncology is a clear focus. We are still working on Hep B and NASH. We also plan to continue to supplement with outside innovation.

PrEP potential for growth? There are only about 200 thousand individuals on Truvada. So there is a lot of potential for growth with a Descovy label.

Filgotinib across all thrombotic events? We think the data on that is good.

It is possible the capsid inhibitor could be used for PrEP because of its long-acting activity.

Changes in Medicare Part D effects? The administration has been cooperating with ending the HIV epidemic. The Protected Class Rule is good for patients and supports our HIV portfolio. We also know new approaches are needed for CAR-T therapy. Meanwhile there will be pressure on drug pricing, but our business is driven by volume. We support caps on how much out-of-pocket expenses patients have.

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