Analyst Conference Summary

biotechnology

conference date: October 24, 2019 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2019 (third quarter, Q3 2019)

Forward-looking statements

Overview: Flat y/y revenue, GAAP loss due to charges related to the Galapagos deal.

Basic data (GAAP):

Revenue was $5.60 billion, down 2% sequentially from $5.69 billion and flat from $5.60 billion in the year-earlier quarter.

Net income was negative $1.17 billion, down sharply sequentially from $1.88 billion and down from $2.10 billion year-earlier.

Earnings per share (EPS, diluted) were negative $0.92, down sequentially from $1.47 and % from $1.60 in the year-earlier quarter.

Guidance:

Slightly increased prior guidance for full year 2019. Now expects product sales between $21.8 and 22.1 billion.

Conference Highlights:

Daniel O'Day, CEO welcomed Andrew Dickinson as CFO and Merdad Parsey and CMO, both effective November 1, 2019.

There was a $3.92 billion charge for up front collaboration and licensing expenses for the Galapagos deal. Closing of the global research and development collaboration agreement with Galapagos was in July 2019.

Sees a lot of growth potential in Descovy for PrEP. But generic versions of Letairis were introduced in the 2nd quarter, so sales continue to decline. Ranexa sales are also declining.

The dividend of $0.63 per share will be paid on December 30, 2019 to shareholders of record on December 13, 2019.

Filgotinib monotherapy for rheumatoid arthritis positive data and submissions were made to regulators. Making global launch preparations.

Biktarvy continues to grow revenue in Europe, helping to drive up y/y HIV product sales to $4.2 billionfrom $3.7 billion.

Non-GAAP numbers: Net income was $2.22 billion, down 5% sequentially from $2.33 billion and down 7% from $2.40 billion year-earlier. Non-GAAP EPS was $1.75, down 4% sequentially from $1.82 and down 5% from $1.84 year-earlier.

Product sales were $5.52 billion, down 1% sequentially from $5.6 billion and up 1% from $5.46 billion in the year-earlier quarter. $4.2 billion U.S. product sales. $804 billion European sales. Rest of world $513 million.

Royalty, contract and other revenue was $88 million, up sequentially from $78 million, and down from $141 million year-earlier.

Cash and equivalents ended at $31.5 billion, up sequentially from $30.2 billion. $2.6 billion cash flow from operations. $223 million was used to repurchase shares. $804 million paid in dividends. $1.5 billion was used to repay debt. Long term liabilities were $ billion. $5.05 billion was used for the Galapagos deal.

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

Cost of goods sold was $1.04 billion. Research and development expense was $4.99 billion. Selling, general and administrative expense was $1.05 billion. Income from operations was negative $1.47 billion. Interest expense $250 million. Other income was $222 million. Income tax provision benefit was $333 million.

Q&A summary:

Next area of focus? Galapagos collaboration will deepen. The pipeline is the number one priority, both the internal pipeline and collaborations. Will be driven by science and areas of opportunity. We also need to accelerate our later stage pipeline.

While we have revenue erosion from generic cardiopulmonary competition, that does allow us to reallocate resources. We know we need a competitive launch of filgotinib.

HIV market outside of prep? In U.S. and Europe 80% Biktarvy are switch patients and 20% are naive. We only just got reimbursement in U.K. and Italy.

Annual R&D spend allocations? We don't disclose % to specific areas, but when we look at parnerships, we do a lot of internal prioritization, changing as data comes in, including changing competition. 15% to 20% goes into research, the rest into human trials.

NASH update? Atlas combination data coming up will help us decide the way to go forward. We also have collaborations. NASH is a very high unmet medical need, but it is also challenging to get a working therapy due to its complexity.

Filgotinib black box from FDA probability? Inflamatory diseases put patients at risk for thrombosis. We think Filgotinib may have some advantage, but cannot speculate on the label outcome yet.

GS9131? Nucleoside reverse transcription inhibitor. GS6207 capsid inhibitor also developed rapidly, so it is the priority, granted breakthrough designation. Will not bring GS9131 forward for the very experienced population.

Yescarta sequential drop? We are confident about the long-term opportunity. Cell therapy changes everything it touches. Efficacy and durability are unprecedented. NTAP improvement just went into effect, 65% reimbursement instead of 50%. ASH data should help. 2nd line DLBCL trial now fully enrolled. Challenges are high rates of clinical trials, new market entrants, reimbursements. Now getting going in EU.

Capsid inhibitor for Hepatitis B? We are committed to cure with combination therapies, but also have to consider safety. Evaluating what to bring forward.

Manufacturing capability expansion for cell therapy gives us a competitive advantage. It is important to reduce turn around time. Gilead wants to get deeper into oncology, including other strategies besides cell therapy.

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