Analyst Conference Summary

biotechnology

conference date: July 30, 2020 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2020 (second quarter, Q2 2020)

Forward-looking statements

Overview: revenue dropped 10% y/y. Ouch. There was a $4.5 billion charge from the acquisition of Forty Seven, hurting GAAP numbers.

Basic data (GAAP):

Revenue was $5.14 billion, down 7% sequentially from $5.55 billion and down 10% from $5.69 billion in the year-earlier quarter.

Net income was negative $3.34 billion, down sequentially from $1.55 billion and down from $1.88 billion year-earlier.

Earnings per share (EPS, diluted) were negative $2.66, down sequentially from $1.22 and down from $1.47 in the year-earlier quarter.

Guidance:

Upped 2020 guidance. Product sales $23.0 to $25.0 billion. Diluted non-GAAP EPS $6.25 to $7.65. GAAP EPS down to $0.83 to $2.23 due to charges.

Conference Highlights:

Daniel O'Day, CEO, said "We navigated the expected impact of the COVID-19 pandemic. We are already starting to see early signs of recovery from this impact and we are fully confident in our long-term HIV leadership. We are also making important progress with our pipeline. In addition to the critical work of advancing remdesivir, we have continued to strengthen our presence in immuno-oncology. This includes six immuno-oncology agreements this year and the recent FDA approval for Tecartus in mantle cell lymphoma." Beginning to see recovery in some markets.

Remdesivir, an investigational agent, could help patients with the new coronaviris. A variety of studies were performed or are underway. Initial results of NIAID and SIMPLE trials showed patient improvements, possibly with some patients only needing 5 days. Priced below the value it provides to enable broad access. No revenue in Q2. Working on an inhaled version. Most will be kept in the U.S. until September; has an agreement to supply to the EU.

There was a $4.5 billion charge from the acquisition of Forty Seven in April. Also year-earlier Q2 sales had a $160 million boost from statutory rebates.

In May 2020, Gilead entered into a transaction to establish a 10-year partnership with Arcus Biosciences. The transaction closed in July 2020. Gilead made an upfront payment of $175 million and acquired 6 million additional shares of Arcus common stock for $200 million.

The dividend will be $0.68 per share will be paid on September 29, 2020 to shareholders of record as of September 15, 2020.

Filgotinib monotherapy for rheumatoid arthritis has had positive data and submissions have been made to regulators. In July 2020, Gilead and Galapagos announced that the EMA CHMP adopted a positive opinion for Jyseleca (filgotinib 200 mg and 100 mg tablets), for the treatment of adults with moderate to severe rheumatoid arthritis who have responded inadequately or are intolerant to one or more disease modifying anti-rheumatic drugs. Could have 5 new indication launches over next few years.

n June 2020, Gilead entered into a transaction with Pionyr Immunotherapeutics. On July 13, 2020, Gilead closed the transaction and acquired a 49.9% equity interest in Pionyr and an exclusive option to purchase the remainder of Pionyr. Gilead will pay $275 million in cash to Pionyr shareholders. Pionyr Myeloid Tuning therapies have the potential to treat patients who currently do not benefit from checkpoint inhibitor therapies.

in July 2020, Gilead entered into a transaction with Tizona Therapeutics, Inc., a privately held company developing cancer immunotherapies. Under the terms of the transaction, Gilead will pay $300 million in cash to Tizona’s shareholders, subject to certain customary adjustments, and it will obtain a 49.9% equity interest in Tizona and an exclusive option to purchase the remainder of Tizona.

Biktarvy continues to grow revenue in Europe, helping to drive up y/y HIV product sales. Market is consolidating around Biktarvy for new and switched patients.

Kite achieved two regulatory milestones for KTE-X19, a cell therapy for the treatment of relapsed or refractory mantle cell lymphoma. The EU marketing authorization application for KTE-X19 was fully validated and is now under review and in the United States, the FDA accepted the Biologics License Application and granted Priority Review designation.

Non-GAAP numbers: Net income was $1.40 billion, down 35% sequentially from $2.14 billion and down 37% from $2.20 billion year-earlier. Non-GAAP EPS was $1.11, down 34% sequentially from $1.68 and down 35% from $1.72 year-earlier.

Product sales were $5.07 billion, down 7% sequentially from $5.47 billion and down 10% from $5.61 billion in the year-earlier quarter. $3.77 billion U.S. product sales. $0.72 billion European sales. Rest of world $573 million.

Royalty, contract and other revenue was $76 million, down sequentially from $81 million, and down from $78 million year-earlier.

Cash and equivalents ended at $21.2 billion, down sequentially from $24.3 billion. $2.6 billion cash flow from operations. $54 million was used to repurchase shares. $856 million paid in dividends. $4.8 billion was used to buy Forty Seven. Long term liabilities were $28.7 billion.

In Q2 2020 the FDA granted accelerated approval to Tecartus, a CAR T cell therapy for the treatment of adult patients with relapsed or refractory mantle cell lymphoma.

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

Cost of goods sold was $1.06 billion. Research and development expense was $1.30 billion. Selling, general and administrative expense was $1.24 billion. Acquired R&D $4.52 billion. Total expenses $8.13 billion. Income from operations was negative $2.98 billion. Interest expense $240 million. Other income was $250 million. Income tax provision was $373 million.

Q&A summary:

Remdesivir capacity, potential demand, revenue guidance? There is a wide range in guidance driven mainly by remdesivir. We have had a good supply ramp, it should be very strong by early October, if demand does not to up it should meet supply. The uncertainty is about the course of the pandemic. By Decmeber we should have cumulated over 2 million treatment courses. We are coordinating with world governments.

Utilization v. stockpiling of remdesivir? Allocation with U.S. government has gotten better over time, so we think there is little demand that is not being utilized. Shipments are based on incidents. We don't want product sitting idle somewhere. After October there could be enough production to see some stockpiling.

Quantify negative revenue impact of Covid? It mainly hit HVC treatment and HIV prep, was about a $0.5 billion impact in 1H.

Capsid inhibitor for HIV? Looking to meet the needs of patients, but willing to look externally for combo therapies if that provides the best treatment.

For Filgotinib launch, we are looking at virtual. We believe the differentiation from competitors is the selling point. We are having discussions with regulators around the world.

We are seeing a shift from commercial payers to Medicaid, but it has not had a significant impact on revenue.

Return to growth, how? We do not see remdesivir as a long-term growth driver. We will continue the emphasis on our core business and pipeline. We will grow our immuno-oncology business, including business development. But there is risk associated with acquisitions, particularly in early stage assets.

CAR-T trajectory? Pleased with mantle cell lymphoma approval, though it is not a big indication. It shows our leadership. We are seeing slowdowns in new registrations for therapy due to the pandemic.

Filgotinib MANTA trial timeline? Enrollment is complete. Duration will be more than 3 months, that is just the blinded period. So late 2020, early 2021 to get data.

Trump pricing orders? Our capital cycle is so long, we can't pivot based on possible changes in policy. We believe in being first-in-class or best-in-class, that is what brings value for patients.

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