Analyst Conference Summary

biotechnology

conference date: October 28, 2020 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2020 (third quarter, Q3 2020)

Forward-looking statements

Overview: Strong revenue and profit growth. Y/y growth was mainly from introduction of Veklury (remdesivir), but even excluding that rose 2%.

Basic data (GAAP):

Revenue was $6.58 billion, up 28% sequentially from $5.14 billion and up 17% from $5.60 billion in the year-earlier quarter.

Net income was $0.36 billion, up sequentially from negative $3.34 billion and up from negative $1.16 billion year-earlier.

Earnings per share (EPS, diluted) were $0.29, up sequentially from negative $2.66 and up from negative $0.92 in the year-earlier quarter.

Guidance:

Narrowed down 2020 revenue guidance to $23 to $23.5 billion. GAAP EPS loss of $0.25 to gain of $0.10. Non-GAAP EPS $6.25 to $6.60.

Conference Highlights:

Daniel O'Day, CEO, said "The recent acquisition of Immunomedics has effectively transformed Gilead's growth story. Building on the foundation of our strong core business, which proved its durability once again this quarter, we have now significant opportunity to drive additional growth at an accelerated. Trodelvy, an approved medicine with extensive potential for patients with a range of tumor types, adds to our growing portfolio of transformational medicines. By following the strategy we laid out at the start of this year, we have significantly improved Gileads near and long-term growth potential." Believes the acquisition marks an inflection point, to greater growth and better positioning in oncology. Portfolio and pipeline are much stronger going into 2021. And the Gilead share of the HIV therapy market is growing. Trodelvy had a strong launch, but revenue for Gilead begins in Q4. Share repuchases will be slowed to pay down the acquisition debt.

Veklury (remdesivir), is now approved to treat patients with COVID-19. Sales in Q3 were $873 million. Gilead has ramped up supply and can meet global demand. In Q3 most sales were in the US.

The main difference between GAAP and non-GAAP numbers is acquisition expenses of $1.03 billion and $0.98 billion in losses on securities.

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.

Subsequent to the third quarter 2020, on October 23, 2020, Gilead completed the acquisition of Immunomedics, for $21 billion, which was financed with the majority of the proceeds from the September 2020 senior unsecured notes offering, an additional $1.0 billion from a new senior unsecured term loan facility, and the balance from cash on hand.

The dividend will be $0.68 per share will be paid on December 30, 2020 to shareholders of record as of December 15, 2020.

Filgotinib monotherapy for rheumatoid arthritis has had positive data, but a CRM (complete response letter) was issued by the FDA. In September 2020, Gilead and Galapagos announced that the EMA approved 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. Also approved in Japan in September. 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, a privately held company developing cancer immunotherapies. Under the terms of the transaction, Gilead will pay $300 million in cash to Tizona 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

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 $2.66 billion, up 90% sequentially from $1.40 billion and up 27% from $2.09 billion year-earlier. Non-GAAP EPS was $2.11, up 90% sequentially from $1.11 and up 29% from $1.64 year-earlier.

Product sales were $6.49 billion, down 28% sequentially from $5.07 billion and up 18% from $5.52 billion in the year-earlier quarter. $5.1 billion U.S. product sales. $0.88 billion European sales. Rest of world $540 million.

Royalty, contract and other revenue was $84 million, up sequentially from $76 million, and down from $88 million year-earlier.

Cash and equivalents ended at $26.0 billion, up sequentially from $21.2 billion. $2.3 billion cash flow from operations. $201 million was used to repurchase shares. $861 million paid in dividends. $2.0 billion used for debt repayment, but $7.25 billion in new senior unsecured notes were issued. Long term liabilities were $33.9 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.

Lenacapavir capsid inhibitor (GS-6207) remains on track for HIV filing in 2021.

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

Cost of goods sold was $1.14 billion. Research and development expense was $1.16 billion. Additiona in-process R&D expense was $1.17 billion. Selling, general and administrative expense was $1.11 billion. Total expenses $4.58 billion. Income from operations was $2.0 billion. Interest expense $236 million. Other expense was $940 million. Income tax provision was $472 million.

Q&A summary:

Filgotinib in the U.S.? It is hard to predict the outocme of the FDA meeting. If we can't move forward with RA, we would still want to move forward in IBD.

Galapagos Toledo program? They are exploring its potential in multiple indications. We would like to see derisking before we opt in, so timing could vary by indication.

Remdesivir and lowered guidance? It is a dynamic, difficult to forecast situation, dependent on the rate of hospitalizations. With younger patients the hospitalization rates drop. We are not seeing as much stockpiling as we originally projected.

Filgotinib, what do you learn from a Type A FDA meeting? Will center around the level of evidence the FDA needs on benefit/risk. We will get FDA guidance, then make our decisions.

In the U.S. we have seen perhaps 40% to 50% of hospitalized patients treated with remdesivir.

How are you thinking about immunology in general? We are dedicated to it as a disease area. Immunology plays into anti-virals and oncology. We have a variety of follow on agents both internally and with Galapagos.

HIV stockpiling, Q3 benefit or normalization? 2020 had an unusual inventory pattern. We have seem some impact from generic truvada. We think Q3 was just normalization. We did not recognize revenue for all the Veklury that was shipped in Q3.

Biktarvy trends? We got 8 points of share growth year-on-year. The slow down has been because of the pandemic impact on switching of patients. Over one out of two patients start on Biktarvy, about half of switches are to Biktarvy.

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