Analyst Conference Summary

biotechnology

conference date: February 4, 2021 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2020 (fourth quarter, Q4 2020)

Forward-looking statements

Overview:

Basic data (GAAP):

Revenue was $7.42 billion, up 13% sequentially from $6.58 billion and up 26% from $5.88 billion in the year-earlier quarter.

Net income was $1.55 billion, well up sequentially from $0.36 billion and down 42% from $2.70 billion year-earlier.

Earnings per share (EPS, diluted) were $1.23, up sequentially from $0.29 and down 42% from $2.12 in the year-earlier quarter.

Guidance:

Full year 2021 product sales estimated between $23.7 and $25.1 billion. Diluted GAAP EPS $5.25 to $5.95. Non-GAAP $6.75 to $7.45.

Conference Highlights:

Daniel O'Day, CEO, said "Gilead continues to play a central role in the pandemic, with Veklury now treating one in two hospitalized patients in the United States. At the same time, we continue to meet the needs of people living with HIV, cancer, viral hepatitis and other conditions."

Gilead has a clear path to growth, beginning in 2021, with a focus on oncology, with 27 pipeline programs. Will retain leadership in anti-virals. Given the broad portfolio, will be more selective about taking candidates forward.

The main difference between GAAP and non-GAAP numbers is

In February 2021 Gilead announced a collaboration with Gritstone Oncology for a potential curative treatment for HIV.

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. Trodelvy will be a significant addition to the pipeline.

The dividend will be increased to $0.71 per share, will be paid on March 30, 2021 to shareholders of record as of March 15, 2021.

Filgotinib monotherapy for rheumatoid arthritis has had positive data, but a CRM (complete response letter) was issued by the FDA. Gilead announced a restructuring of the deal with Galapagos, so will not pursue FDA approval for RA in the US. In September 2020, Gilead and Galapagos had 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.

Gilead and Vir Biotechnology formed a collaboration for hepatitis B therapy in January 2021.

Gilead will acquire MYR GmbH for 1.2 billion Euros plus future potential milestone payments of up to 300 million Euros. This will gain Hepcludex for chronic hepatitis delta, already approved by the EMA.

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 $2.76 billion, up 4% sequentially from $2.66 billion and up 97% from $1.40 billion year-earlier. Non-GAAP EPS was $2.19, up 4% sequentially from $2.11 and up 99% from $1.10 year-earlier.

Product sales were $7.33 billion, up 13% sequentially from $6.49 billion and up 26% from $5.80 billion in the year-earlier quarter. $5.3 billion U.S. product sales. $1.4 billion European sales. Rest of world $656 million.

Royalty, contract and other revenue was $93 million, up sequentially from $84 million, and up from $83 million year-earlier.

Cash and equivalents ended at $7.91 billion, down sequentially from $26.0 billion. Full year $8.2 billion cash flow from operations. $1.6 billion was used to repurchase shares. $3.4 billion paid in dividends. Long term liabilities were $38.8 billion. $25.7 billion cash was used in 2020 for acquisitions.

Lenacapavir capsid inhibitor (GS-6207) remains on track for HIV filing in 2H 2021.

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

Cost of goods sold was $1.40 billion. Research and development expense was $1.58 billion. Additional in-process R&D expense was $64 million. Selling, general and administrative expense was $1.73 billion. Total expenses $4.77 billion. Income from operations was $2.65 billion. Interest expense $267 million. Other expense was $570 million. Income tax provision was $270 million.

Full year 2021 revenue was $24.7 billion, up 10% y/y. GAAP net income was just $123 million or $0.10 per share. Non-GAAP net income was $8.96 billion or $7.09 per share, up 16%.

Q&A summary:

We are confident in our ability to grow the business, even without Veklury. This is despite generic erosion of certain of our drugs. We expect EPS to expand as well as revenue.

Lenacapavir combinations? Dosing? This can be our new anchor molecule for long-acting HIV therapy. We have a number of internal candidates for combination. Phase 1 studies should start this year, we would choose a combination based on them. We think the oral dose regimen could be once per week. The subq dosing regimen would depend on the combination molecule. We would like every 6 months, but could go to 3 months. For prep we are looking at 6 months.

The main expansion strategy for lenacapavir would be for prevention, where its long-acting nature would make it attractive.

Covid has affected Yescarta because of both referals and lack of ICU bed capacity.

We are assuming a flat share count y/y.

Mutants in the spike protein of Covid should not impact Veklury because it targets the RNA transcription.

Prep market, Truvada generics? The share has been stable. Descovy has maintained share, 45% to 48%. We have seen Truvada erosion, that will continue. There could be continuing pricing pressure as more generics for Truvada enter the market.

Inhaled remdesivir? We can't get an approval just from Phase 1 data, so we will need a larger trial to show efficacy.

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