Analyst Conference Summary

biotechnology

conference date: February 1, 2022 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2021 (fourth quarter, Q4 2021)

Forward-looking statements

Overview: Weak growth mainly due to Veklury for Covid lower demand reducing sales 30% y/y. But Veklury demand has ramped in Q1 with the Omicron variant.

Basic data (GAAP):

Revenue was $7.24 billion, down 2% sequentially from $7.42 billion and down 2% from $7.42 billion in the year-earlier quarter.

Net income was $382 million, down 85% sequentially from $2.59 billion and down 75% from $1.55 billion year-earlier.

Earnings per share (EPS, diluted) were $0.30, down 85% sequentially from $2.05 and down 76% from $1.23 in the year-earlier quarter.

Guidance:

For the full year 2022 expects product sales of $23.8 to $24.3 billion. Veklury sales included is $2.0 billion. EPS GAAP $4.70 to $5.20. Non-GAAP EPS $6.20 to $6.70.

Conference Highlights:

Daniel O'Day, CEO, said "We are planning to further increase the number of clinical development studies across our novel oncology portfolio in 2022. We also look forward to advancing our long-acting programs for HIV. Today our cancer therapies, Trodelvy, Yescarta and Tecartus are reaching increasing numbers of cancer patients, Veklury is playing a critical role in the pandemic and Biktarvy remains the most prescribed HIV treatment in the US. We have all the elements in place for a strong year and a strong decade." Pricing dynamics in HIV were favorable, HBV also did well. Elements are in place for a strong 2022 and strong decade.

The y/y earnings decrease was primarily driven by a $1.25 billion charge related to a legal settlement and a charge of $625 million related to the Arcus Biosciences collaboration opt-in, representing an unfavorable $0.80 and $0.38 impact to diluted EPS, respectively. This was partially offset by favorable changes in the fair value of Gilead's equity investments.

Gilead now has over 50 clinical stage programs.

Announced an agreement with Merck for combining Trodelvy (sacituzimab govitecan) with Keytruda for triple-negative breast cancer (TNBC).

The dividend will be raised $0.02 to $0.73 per share, will be paid on March 30, 2022 to shareholders of record as of March 15, 2022.

Veklury sales have increased since the Omicron variant hit. Now approved for the outpatient setting.

Repaid more debt on February 1, 2022.

Non-GAAP numbers: Net income was $866 million, down 74% sequentially from $3.34 billion and down 68% from $2.76 billion year-earlier. Non-GAAP EPS was $0.69, down 74% sequentially from $2.65 and down 69% from $2.19 year-earlier.

Product sales were $7.16 billion, down 3% sequentially from $7.36 billion and down 2% from $7.33 billion in the year-earlier quarter.

Royalty, contract and other revenue was $84 million, up sequentially from $65 million, and down from $93 million year-earlier.

Cash and equivalents ended at $7.83 billion, up sequentially from $6.84 billion. $3.20 billion cash flow from operations. $3.05 billion free cash flow. $49 million was used to repurchase shares. $894 million paid in dividends. Long term liabilities were $35.3 billion. Made $1 billion in debt repayments in Q4 2021.

Lenacapavir capsid inhibitor (GS-6207) for HIV: FDA granted PDUFA for 2/28/2022. A Phase 2 trial was initiated in Q3 2021 for lenacapavir plus islatravir, for longer action.

In January 2022 the FDA approved a label update for Yescarta showing better management of cytokine release syndrome. Also new data showed strength in frontline LCBL in December 2021.

In January 2022 a partial clinical hold for magrolimab plus azacitidine, but other magrolimab trials continued.

Trodelvy Tropics-02 study for HR+/HER2 readout is now expected in Q1 2022, probably by February. Magrilomab in MDS BLA submission also moved back to Q1 2022. Received an EU CMMP positive opinion for second line TNBC in Q3 2021.

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

Cost of goods sold was $2.63 billion. Research and development expense was $2.03 billion. Acquired in-process R&D expense was $0 million. Selling, general and administrative expense was $1.65 billion. Total expenses $6.30 billion. Income from operations was $940 billion. Interest expense $238 million. Other income was $57 million. Income tax provision was $383 million.

Q&A summary:

Long term oncology business development? Confident can grow, with oncology at 1/3rd of revenue by 2030. Can do that in-house. Have more than 30 oncology trials ongoing, will add about 20 more this year. Could still buy outside assets.

Adverse magrolimab events? There were a couple of events the FDA wanted to look at more closely, we remain blinded. We believe these are temporary challenges. The trial patients are pretty sick, so it is appropriate to proceed with caution.

Trodelvy expectations? For PFS, the primary endpoint, we are well-powered. Did redesign the study a year ago to power for OS as well. First interim is early, so we do not expect statistical significance. But as the trial progresses we hope to hit significance in PFS and maybe OS.

Yescarta capacity? Invested in manufacturing capacity in anticipation of more demand, as 2nd line ramps on top of the current 3rd line. Will have 3 manufacturing sites by mid 2022.

Endemic Covid, Veklury? Sales track hospitalizations, including with Omicron. We assume that will continue. Hospitalizations should be impacted by new oral treatments. A year ago we thought vaccination rates would continue to rise, but instead they stabilized, so more hospitalizations. With hospitals over capacity they can now use Veklury on an outpatient basis. Our oral program just started Phase 1, so developments are hard to predict.

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