Analyst Conference Summary

biotechnology

conference date: February 2, 2023 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2022 (fourth quarter, Q4 2022)

Forward-looking statements

Overview: Good quarter as other products ramped to overcome decrease in Veklury sales.

Basic data (GAAP):

Revenue was $7.39 billion, up 5% sequentially from $7.04 billion and up 2% from $7.24 billion in the year-earlier quarter.

Net income was $1.64 billion, down 8% sequentially from $1.79 billion but up 329% from $382 million year-earlier.

Earnings per share (EPS, diluted) were $1.30, down 8% sequentially from $1.42 and up 333% from $0.30 in the year-earlier quarter.

Guidance:

For the full year 2023, estimates product sales between $26.0 and $26.5 billion, but that assumes Veklury sales of about $2 billion. GAAP EPS $5.30 to $5.70; non-GAAP EPS $6.60 to $7.00.

Conference Highlights:

Daniel O'Day, CEO, said "2022 marked Gilead's strongest full year growth in our base business since HCV sales peaked in 2015. This return to growth was driven by consistent and high quality commercial and clinical execution across our portfolio. In HIV, Biktarvy gained market share in the U.S. as it has every quarter since launch, while our long-acting HIV agent, lenacapavir, received its first regulatory approvals. The strong full year growth in oncology was driven by continued increase in demand for Trodelvy and our cell therapies. We look forward to building on this momentum in 2023 and further increasing our impact for people and communities worldwide." FY 2022 product sales excluding Veklury grew 8% y/y. FY 2022 oncology sales exceeded $2 billion for the first time. Foreign exchange rates were a negative.

The dividend was increased to $0.75 per share, to be paid on March 30, 2023 to shareholders of record as of March 15, 2023.

Q4 2022 was negatively impacted by expenses related to the acquisition of GS-1811 from Jounce Therapeutics, the collaboration with MacroGenics, and the termination of the Trodelvy collaboration agreement with Everest Medicines, as well as higher R&D expenses.

In Q3 2022 Sunlenca (lenacapavir) was granted EU approval for HIV, in combination with other drugs, for patients not otherwise able to suppress the virus. The FDA approved in December, 2022. Merck and Gilead plan to resume their Phase 2 study under an amended protocol. The study will evaluate an investigational once-weekly oral combination treatment regimen of Merck's islatravir at a lower weekly dose and Gilead's lenacapavir.

In Q3 Trodelvy met endpoints in heavily pre-treated HR+/HER2- patients. The FDA accepted an sBLA, PDUFA in Q1 2023. In Q4 the EMA validated a Type II variation of the Marketing Authorization Application for Trodelvy for the treatment of adult patients with pre-treated HR+/HER2- metastatic breast cancer.

Gilead now has over 50 clinical stage programs. Expects cancer program to generate one-third of revenue by 2030.

Non-GAAP numbers: Net income was $2.11 billion, down 12% sequentially from $2.39 billion and up 143% from $0.87 billion year-earlier. Non-GAAP EPS was $1.67, down 12% sequentially from $1.90 and up 142% from $0.69 year-earlier.

Product sales were $7.3 billion, up 5% sequentially and up 2% from $7.16 billion in the year-earlier quarter.

Royalty, contract and other revenue was $56 million, down sequentially from $64 million, and down from $84 million year-earlier.

Cash and equivalents ended at $7.63 billion, up sequentially from $6.94 billion. $2.57 billion cash flow from operations. $2.39 billion free cash flow. $791 million was used to repurchase shares. $916 million paid in dividends. $0 billion debt repayment. Long term liabilities were $30.7 billion.

In Q3 2022 the FDA granted Orphan Drug Designation for KITE-222, an investigational CAR T-cell therapy targeting C-type lectin-like molecule-1 (CLL-1), for the treatment of acute myeloid leukemia.

In Q3 2022 Gilead announced a strategic collaboration with MacroGenics) to develop bispecific antibodies to treat various cancers. The agreement includes an upfront payment of $60 million to MacroGenics and an exclusive option on MGD024, an investigational CD123 and CD3 bispecific antibody.

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

Expenses were $5.12 billion, consisting of $1.40 billion for cost of goods sold; $1.55 billion for R&D; $158 million acquired in-process R&D; $2.02 billion SG&A. Leaving income from operations of $2.27 billion. Interest and other expense $236 million. Income tax $398 million.

Capital allocation priorities are to grow the dividend and pay down debt.

Full year 2022 revenue was $27.3 billion, flat y/y. Diluted GAAP EPS was $3.64. Non-GAAP diluted EPS was $7.26.

Q&A selective summary:

Revenue vs. EPS going forward? Not providing guidance past 2023. Veklury revenue likely to decline, to be offset by other therapies, but EPS expected to continue to grow.

Launch of Sunlenca (lenacapavir)? This is for a very specific patient population. Going well so far.

Trop2 competition? Differentiated by our prior approvals. With lung we will be behind with data, but we have not seen ILD, we hope that will continue.

The Street is assuming no Veklury sales after 2023? Our position is evolving. We think it is sustainable moving forward. Revenue in 2022 reflected true demand. Still the only antiviral indicated at the hospital level. Also our evidence had improved and label has expanded.

Overall HIV market share? Total share is still in low 70s. But Biktarvy is growing its share and driving the overall market growth of 2% to 3%. There are still large global underserved patient populations.

R&D growth plans? We are mindful of expenses, but continue to invest thoughtfully in the pipeline. We started 8 Phase 3 trials in 2022, so we are in an investment cycle. We will continue to invest in R&D and in business development.

Yescarta NICE recommendation effect outside the U.K.? Should be good, make patient access easier and quicker. Next step in data from the Zuma7 trial.

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