Analyst Conference Summary

Gilead Sciences
GILD

conference date: October 29, 2013 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2013 (third quarter, Q3 2013)


Forward-looking statements

Overview: Continued strong sales growth; guidance revised upwards.

Basic data (GAAP) :

Revenue was $2.78 billion, slightly up sequentially from $2.77 billion, and up 14% from $2.43 billion in the year-earlier quarter.

Net income was $788.6 million, up 2% sequentially from $772.6 million, and up 17% from $675.5 million year-earlier.

Earnings per share (EPS) were $0.47, up 2% sequentially from 0.46, and up 9% from $0.43 year-earlier.

Guidance:

Full year 2013 revenue guidance was revised upward. Product sales expected between $10.3 and $10.4 billion. Non-GAAP gross margin 74% to 76%. Non-GAAP R&D $1.95 to $2.0 billion; SG&A $1.5 to $1.55 billion; tax rate 26% to 27%. The impact of acquisition-related restructuring and stock-based compensation expense on GAAP EPS is still expected between $0.21 and $0.24.

Conference Highlights:

Revenue growth was driven by single-tablet regimens both in the U.S. and EU. Spending increased to support the anticipated launch of sofosbuvir and research expenses for oncology and HIV. U.S. sales grew 20% y/y. Europe grew 7% y/y, excluding foreign exchange issues.

Non-GAAP numbers: net income was $871.9 million, up 4% sequentially from $839.7 million, and up 10% from $788.9 million year-earlier. Non-GAAP EPS was $0.52, up 4% sequentially from $0.50, and also up 4% from $0.50 year-earlier.

Both GAAP and non-GAAP earnings were negatively impacted by a $337 million (or $0.21 per share) cumulative catch-up fee related to the non-tax deductible Branded Prescription Drug (BPD) tax, part of the Affordable Care Act (ObamaCare).

Product sales were $2.71 billion, up 2% sequentially from $2.66 billion, and up 15% from $2.36 billion year-earlier. Royalty and other revenue was $73.2 million.

Revenues by product ($ millions):
  Q3 2013 Q2 2013 Q3 2012 y/y increase
Atripla
$899.7
$938.1
$865.4
4%
Truvada
813.7
807.8
804.2
1%
Viread
231.6
250.2
214.9
8%
Stribild
144.0
99.4
17.5
722%
Hepsera
20.3
21.5
27.3
-26%
Complera
210.7
188.7
99.3
112%
AmBisome
97.8
75.1
87.4
12%
Emtriva
6.8
6.6
7.2
6%
Ranexa
115.8
106.5
95.1
22%
Letairis
135.1
128.3
105.1
29%

Cayston+other

34.2
35.0
34.6
-1%















Cash and equivalents ended at $2.76 billion. Operating cash flow was $4.0 billion. $5.8 billion was used to repurchase shares and settle warrants. Current liabilities were $6.05 billion, long-term liabilities $8.90 billion.

There was little effect from inventory changes or unusual federal purchases.

Stribild is now the number one prescription for new HIV patients; Complera is number two.

Ready for Sofosbuvir launch in U.S. and Europe, upon FDA approval. Separate sales team from HIV franchise. Expects December to be an inventory build month in the U.S. European approval not expected until Q1. France is particularly important because of its high HCV infection rate. The label recommended by the FDA advisory committee was quite broad.

In next 12 months 3 cardiovascular studies of Ranolazine should mature.

Idelalisib for the treatment of iNHL (indolent non-Hodgkin's lymphoma) was shown to be overwhelming effective as well as safe, so an NDA was filed with the FDA. Discussing a filing in CLL with FDA as well.

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

Cost of goods sold was $1.63 billion. Research and development expense was $564.2 million (up from $465.8 million year-earlier). Selling, general and administrative expense was $406.9 million (up from $319.6 million year-earlier). Income from operations was $1.15 billion. Interest expense was $74.0 million. Other income was $5.8 million. Income tax provision was $294.5 million. Net loss attributable to noncontrolling interest was $3.4 million.

Q&A:

Hepatitis C gating factors for patients? Still testing patients under treated care bucket, because some are diagnosed and leave care when treatment fails. We believe there is a good number of patients under care that we can access. The largest bucket is patients who have already been treated.

All three ION studies will be used in the FDA submission for sofosbuvir plus ledipasvir.

1.7 million diagnosed U.S. hep C patients, where are they (prison, VA)? About 4% of VA population, about 225,000 have hepatitis C. That is a higher priority with us than prisoners, where the CDC believes up to 35% have hep C. In that setting we won't be using interferon, so would be sofosbuvir + ledipasvir.

What are you hearing from payers about hepatitis C triage? In U.S. we have had discussion with U.S. payers. Believe they will reimburse well for sofosbuvir; a broad label will help. But prior authorization will be required, but only for use being on label. In Europe reimbursement is nation by nation. We hope the pricing will go quicker for a drug as important as sofosbuvir, given the cost benefit ratio.

Genotype 2 and 3 in U.S.? We think they will be taken up quickly.

GS-5816 for HCV? We have some emerging data. The toughest test is for genotype 3; we should get data in March 2013 for treatment-experienced patients. We know it works for treatment-naive genotype 3 patients. We might do a Phase 3 with 8 weeks naive, 12 weeks experience, but we will be able to make an informed decision next year.

Only 6 weeks to the PDUFA date [December 8, 2013] for sofosbuvir; we will set our price at launch. Would not say the Advisory Committee had any influence on our pricing discussion. We feel we have a very strong value proposition.

Proportion of HCV patients with advanced liver disease? We are gaining confidence in the numbers, but the sampling is relatively poor compared to HIV sampling. There are about 80,000 to 100,000 treatment-experienced patients today.

The hope for 5816 + sofosbuvir is that it will become the fixed-dose treatment for all genotypes and both naive and pre-treated patients, with no need for interferon or ribavirin.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2013 William P. Meyers