Analyst Conference Summary

conference date: July 26, 2012 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2012 (second quarter, Q2)

Forward-looking statements

Overview: Good revenue ramp but profits flat.

Basic data (GAAP) :

Revenue was $2.41 billion, up 6% sequentially from $2.28 billion and up 13% from $2.14 billion in the year-earlier quarter.

Net income was $711.6 million, up 61% sequentially from $442.0 million, but down 5% from $746.2 million in the year-earlier quarter.

Earnings per share (EPS) were $0.91, up 60% sequentially from $0.57, but down 2% from $0.93 year-earlier.

Guidance:

For the full year 2012 product sales of $8.8 to $9.0 billion. Non-GAAP product gross margin 73% to 75%. R&D estimate increased to $1.45 to $1.525 billion. Negative EPS impact from acquisitions, restructuring, and stock-based compensation: $0.56 to $0.59.

Conference Highlights:

Cost of goods sold and operating expenses rose 20% from the year-earlier quarter, led by R&D expense, which rose $114 million from year-earlier.

Non-GAAP numbers: net income was $767.3 million, up % sequentially from $704.4 million, but down from $797.7 million in the year-earlier quarter. EPS was $0.99, up sequentially from $0.91, but down 1% from $1.00 year-earlier.

ADAP (government) wait lists for HIV drugs shortened, which boosted sales.

Product sales were $2.32 billion, up 14% from $2.04 billion year-earlier.

Royalty, contract and other revenues were $83.9 million, down 14% from $97.7 million year-earlier on lower Tamiflu royalties.

Cash and equivalents balance ended at $2.27 billion. Operating cash flow was $1.29 billion, which included $460 million overdue payments from Spain. Long term liabilities ended at $7.4 billion, of which $5.1 billion was credit facilities used to make the Pharmasset acquisition. $240.9 million cash was used to repurchase shares.

GS-1101 with rituximab for chronic lymphocytic leukemia had initial patient enrollment in a Phase 3 trial.

A Phase 2 trial of GS-7977 combination therapy for hepatitis C found 90% of patients had undetectable viral loads 12 weeks after the completion of therapy. A different GS-7977 trial had 88% response but 12% of patients relapsed. In a third GS-7977 trial had worse results, on patients with more varied genotypes, getting only 59% response and 41% relapse.

The FDA Antiviral Drugs Advisory Committee voted to recommend approval of Truvada for HIV risk reduction and for the Quad HIV single tablet regimen. After the quarter ended, on July 16, the FDA approved Truvada for risk reduction. Cobicistat for boosting protease inhibitors and elvitegravir, an integrase inhibitor for HIV have been submitted to the FDA and European Medicines Agency (EMA) for approval. PDUFA decision date for Quad is August 27, 2012.

There is now a comprehensive Phase III program of multiple clinical trials for hepatitis C.

See also Gilead Pipeline.

Revenue by geography: U.S. 59%, Europe 34%, other international 7%.

R&D expense rose to $396.2 million mainly for liver disease (hepatitis) and cancer therapies.

Cost of goods sold rose to $617.3 million. R&D expense $396.2 million. Selling, general and administrative expense $332.5 million. Leaving income from operations of $1.06 billion. Interest and other expense was $89.5 million. Income tax provision $263.5 million.

Q&A:

Differences between patients affect results in hepatitis trials? The poorer, Quantum results seem to be the outlier. It is a thing of small numbers (of patients), but in fact these numbers for a short, oral therapy are well beyond what is available today.

7977/5885 study design? 5884 should be potent and safe with 7977. Interim analysis is at 12 weeks. A confirmatory study could then be single arm with and without ribavirin. Whatever the FDA communicated to us as far as single-arm hep trials is also likely to be allowed for our competitors.

We will enroll at least 20% advanced patients, because there has been criticism of trials with advanced patients screened out. What we have to beat, per the FDA, is 60% effectiveness, which we think is a low bar.

Duration of therapy effects? There should be a difference between 12 and 24 weeks, but we have not seen it, and just don't know from the Phase II data. Nonresponders have been rebounders. We have never seen breakthroughs during therapy.

When do you think you will be able to file for the fixed dose combination? Since it is a new chemical entity we need 2 phase III studies. If no glitches, filing would be middle of 2014.

How much inventory stocking did you see? We do potentially see some inventory runoff in the second half, but balancing that is the states trying to reduce their wait lists. The budget has gone out so the states know what they are working with in federal funds.

How would the Quad patient population differ from that for Complera? Quad would allow us to go after the majority of new starts. So a bigger piece than Complera operates in. We have seen some very high response rates with Quad, we hope it will go into guidelines quickly. Having said that, Complera is starting to do very well.

Our data shows 5885 would not be suitable for genotype 2. We have other strategies including nucleotides that are preclinical that might be the ultimate for a multi-drug regimen.

We will eventually include treatment experienced patients in another Phase III study because the 5885/7977 combination looks like it could be potent enough to help those patients.

We will be trying small early trials of other drugs in combination with 7977, but we have not formalized a plan for that, with the goal of one pill, once daily, for all hepatitis C genotypes.

OpenIcon Analyst Conference Summaries Main Page

Gilead Investor Relations page

More Gilead analyst conference summaries

Search

More Analyst Conference Pages: