01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Gilead Sciences, Inc. reported total revenues of $30.4 billiona for the year ended December 31, 2016, a decrease of 7% compared to the prior year, primarily driven by a decline in Hepatitis C (HCV) product sales.
Despite this, the company saw growth in its HIV franchise, largely due to the uptake of its new tenofovir alafenamide (TAF)-based regimens. Gilead also made significant progress in its R&D pipeline, advancing multiple candidates across its key therapeutic areas, including HIV, liver diseases, hematology/oncology, and inflammation/respiratory. The company ended 2016 with a strong balance sheet, holding $32.4 billionb in cash, cash equivalents, and marketable securities.
Gilead continued its commitment to returning capital to shareholders through significant share repurchases totaling $11.0 billionc and dividend payments of $2.5 billion. However, the company faces increasing competition in the HCV market and potential headwinds from upcoming generic competition for its TDF-based HIV products. Significant litigation, particularly related to sofosbuvir, also presents a material risk, with potential damages estimated up to $8.5 billion if adverse outcomes are upheld on appeal.
02—Key points
Key Highlights
- Total revenues decreased by 7% to $30.4 billion in 2016, primarily due to lower sales of HCV products Harvoni and Sovaldi, although this was partially offset by strong growth in HIV products, notably the TAF-based regimens.
- The company launched new TAF-based HIV regimens (Genvoya, Descovy, Odefsey) and the pan-genotypic HCV treatment Epclusa in 2016, expanding its product portfolio.
- Research and Development (R&D) expenses increased significantly by 69% to $5.1 billion in 2016, driven by clinical study progression, milestone payments, and strategic collaborations like the one with Galapagos for filgotinib.
- Gilead reported strong operating cash flow of $16.7 billion in 2016 and maintained a robust cash position of $32.4 billion.
- The company returned significant capital to shareholders through $11.0 billion in share repurchases and $2.5 billion in dividends paid in 2016.
- The company faces ongoing and substantial legal proceedings, most notably a patent litigation case related to sofosbuvir where a jury awarded $2.54 billion in past damages, with potential total losses estimated between $0 and $8.5 billion if appeals are unsuccessful.
- Gilead anticipates continued revenue pressure in the HCV market due to declining patient starts and increased competition, and expects generic competition for TDF-based products to impact HIV sales in 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Gilead Sciences, Inc. kept $0.44.
- Revenue$30.39B100.0%
- Cost of revenue−$4.26B14.0%
- Gross profit$26.13B86.0%
- Operating costs−$8.50B28.0%
- Operating income$17.63B58.0%
- Interest, other & tax−$4.13B13.6%
- Net income$13.50B44.4%
Where FY2016 revenue went
$30.39B- Net income: $13.50B, 44% of revenue
- R&D: $5.10B, 17% of revenue
- Cost of revenue: $4.26B, 14% of revenue
- Interest, other & tax: $4.13B, 14% of revenue
- SG&A: $3.40B, 11% of revenue
Kept 44% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $30.39B$32.64B | −6.9% |
| Cost of Revenue | $4.26B$4.01B | +6.4% |
| Gross Profit | $26.13B$28.63B | −8.7% |
| R&D Expenses | $5.10B$3.01B | +69.1% |
| SG&A Expenses | $3.40B$3.43B | −0.8% |
| Operating Expenses | $12.76B$10.45B | +22.1% |
| Operating Income | $17.63B$22.19B | −20.5% |
| Interest Expense | $964.00M$688.00M | +40.1% |
| Net Income | $13.50B$18.11B | −25.4% |
| EPS (Basic) | $10.08$12.37 | −18.5% |
| EPS (Diluted) | $9.94$11.91 | −16.5% |
| Shares Outstanding (Basic) | 1.34B1.46B | −8.5% |
| Shares Outstanding (Diluted) | 1.36B1.52B | −10.7% |
05—Questions
Frequently Asked Questions
What were Gilead's primary revenue drivers in 2016, and what is the outlook for these segments?
In 2016, Gilead's primary revenue drivers were its antiviral products, which include HIV and Hepatitis C (HCV) treatments. Antiviral product sales generated $27.7 billion, with HIV and other antivirals contributing $12.9 billion and HCV products contributing $14.8 billion. The company saw growth in its HIV franchise driven by new TAF-based products. However, HCV product sales declined due to lower sales of Harvoni and Sovaldi. Gilead anticipates a decline in HCV revenues in 2017 due to fewer patient starts and increased competition, while expecting continued growth in HIV, albeit with potential impacts from upcoming generic competition for TDF-based products.
What are the major litigation risks facing Gilead, particularly concerning Sovaldi?
Gilead is involved in significant legal proceedings, most notably concerning its hepatitis C drug, Sovaldi. A jury found Gilead willfully infringed a patent owned by Merck's Idenix subsidiary, awarding $2.54 billion in past damages. Gilead estimates a potential total loss range of $0 to $8.5 billion if this verdict is upheld on appeal, which could materially impact its financial results. The company is also facing other patent litigations and investigations that contribute to increased expenses and potential future liabilities.
How is Gilead managing its R&D investments and pipeline?
Gilead significantly increased its R&D expenses by 69% to $5.1 billion in 2016. This increase was driven by the progression of clinical studies, milestone payments, the purchase of an FDA priority review voucher, and upfront costs for collaborations, such as the agreement with Galapagos for filgotinib. The company is focused on advancing its pipeline across key therapeutic areas, including NASH with selonsertib and various inflammatory diseases with filgotinib, and aims to strategically invest in external licensing and acquisition opportunities to further develop its product portfolio.
What is Gilead's financial position and capital allocation strategy?
Gilead ended 2016 with a strong financial position, reporting $32.4 billion in cash, cash equivalents, and marketable securities. The company generated $16.7 billion in operating cash flow in 2016. Gilead's capital allocation strategy includes substantial investments in R&D, significant share repurchases totaling $11.0 billion in 2016, and dividend payments amounting to $2.5 billion in 2016. This demonstrates a commitment to returning value to shareholders while continuing to invest in future growth.
06—Continue