10-QPeriod: Q1 FY2006

GILEAD SCIENCES, INC. Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 3, 2006For Securities:GILD

Summary

Gilead Sciences, Inc. (GILD) reported a strong first quarter for 2006, demonstrating robust revenue growth driven by its HIV product portfolio. Total revenues increased significantly to $692.9 million from $430.4 million in the prior year period, a jump of 61%. This growth was largely fueled by a 50% increase in HIV product sales, with Truvada showing exceptional performance with 173% year-over-year growth. The company also benefited from substantial royalty revenue, particularly from Tamiflu sales by Roche. Financially, Gilead maintained a healthy operational cash flow, although investing activities showed a significant outflow primarily due to increased purchases of marketable securities. The company also adopted SFAS 123R, leading to the expensing of stock-based compensation, which impacted operating expenses and the gross margin percentage but is expected to align with industry practices. Gilead ended the quarter with a strong cash position and has outlined strategic initiatives including a significant stock repurchase program and the issuance of convertible senior notes post-quarter to fund future corporate development.

Key Highlights

  • 1Total revenues grew by 61% to $692.9 million in Q1 2006, compared to $430.4 million in Q1 2005.
  • 2HIV product sales increased by 50% year-over-year, driven by a 173% surge in Truvada sales.
  • 3Royalty and contract revenue saw a substantial increase to $133.5 million, largely due to $115.3 million in Tamiflu royalties.
  • 4The company adopted SFAS 123R, beginning to expense stock-based compensation, impacting reported expenses and gross margin.
  • 5Operating cash flow remained strong at $221.9 million for the quarter.
  • 6Gilead ended the quarter with $2.54 billion in cash, cash equivalents, and marketable securities.
  • 7Post-quarter, Gilead issued $1.3 billion in convertible senior notes and initiated a $1 billion stock repurchase program.

Frequently Asked Questions

The primary driver of Gilead's revenue growth in Q1 2006 was its HIV product portfolio, particularly the significant increase in Truvada sales. Total product sales rose by 40%, with HIV products contributing $450.7 million, a 50% increase year-over-year. Truvada sales alone grew by 173%.

Gilead adopted SFAS 123R on January 1, 2006, which requires the expensing of stock-based compensation. This led to higher operating expenses (R&D and SG&A) and a slight decrease in the product gross margin percentage due to the inclusion of stock-based compensation costs and changes in product mix. The company recognized $29.6 million in stock-based compensation expense during the quarter.

For the full year 2006, Gilead expects sales from its HIV products to be between $1.825 billion and $1.875 billion. AmBisome sales are projected to be between $205 million and $215 million, and Hepsera sales are also expected to be in the range of $205 million to $215 million.

Following the quarter, Gilead issued $1.3 billion in convertible senior notes, purchased convertible note hedges for $379.1 million, and sold warrants for $235.5 million. Additionally, the company repurchased $544.9 million of its common stock and announced a new $1 billion stock repurchase program over a two-year period.