10-QPeriod: Q3 FY2017

GILEAD SCIENCES, INC. Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 7, 2017For Securities:GILD

Summary

Gilead Sciences, Inc. reported total revenues of $6.51 billion for the third quarter of 2017, a decrease of 13% from $7.50 billion in the prior year period, primarily driven by lower product sales in its antiviral segment, particularly Hepatitis C (HCV) treatments. While HIV and Hepatitis B (HBV) product sales showed resilience and growth driven by newer TAF-based regimens, the HCV franchise, including blockbuster drugs like Harvoni and Sovaldi, experienced a significant decline. This downturn is attributed to a rapid decrease in patient starts following widespread treatment and cures, coupled with increasing competition. The company also highlighted its significant acquisition of Kite Pharma for approximately $11.2 billion, aiming to establish a strong position in the rapidly growing cell therapy market with the approval of Yescarta. Despite revenue pressures in the core antiviral business, Gilead maintained a strong cash position and continued its share repurchase program.

Financial Highlights

57 data points
Beta

Revenue

$6.51B

82.5% Gross Margin

Net Income

$2.72B

41.7% Net Margin

EPS (Diluted)

$2.06

Total Assets

$64.66B

Cash & Equivalents

$11.51B

Free Cash Flow

$2.56B

Financial Statements
Beta
Revenue$6.51B
Cost of Revenue$1.03B
Gross Profit$5.37B
R&D Expenses$789.00M
SG&A Expenses$879.00M
Operating Expenses$2.70B
Operating Income$3.81B
Interest Expense$291.00M
Net Income$2.72B
EPS (Basic)$2.08
EPS (Diluted)$2.06
Shares Outstanding (Basic)1.31B
Shares Outstanding (Diluted)1.32B

Key Highlights

  • 1Total revenues for Q3 2017 decreased by 13% to $6.51 billion compared to $7.50 billion in Q3 2016, mainly due to a 14% decrease in product sales to $6.40 billion.
  • 2Antiviral product sales, particularly from HCV treatments like Harvoni and Sovaldi, significantly declined, while HIV and HBV product sales grew by 1% and 5% respectively (year-over-year for the nine-month period), driven by TAF-based products.
  • 3Gilead completed the acquisition of Kite Pharma for approximately $11.2 billion, bolstering its presence in the cell therapy space with Yescarta, which received FDA approval in October 2017.
  • 4Research and development expenses decreased by 31% to $789 million in Q3 2017 compared to $1.14 billion in Q3 2016, largely due to a significant milestone expense and impairment charge in the prior year.
  • 5Net income attributable to Gilead was $2.72 billion ($2.06 per diluted share) for Q3 2017, down from $3.33 billion ($2.49 per diluted share) in Q3 2016, impacted by lower product sales and a higher effective tax rate.
  • 6The company maintained a strong liquidity position with $41.4 billion in cash, cash equivalents, and marketable securities as of September 30, 2017.
  • 7The company is facing significant patent litigation, most notably regarding its HCV products, with potential losses estimated between zero and $3.6 billion.

Frequently Asked Questions

The primary driver for the revenue decline was a significant decrease in sales of Gilead's Hepatitis C (HCV) antiviral products, particularly Harvoni and Sovaldi. This decline is attributed to a rapid decrease in patient starts after the initial surge of treatments, coupled with increased competition in the HCV market. While HIV and Hepatitis B (HBV) sales showed growth, they were not enough to offset the drop in HCV revenues.

The acquisition of Kite Pharma for approximately $11.2 billion significantly expands Gilead's presence into the promising field of cell therapy for cancer treatment. Kite's lead therapy, Yescarta (axicabtagene ciloleucel), received FDA approval in October 2017 for certain types of lymphoma, positioning Gilead as a leader in this innovative and rapidly growing sector.

Key risks include the continued decline in HCV product sales due to market dynamics and competition, potential generic competition for its HIV products (like Truvada and Viread), ongoing and costly patent litigation related to its HCV drugs with potential liabilities up to $3.6 billion, and the challenges associated with commercializing novel cell therapies like Yescarta, including regulatory hurdles and market acceptance. Fluctuations in foreign currency exchange rates and potential impacts from healthcare reforms also pose risks.

Gilead maintained a strong liquidity position with $41.4 billion in cash, cash equivalents, and marketable securities as of September 30, 2017. The company generated $9.1 billion in operating cash flow during the first nine months of 2017. It also financed the Kite acquisition through a combination of senior unsecured notes, term loan facilities, and existing cash. Gilead continued its share repurchase program, with $8.2 billion remaining authorization as of the reporting date.