10-QPeriod: Q2 FY2018

GILEAD SCIENCES, INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 6, 2018For Securities:GILD

Summary

Gilead Sciences (GILD) reported a significant decrease in total revenues for the second quarter of 2018, down 21% year-over-year to $5.6 billion, primarily driven by a 21% decline in product sales to $5.5 billion. This was largely attributable to a substantial 65% drop in Hepatitis C (HCV) product sales due to increased competition, while HIV product sales saw a healthy 13% increase, driven by the uptake of Descovy-based products. Despite the revenue decline, Gilead demonstrated strong operational cash flow generation of $3.8 billion for the first six months of the year. The company also continued to invest in its future, with Research and Development (R&D) expenses increasing by 38% in the quarter, fueled by collaboration payments and acquisition-related costs, notably for the Kite Pharma acquisition. Management expresses confidence in existing capital resources to meet future needs, supported by substantial cash reserves. However, investors should note the ongoing legal challenges and patent litigations, particularly concerning its key HCV products, which represent a notable risk factor.

Financial Highlights

57 data points
Beta

Revenue

$5.65B

76.9% Gross Margin

Net Income

$1.82B

32.2% Net Margin

EPS (Diluted)

$1.39

Total Assets

$65.36B

Cash & Equivalents

$13.23B

Free Cash Flow

$1.28B

Financial Statements
Beta
Revenue$5.65B
Cost of Revenue$1.20B
Gross Profit$4.34B
R&D Expenses$1.19B
SG&A Expenses$980.00M
Operating Expenses$3.37B
Operating Income$2.28B
Interest Expense$266.00M
Net Income$1.82B
EPS (Basic)$1.40
EPS (Diluted)$1.39
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.31B

Key Highlights

  • 1Total revenues decreased by 21% year-over-year to $5.6 billion in Q2 2018.
  • 2Product sales declined 21% to $5.5 billion, primarily due to a 65% decrease in HCV product sales.
  • 3HIV product sales increased by 13% to $3.7 billion, driven by the uptake of Descovy-based products.
  • 4Research and Development (R&D) expenses increased by 38% to $1.2 billion in Q2 2018, largely due to collaboration payments and Kite acquisition costs.
  • 5Net income attributable to Gilead decreased to $1.8 billion ($1.39 per diluted share) from $3.1 billion ($2.33 per diluted share) in the prior year's quarter.
  • 6Cash, cash equivalents, and marketable securities remained substantial at $31.7 billion as of June 30, 2018.
  • 7The company continues to face significant legal proceedings and patent litigations, particularly related to its HCV products.

Frequently Asked Questions

The primary driver for the 21% decrease in total revenues to $5.6 billion was a 21% decline in product sales to $5.5 billion. This was largely due to a significant 65% drop in sales from Hepatitis C (HCV) products, such as Harvoni and Epclusa, attributed to increased competition.

Gilead's HIV business showed strength with a 13% increase in product sales to $3.7 billion for the quarter. This growth was primarily driven by the continued uptake and market share gains of its Descovy (emtricitabine/tenofovir alafenamide)-based products, including Biktarvy, Genvoya, and Odefsey, as patients shift from older Truvada (emtricitabine/tenofovir disoproxil fumarate)-based treatments.

The acquisition of Kite Pharma contributed to an increase in R&D expenses, particularly due to upfront collaboration payments and stock-based compensation expenses related to the acquisition. While specific revenue contributions from Kite are not yet broken out significantly, the acquisition is strategic for Gilead's oncology and cell therapy programs. The company is also managing debt incurred for the acquisition, having repaid $4.5 billion in term loans during the period.

Gilead faces significant risks from ongoing litigation and patent challenges, especially concerning its HCV products like Sovaldi, Epclusa, and Harvoni, as well as its HIV and cell therapy products. These legal battles, including disputes with Idenix, Merck, and generic manufacturers, could result in significant damages, patent invalidations, or narrowed intellectual property protection, potentially impacting future revenues and earnings. Additionally, evolving healthcare regulations and reimbursement pressures globally pose ongoing challenges.