On February 4, 2021 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the fourth quarter and full year 2020 (Press release, Gilead Sciences, FEB 4, 2021, View Source [SID1234574640]).
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"Gilead continues to play a central role in the pandemic, with Veklury now treating one in two hospitalized patients in the United States. At the same time, we continue to meet the needs of people living with HIV, cancer, viral hepatitis and other conditions," said Daniel O’Day, Chairman and Chief Executive Officer, Gilead Sciences. "As we head into 2021, we have many additional opportunities to help patients, especially in oncology where Trodelvy, for example has the potential to treat a broad range of cancer types. These new opportunities, together with our continued leadership in antivirals put Gilead on a clear path to growth."
Total revenues for the fourth quarter and full year 2020 increased 26% and 10%, respectively, compared to the same periods in 2019, primarily due to the launch of Veklury in 2020.
Product sales excluding Veklury sales for the fourth quarter and full year 2020 decreased 7% and 3%, respectively, compared to the same periods in 2019, due to the continued effects of COVID-19 on Gilead’s HIV and hepatitis C virus ("HCV") franchises, as well as the expected decline in sales of Truvada (emtricitabine ("FTC") and tenofovir disoproxil fumarate ("TDF"))-based products due to the loss of exclusivity of Truvada and Atripla (efavirenz 600 mg/emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) in the United States in October 2020. See further discussion below.
Veklury sales were $1.9 billion and $2.8 billion, for the fourth quarter and full year 2020, respectively, reflecting higher hospitalization and treatment rates due to the most recent COVID-19 surge.
Diluted EPS decreased 42% to $1.23 for the fourth quarter 2020, and 98% to $0.10 for the full year 2020, compared to the same periods in 2019, primarily due to changes in the fair value of Gilead’s equity investments in Galapagos NV ("Galapagos"), a 2019 discrete tax benefit related to intra-entity transfers and higher acquisition-related expenses. Full year 2020 was also impacted by higher acquired in-process research and development ("IPR&D") expenses.
Non-GAAP diluted EPS increased 99% to $2.19 for the fourth quarter 2020, and 16% to $7.09 for the full year 2020, compared to the same periods in 2019, primarily due to higher non-GAAP operating income driven by growth in product sales and improved gross margin, partially offset by higher research and development ("R&D") investments and other operating expenses.
The following tables summarize significant items that affected the comparability of net income attributable to Gilead and diluted EPS for the periods presented:
Represents charges recorded to write down slow moving and excess raw material and work in process inventory primarily in the fourth quarter 2019.
Full year 2020 primarily reflects charges related to Gilead’s acquisition of Forty Seven, Inc. ("Forty Seven") as well as collaborations and other investments Gilead entered into during the year. Fourth quarter 2019 includes a pre-tax $800 million impairment charge related to assets obtained in Gilead’s Kite Pharma Inc. ("Kite") acquisition. Full year 2019 includes $3.9 billion in upfront charges related to Gilead’s global research and development collaboration agreement with Galapagos.
Primarily represents unrealized losses (gains) from changes in the fair value of Gilead’s equity investments in Galapagos for the periods represented.
Primarily represents accelerated stock-based compensation expenses recorded in Cost of goods sold, R&D expenses and Selling, general and administrative ("SG&A") expenses from the second quarter 2020 Forty Seven acquisition and the fourth quarter 2020 Immunomedics, Inc. ("Immunomedics") acquisition.
Represents net favorable tax effects of intra-entity intangible asset transfers to different tax jurisdictions during the fourth quarter 2019.
These amounts were excluded from non-GAAP net income and non-GAAP diluted EPS. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 13 – 14.
Total product sales increased 26% to $7.3 billion for the fourth quarter 2020, and 10% to $24.4 billion for the full year 2020, respectively, compared to the same periods in 2019, primarily due to the launch of Veklury in 2020.
Product sales excluding Veklury sales decreased 7% and 3% for the fourth quarter and full year 2020, respectively, compared to the same periods in 2019, primarily due to the following:
Lower HCV sales volume due to the impact of the COVID-19 pandemic as described below; and
Expected decline in sales of Truvada-based products due to the loss of exclusivity of Truvada and Atripla in the United States in October 2020.
The decreases were partially offset by:
Continued patient uptake of Biktarvy (bictegravir 50 mg/emtricitabine 200 mg/tenofovir alafenamide 25 mg); and
Growth of Descovy (emtricitabine 200 mg/tenofovir alafenamide 25 mg) for pre-exposure prophylaxis ("PrEP") PrEP ("Descovy for PrEP").
The full year 2020 decrease was also due to the expected decline in sales of Letairis (ambrisentan 5 mg and 10 mg) and Ranexa (ranolazine 500 mg and 1000 mg) after generic entries in the first half of 2019.
Product sales for the fourth quarter 2020 were $5.3 billion in the United States, $1.4 billion in Europe and $656 million in other international locations. Product sales for the fourth quarter 2019 were $4.5 billion in the United States, $840 million in Europe and $440 million in other international locations. For 2020, product sales were $18.1 billion in the United States, $3.9 billion in Europe and $2.3 billion in other international locations. For 2019, product sales were $16.6 billion in the United States, $3.6 billion in Europe and $2.0 billion in other international locations.
HIV product sales decreased 7% to $4.3 billion for the fourth quarter 2020, and increased 3% to $16.9 billion for the full year 2020, compared to the same periods in 2019.
HIV product sales for the fourth quarter 2020 decreased primarily due to the following:
Lower sales volume of Truvada (FTC/TDF)-based products driven by the loss of exclusivity of Truvada and Atripla in the United States in October 2020, partially offset by the continued patient uptake of Biktarvy and growth of Descovy for PrEP; and
Lower average net selling price driven by the effects of:
Unfavorable payer mix primarily due to higher public health service utilization; and
Product mix due to the loss of exclusivity of Truvada in the United States.
HIV products sales for the full year 2020 increased primarily due to the following:
Continued patient uptake of Biktarvy and growth of Descovy for PrEP.
The increase was partially offset by:
Lower sales volume of Truvada (FTC/TDF)-based products driven by the loss of exclusivity of Truvada and Atripla in the United States in October 2020 and the COVID-19 pandemic impact on Gilead’s HIV franchise; and
Lower average net selling price driven by unfavorable payer mix primarily due to higher public health service utilization.
HCV product sales decreased 33% to $423 million for the fourth quarter 2020, and 30% to $2.1 billion for the full year 2020, compared to the same periods in 2019. The decreases were primarily due to the following:
Lower sales volume driven by lower patient starts in the United States and Europe due to the COVID-19 pandemic; and
Lower average net selling price reflecting higher sales return reserves and discounts.
Veklury sales contributed $1.9 billion and $2.8 billion in sales for the fourth quarter and full year 2020, respectively, primarily in the United States and Europe, with the fourth quarter volumes particularly reflecting higher hospitalization and treatment rates due to the most recent COVID-19 surge.
Cell therapy product sales, which include Yescarta (axicabtagene ciloleucel) and TecartusTM (brexucabtagene autoleucel), increased 34% to $163 million for the fourth quarter 2020, and 33% to $607 million for the full year 2020, compared to the same periods in 2019. The increases were primarily driven by the continued uptake of Yescarta in Europe and the third quarter 2020 product launch of Tecartus in the United States.
Trodelvy sales generated $49 million in sales in the United States, following the acquisition by Gilead of Immunomedics on October 23, 2020.
Other product sales, which include Vemlidy (tenofovir alafenamide 25 mg), Viread (tenofovir disoproxil fumarate 300 mg), Letairis, Ranexa, Zydelig (idelalisib 150 mg), AmBisome (amphotericin b liposome for injection 50 mg/vial), Cayston (aztreonam for inhalation solution 75 mg/vial) and Jyseleca (filgotinib), increased 7% to $498 million for the fourth quarter 2020, compared to the same period in 2019, primarily due to higher sales volume of Vemlidy in other international locations. Other product sales decreased 18% to $1.9 billion for the full year 2020, compared to the same period in 2019, primarily due to the expected declines in sales of Letairis and Ranexa after generic entries in the first half of 2019, partially offset by higher sales volume of Vemlidy in other international locations.
Cost of Goods Sold and Product Gross Margin
Cost of goods sold and non-GAAP cost of goods sold for the fourth quarter and full year 2020 decreased, compared to the same periods in 2019, primarily due to the $500 million charge recorded in the fourth quarter 2019 to write down inventory, which was driven by lower long-term demand for Gilead’s HCV products.
The decrease for the full year 2020 was partially offset by higher manufacturing ramp-up expenses related to Veklury as a treatment for COVID-19. As previously disclosed, Gilead implemented process refinements and expanded its production capacity of Veklury to ensure the broader supply for patients during 2020.
Cost of goods sold for the fourth quarter 2020, compared to the same period in 2019, included higher acquisition-related expenses from amortization of intangible assets, inventory step-up charges and accelerated stock-based compensation expenses related to the Immunomedics acquisition.
R&D expenses and non-GAAP R&D expenses for the fourth quarter 2020 increased, compared to the same period in 2019, primarily due to the charge recorded in the fourth quarter 2020, in connection with the agreement to amend the existing arrangement with Galapagos for the commercialization and development of Jyseleca of $190 million (€160 million), milestones of $70 million to Pionyr Immunotherapeutics, Inc. ("Pionyr"), and Trodelvy and other pipeline investments.
In addition to the drivers described above, R&D expenses and non-GAAP R&D expenses for the full year 2020 increased year-over-year primarily due to:
Higher clinical trial expenses related to the investigation of remdesivir as a treatment for COVID-19 and higher investments in oncology programs, including magrolimab, an investigational anti-CD47 monoclonal antibody.
The increases were partially offset by lower clinical trial expenses from the completion of certain inflammation programs and lower costs as a result of Gilead’s pause or postponement of certain clinical trials due to the COVID-19 pandemic.
R&D expenses for the fourth quarter and full year 2020 also increased due to accelerated stock-based compensation expenses of $58 million and $166 million, respectively, related to the fourth quarter 2020 Immunomedics acquisition and, for the full year 2020, the second quarter 2020 Forty Seven acquisition.
Acquired IPR&D expenses of $5.9 billion for the full year 2020 were primarily related to Gilead’s acquisition of Forty Seven as well as collaborations and other investments Gilead entered into during the year, separately with Arcus Biosciences, Inc., Pionyr, Tango Therapeutics, Inc., Tizona Therapeutics, Inc. and Jounce Therapeutics, Inc.
Acquired IPR&D expenses for the fourth quarter 2019 were related to the $800 million impairment charge from assets obtained in Gilead’s Kite acquisition. Full year 2019 included $3.9 billion in upfront charges related to Gilead’s global research and development collaboration agreement with Galapagos.
SG&A expenses and non-GAAP SG&A expenses for the fourth quarter 2020 increased, compared to the same period in 2019, primarily due to expenses related to additional funds allocated to corporate grants, including non-profit grantees to support racial equity and social justice efforts, the timing of marketing expenses related to Biktarvy, and commercialization efforts for Veklury and Trodelvy.
SG&A expenses and non-GAAP SG&A expenses for the full year 2020 increased year-over-year, primarily due to a $97 million charge related to a previously disclosed legal settlement, increased corporate grants, higher costs associated with the commercialization efforts for Veklury, marketing expenses related to Biktarvy and donations of remdesivir.
SG&A expenses for the fourth quarter and full year 2020 also increased due to accelerated stock-based compensation expenses of $168 million and $204 million, respectively, related to the fourth quarter 2020 Immunomedics acquisition and, for the full year 2020, the second quarter 2020 Forty Seven acquisition.
The increases were partially offset by lower travel and other spend due to the COVID-19 pandemic.
Other Income (Expense), Net and Interest Expense
The unrealized losses primarily relating to Gilead’s investments in Galapagos unfavorably impacted Other income (expense), net for the fourth quarter and full year 2020, compared to unrealized gains in the prior year periods.
Interest expense for the fourth quarter 2020 increased primarily due to the senior unsecured notes issued in September 2020 and $1.0 billion borrowed under a three-year term loan facility related to the Immunomedics acquisition.
Effective Tax Rate
The effective tax rate ("ETR") and non-GAAP ETR for the fourth quarter 2020 were 14.9% and 15.8%, respectively, compared to (41.5)% and 31.5% for the same period in 2019. The year-over-year increase in ETR was primarily due to a $1.2 billion discrete tax benefit related to intra-entity intangible asset transfers to different tax jurisdictions recorded in the fourth quarter 2019. The year-over-year decrease in non-GAAP ETR was primarily due to a $114 million discrete tax expense related to the Altera Corp. v. Commissioner ruling recorded in the fourth quarter 2019. The ETR and non-GAAP ETR for the fourth quarter 2020 reflected $76 million of discrete tax benefits related to settlements with taxing authorities.
The ETR and non-GAAP ETR for the full year 2020 were 94.7% and 18.6%, respectively, compared to (4.0)% and 22.4% for the same period in 2019. The increase in ETR was primarily due to the above-mentioned unrealized losses on Gilead’s equity investments in Galapagos and certain acquired IPR&D charges in 2020 that were non-deductible for income tax purposes. In addition, the ETR for the full year 2019 included the $1.2 billion discrete tax benefit described above. The ETR and non-GAAP ETR for the full year 2020 reflected $167 million of discrete tax benefits related to settlements with taxing authorities.
Cash, Cash Equivalents and Marketable Debt Securities
As of December 31, 2020, Gilead had $7.9 billion of cash, cash equivalents and marketable debt securities compared to $25.8 billion as of December 31, 2019. During 2020, Gilead generated $8.2 billion in operating cash flow, issued senior unsecured notes in an aggregate principal amount of $7.25 billion, borrowed an aggregate principal amount of $1.0 billion under a three-year term loan facility, utilized $25.7 billion on acquisitions, net of cash acquired (including IPR&D), repaid $2.5 billion of principal amount of debt, paid cash dividends of $3.4 billion and utilized $1.6 billion on share repurchases.
Gilead may choose to repay certain of its long-term debt obligations prior to maturity dates based on its assessment of current and long-term liquidity and capital requirements.
Full Year 2021 Guidance
Gilead is providing full year 2021 guidance below. Veklury sales are subject to significant volatility and uncertainty due to a highly dynamic and complex global health environment, which continues to evolve. As a result, Gilead believes providing its full year 2021 guidance excluding Veklury sales is useful for investors, when considered in conjunction with its GAAP financial information.
The financial guidance excludes the effects of any potential future strategic acquisitions, collaborations and investments, the exercise of opt-ins or options related to collaboration programs where Gilead has such rights with its collaboration partners, and any other transactions or items that have not yet been identified or quantified. This guidance is subject to a number of risks and uncertainties. See Forward-Looking Statements described in the section below.
Outlook
The COVID-19 pandemic continues to impact Gilead’s business and broader market dynamics, including HCV and HIV market volume. Gilead expects a gradual recovery in underlying market dynamics starting the second quarter 2021. Gilead expects that its HIV treatment business will continue to remain largely unaffected and that patients with HCV will begin to initiate treatment by the second quarter 2021. Truvada and Atripla sales are expected to continue to decline in the first quarter 2021 and beyond as multiple generics are expected to enter the market starting in the second quarter 2021. Biktarvy, Trodelvy, Vemlidy and cell therapy are expected to be key growth drivers in 2021 absorbing the full year impact of Truvada and Atripla loss of exclusivity in the United States. The acquisition of Immunomedics will immediately contribute to Gilead’s revenue growth and is expected to be neutral to accretive to Gilead’s non-GAAP EPS in 2023 and significantly accretive thereafter. Gilead is well positioned to drive its future growth potential through its renewed pipeline in oncology. Gilead’s capital allocation priorities remain unchanged and will continue to prioritize investment in its business and R&D pipeline and maintain a focus on disciplined expense management. The fundamentals of Gilead’s business and long-term outlook remain strong.
Key Product, Pipeline and Corporate Updates(1)
Category
Therapeutic Area and Description
Regulatory Approval & Submission
Oncology
European Commission granted conditional marketing authorization for Tecartus for the treatment of adult patients with relapsed or refractory mantle cell lymphoma in December 2020.
Gilead submitted a supplemental Biologics License Application to U.S. Food and Drug Administration ("FDA") for approval of Trodelvy as a treatment for adult patients with metastatic triple-negative breast cancer ("mTNBC") based on the overall efficacy and safety results in the Phase 3 ASCENT trial.
Inflammatory Diseases
European Medicines Agency ("EMA") validated and is reviewing the application of Gilead and Galapagos for a new indication to the approved license for filgotinib 200mg. The proposed indication is for the treatment of adults with moderately to severely active ulcerative colitis ("UC").
Clinical Trials & Data Presentations
Viral Diseases
Gilead presented results from the Phase 2/3 CAPELLA trial evaluating lenacapavir, an investigational, long-acting HIV-1 capsid inhibitor, in heavily treatment-experienced people with multidrug resistant HIV-1 infection.
Oncology
Gilead and Kite presented new data including results from:
ZUMA-12 trial, a Phase 2 study evaluating Yescarta in patients with high-risk large B-cell lymphoma;
ZUMA-5 trial, a Phase 2 study evaluating Yescarta in adult patients with relapsed or refractory indolent non-Hodgkin lymphoma;
ZUMA-1 trial, a study evaluating Yescarta in adult patients with refractory LBCL;
ZUMA-2 trial, a study evaluating Tecartus in adult patients with relapsed or refractory mantle cell lymphoma; and
A Phase 1b trial evaluating magrolimab, in combination with azacitidine in previously untreated acute myeloid leukemia patients.
Inflammatory Diseases
Gilead and Novo Nordisk A/S presented results from a Phase 2 proof-of-concept trial evaluating combinations of Novo Nordisk’s semaglutide with Gilead’s investigational FXR agonist cilofexor and/or Gilead’s investigational ACC inhibitor firsocostat in people with non-alcoholic steatohepatitis.
Corporate Development
Viral Diseases
Gilead entered into a definitive agreement to acquire MYR GmbH for approximately €1.2 billion in cash payable upon closing of the transaction, plus a potential future milestone payment of up to €300 million.
Upon closing, the acquisition will provide Gilead with Hepcludex (bulevirtide), which was conditionally approved by the EMA for the treatment for chronic hepatitis delta virus in July 2020.
Gilead and Vir Biotechnology, Inc. established clinical collaboration related to hepatitis B virus in January 2021.
Gilead and Gritstone Oncology, Inc. announced that the companies have entered into a collaboration, option and license agreement related to a curative treatment for HIV in February 2021.
Inflammatory Diseases
Gilead and Galapagos agreed to amend the existing arrangement for the commercialization and development of Jyseleca.
Gilead will not pursue FDA approval for Jyseleca for Rheumatoid Arthritis ("RA") in the United States.
Galapagos will assume sole responsibility in Europe for Jyseleca for RA, UC and future indications; Gilead will receive royalties on European sales starting in 2024.
Galapagos will assume responsibility for majority of ongoing clinical trials.
Gilead will pay Galapagos €160 million to support ongoing development and accelerated commercial buildout in the European Union.
Other
Board Appointment: Jeffrey A. Bluestone, Ph.D., the President and Chief Executive Officer of Sonoma Biotherapeutics, joined Gilead’s Board of Directors.
Community Support: Launch of Racial Equity Community Impact Fund to initially provide $10 million in grants to 20 organizations working in community advocacy and mobilization, social justice and educational innovation.
Gilead announced and discussed these updates in further detail in press releases available in the Investors section of Gilead’s website at View Source Additional information can be found in the disclosures of Gilead filed with the U.S. Securities and Exchange Commission (the "SEC"), including its Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, as applicable. Readers are also encouraged to review all other press releases available in the Investor’s section of Gilead’s website mentioned above.
Non-GAAP Financial Information
The information presented in this document has been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), unless otherwise noted as non-GAAP. Management believes non-GAAP information is useful for investors, when considered in conjunction with Gilead’s GAAP financial information, because management uses such information internally for its operating, budgeting and financial planning purposes. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of Gilead’s operating results as reported under GAAP. Non-GAAP financial information excludes acquisition-related expenses including amortization of acquired intangible assets and inventory step-up charges in Cost of goods sold, acquired IPR&D expenses, and other items that are considered unusual or not representative of underlying trends of Gilead’s business, fair value adjustments of equity securities and discrete and related tax charges or benefits associated with changes in tax related laws and guidelines. Acquired IPR&D expenses reflect IPR&D impairments as well as the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use, including upfront payments related to various collaborations and the initial costs of rights to IPR&D projects. Although Gilead consistently excludes the amortization of acquired intangible assets from the non-GAAP financial information, management believes that it is important for investors to understand that such intangible assets were recorded as part of acquisitions and contribute to ongoing revenue generation. Non-GAAP measures may be defined and calculated differently by other companies in the same industry. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the tables on pages 13 – 15.
Conference Call
At 4:30 p.m. Eastern Time, Gilead’s management will host a conference call to discuss the company’s fourth quarter 2020 financial results and will provide a business update. The live webcast of the call can be accessed at Gilead’s Investors page at View Source Please connect to the website at least 15 minutes prior to the start of the call to ensure adequate time for any software download that may be required to listen to the webcast. Alternatively, please call 877-359-9508 (U.S.) or 224-357-2393 (international) and dial the conference ID 3316988 to access the call. Telephone replay will be available approximately two hours after the call through 8:00 p.m. Eastern Time, February 6, 2021. To access the replay, please call 855-859-2056 (U.S.) or 404-537-3406 (international) and dial the conference ID 3316988. The webcast will be archived on www.gilead.com for one year.