On July 30, 2019 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the second quarter ended June 30, 2019 (Press release, Gilead Sciences, JUL 30, 2019, View Source [SID1234537890]). The financial results that follow represent a year-over-year comparison of the second quarter of 2019 to the second quarter of 2018. Total revenues were $5.7 billion in 2019 compared to $5.6 billion in 2018. Net income was $1.9 billion or $1.47 per diluted share in 2019 compared to $1.8 billion or $1.39 per diluted share in 2018. Non-GAAP net income was $2.3 billion or $1.82 per diluted share in 2019 compared to $2.5 billion or $1.91 per diluted share in 2018.

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"I am very pleased with Gilead’s performance and our ability to continue to reach patients around the world with our medicines. I am also very excited about the progress we are making to strengthen our pipeline, including the recently announced Galapagos collaboration, to bring forward our next generation of products," said Daniel O’Day, Chairman and Chief Executive Officer, Gilead Sciences. "We saw strong revenue growth quarter-over-quarter, primarily driven by our HIV medicines and the rapid adoption of Biktarvy. Based on this momentum and our confidence in the outlook for the coming months, we are raising our full-year product sales guidance for 2019."

Product Sales
Total product sales for the second quarter of 2019 were $5.6 billion compared to $5.5 billion for the same period in 2018. For the second quarter of 2019, product sales in the United States, Europe and other locations were $4.1 billion, $1.0 billion and $512 million, respectively. For the second quarter of 2018, product sales in the United States, Europe and other locations were $4.1 billion, $1.0 billion and $466 million, respectively. Product sales in Europe for the second quarter of 2019 benefited from approximately $160 million of adjustments for statutory rebates related primarily to HCV and HIV sales made in prior years.

HIV product sales were $4.0 billion for the second quarter of 2019 compared to $3.7 billion for the same period in 2018. The increase was primarily driven by higher sales volume as a result of the continued uptake of Biktarvy (bictegravir 50 mg/emtricitabine 200 mg/tenofovir alafenamide 25 mg).

Chronic hepatitis C virus (HCV) product sales were $842 million for the second quarter of 2019 compared to $1.0 billion for the same period in 2018. The decline was primarily due to competitive dynamics, including a decline in U.S. Medicare prices, and lower patient starts.

Yescarta (axicabtagene ciloleucel) generated $120 million in sales during the second quarter of 2019 compared to $68 million for the same period in 2018. The increase was driven by an increase in the number of therapies provided to patients.

Other product sales, which include products from chronic hepatitis B virus (HBV), cardiovascular, oncology and other categories inclusive of Vemlidy (tenofovir alafenamide 25 mg), Viread (tenofovir disoproxil fumarate 300 mg), Letairis (ambrisentan 5 mg and 10 mg), Ranexa (ranolazine 500 mg and 1000 mg), Zydelig (idelalisib 150 mg), AmBisome (amphotericin B liposome for injection 50 mg/vial) and Cayston (aztreonam for inhalation solution 75 mg/vial), were $604 million for the second quarter of 2019 compared to $807 million for the same period in 2018. The decrease was primarily due to the expected declines in Ranexa and Letairis sales after generic entries in 2019.

During the second quarter of 2019, compared to the same period in 2018:

R&D expenses decreased slightly, primarily due to the 2018 impacts of Gilead’s purchase of a U.S. Food and Drug Administration (FDA) Priority Review Voucher and stock-based compensation expense following the acquisition of Kite Pharma, Inc., largely offset by higher investments in 2019 to support Gilead’s cell therapy programs.

Non-GAAP R&D expenses decreased slightly, primarily due to the 2018 impact of Gilead’s purchase of an FDA Priority Review Voucher, largely offset by higher investments in 2019 to support Gilead’s cell therapy programs.

SG&A expenses increased primarily due to higher promotional expenses in the United States and expenses associated with the expansion of Gilead’s business in Japan and China, partially offset by lower stock-based compensation expense. Stock-based compensation expense was higher for the second quarter of 2018 following the acquisition of Kite Pharma, Inc.

Non-GAAP SG&A expenses increased primarily due to higher promotional expenses in the United States and expenses associated with the expansion of Gilead’s business in Japan and China.

Effective Tax Rate
The effective tax rate and non-GAAP effective tax rate in the second quarter of 2019 were 22.2% and 21.5%, respectively, compared to 12.8% and 13.4% for the same period in 2018, respectively. The increases were primarily due to the 2018 impact of a favorable settlement of a tax examination.
Cash, Cash Equivalents and Marketable Debt Securities
As of June 30, 2019, Gilead had $30.2 billion of cash, cash equivalents and marketable debt securities, compared to $31.5 billion as of December 31, 2018. During the second quarter of 2019, Gilead generated $2.2 billion in operating cash flow, repaid $500 million of debt, paid cash dividends of $800 million and utilized $588 million on stock repurchases.

Revised Full Year 2019 Guidance
Gilead revised its full year 2019 guidance, initially provided on February 4, 2019. The updated guidance for product sales reflects favorable demand trends observed in the first half of 2019 across Gilead’s product portfolio, the adjustments for statutory rebates related to Europe sales made in prior years, a greater impact from generic versions of Letairis in the second half of 2019 and the full year impact from generic products containing tenofovir disoproxil fumarate in certain European countries. The guidance for diluted EPS impact of acquisition-related, up-front collaboration and licensing, stock-based compensation and other expense was updated as a result of the collaboration agreement with Galapagos NV (Galapagos).

Corporate Highlights, Including the Announcement of:

A global research and development collaboration with Galapagos under which Gilead will make a $3.95 billion up-front payment and an equity investment of approximately $1.1 billion. Through this agreement, Gilead will gain access to a proven drug discovery platform and an innovative portfolio of compounds, including six molecules currently in clinical trials, and more than 20 preclinical programs.

Collaboration and/or licensing agreements with Novartis AG (Novartis), Carna Biosciences Inc. (Carna), Nurix Therapeutics, Inc. (Nurix), Humanigen, Inc. (Humanigen), Goldfinch Bio, Inc. (Goldfinch), Insitro, Inc. (Insitro), and Novo Nordisk A/S (Novo Nordisk).

Senior leadership changes, including the appointment of Christi L. Shaw as Chief Executive Officer of Kite, a Gilead Company; the appointment of Johanna Mercier as Chief Commercial Officer; the departures of John G. McHutchison, A.O., M.D., Chief Scientific Officer and Head of Research and Development, Gregg H. Alton, Chief Patient Officer, and Katie L. Watson, Executive Vice President, Human Resources; and the planned retirement of Robin L. Washington from her role as Executive Vice President and Chief Financial Officer effective March 1, 2020.

Louisiana’s launch of an innovative payment model for HCV treatment with Gilead’s separate subsidiary, Asegua Therapeutics LLC, aiming to eliminate the disease.

The donation of TruvadaforPrEP (emtricitabine 200 mg and tenofovir disoproxil fumarate 300 mg) to the U.S. Centers for Disease Control and Prevention (CDC) in support of national efforts to help prevent HIV and end the epidemic. Gilead will provide to CDC up to 2.4 million bottles of Truvada (emtricitabine 200 mg and tenofovir disoproxil fumarate 300 mg) annually for uninsured Americans at risk for HIV. The donation, which extends until 2030, will transition to Descovy (emtricitabine 200 mg and tenofovir alafenamide 25 mg), if it is approved for use as prevention.

Plans for a new facility in Frederick County, Maryland, to significantly expand Kite’s ability to manufacture Yescarta, Kite’s first commercially available CAR T cancer therapy, and a variety of investigational cell therapies.
Product and Pipeline Updates, Including the Announcement of:
HIV and Liver Diseases Programs

The presentation of data at the 10th International AIDS Society Conference on HIV Science, which included:

Results from a sub-analysis of the DISCOVER trial evaluating an investigational use of Descovy for HIV pre-exposure prophylaxis (PrEP), which demonstrated that Descovy reached intracellular drug concentration levels above the estimated protective threshold significantly more quickly than Truvada and that these drug concentration levels persist longer than Truvada.
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Results from two studies of investigational toll-like receptor (TLR7) agonists as part of an HIV cure research program. The Phase 1 and preclinical study results demonstrate that TLR7 agonists have a potential role to play in scalable strategies for achieving sustained viral remission in humans.

Results from two Phase 3 trials demonstrating the effectiveness of Biktarvy for the treatment of HIV in women and in virologically suppressed patients with known resistance.

Results from a Phase 1b study of GS-6207, an investigational, novel, selective capsid inhibitor, in people living with HIV. The Phase 1b data demonstrated the first proof of concept that HIV capsid inhibition can lead to significant declines in viral load in vivo and that resistance to GS-6207 in vitro did not lead to resistance to other classes of drugs used in the treatment of HIV.

Data from STELLAR-3, a Phase 3 study evaluating the safety and efficacy of selonsertib, an investigational, once daily, oral inhibitor of apoptosis signal-regulating kinase 1 (ASK1), for patients with bridging fibrosis (F3) due to nonalcoholic steatohepatitis (NASH), did not meet the pre-specified week 48 primary endpoint of a ≥ 1-stage histologic improvement in fibrosis without worsening of NASH.

The presentation of data at the International Liver Congress 2019, which included:

Safety and efficacy data on Vemlidy in patients with HBV previously treated with tenofovir disoproxil fumarate and data on Epclusa (sofosbuvir 400mg/velpatasvir 100mg) and Harvoni (ledipasvir 90mg/sofosbuvir 400mg) in difficult-to-cure HCV patient populations.

Results from Gilead’s clinical research program in NASH, including a combination study of the investigational, selective, non-steroidal farnesoid X receptor agonist cilofexor (GS-9674) and the acetyl-CoA carboxylase inhibitor firsocostat (GS-0976). The data support Gilead’s efforts to develop combination therapies to target different aspects of NASH, evaluate the utility of noninvasive tests for the identification of patients living with the disease and advance overall understanding of the complexities and burden of NASH.

The launch of five new global grant programs to continue to support investigator-sponsored research in HCV and HBV, HCV and HIV co-infection, NASH and primary sclerosing cholangitis.

The submission of a supplemental new drug application to FDA for Descovy for PrEP to reduce the risk of sexually acquired HIV-1 infection among individuals who are HIV-negative and at risk for HIV. A priority review voucher was submitted with the filing, leading to an anticipated review time of six months.

Inflammation Program

The intent to submit a new drug application to FDA for filgotinib this year, an investigational, oral, selective JAK1 inhibitor, as a treatment for rheumatoid arthritis (RA).

The presentation of data at the Annual European Congress of Rheumatology 2019, which included data on filgotinib. Among the abstracts presented were 24-week, interim results from the ongoing FINCH 1 and FINCH 3 Phase 3 studies evaluating filgotinib in adults with RA.
Cell Therapy Program

The presentation of data at the 2019 American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) Annual Meeting, which included:

Results from a safety management analysis of early use of steroids from the ZUMA-1 trial of Yescarta in adult patients with diffuse large B-cell lymphoma (DLBCL).

Results from a sub-population analysis from the ZUMA-1 trial of Yescarta in adult patients with DLBCL.

Results from the completed Phase 1 of the ZUMA-3 study evaluating KTE-X19, an investigational CD19 CAR T cell therapy. ZUMA-3 is a single-arm Phase 1/2 study in adult patients with relapsed or refractory acute lymphoblastic leukemia.
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 measures may be defined and calculated differently by other companies in the same industry. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 9 through 11.
Conference Call
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 allow 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 8696029 to access the call. Telephone replay will be available approximately two hours after the call through 8:00 p.m. Eastern Time, August 1, 2019. To access the replay, please call 855-859-2056 (U.S.) or 404-537-3406 (international) and dial the conference ID 8696029. The webcast will be archived on www.gilead.com for one year.