On August 2, 2022 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the second quarter of 2022 (Press release, Gilead Sciences, AUG 2, 2022, View Source [SID1234617268]).
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"This was a very strong quarter for Gilead, with solid commercial and clinical execution," said Daniel O’Day, Chairman and Chief Executive Officer, Gilead Sciences. "Excluding Veklury, product sales grew 7% year-over-year. There was continued strong demand for our HIV portfolio with further share growth for Biktarvy, and oncology revenues reached an all-time high, driven by cell therapy and Trodelvy."
Second Quarter 2022 Financial Results
Total second quarter 2022 revenue increased 1% to $6.3 billion compared to the same period in 2021, primarily due to increased sales in HIV and oncology products, offset partially by decreased sales of Veklury (remdesivir) and hepatitis C virus ("HCV") products.
Diluted Earnings Per Share ("EPS") decreased to $0.91 for the second quarter of 2022 compared to $1.21 for the same period in 2021. The decrease was primarily due to higher acquired in-process research & development ("IPR&D") expenses from an upfront payment of $300 million, or $0.18 on a post-tax per share basis, related to the Dragonfly Therapeutics, Inc. ("Dragonfly") collaboration and higher net unrealized losses from our strategic equity investments.
Non-GAAP diluted EPS decreased 13% to $1.58 for the second quarter of 2022 compared to $1.81(1) for the same period in 2021, primarily reflecting the Dragonfly upfront payment and Biktarvy (bictegravir 50mg/emtricitabine 200mg ("FTC")/tenofovir alafenamide 25mg ("TAF"))-related royalty expense that began in the first quarter of 2022, offset partially by higher revenues.
As of June 30, 2022, Gilead had $7.0 billion of cash, cash equivalents and marketable debt securities down from $7.8 billion as of December 31, 2021 primarily due to payment associated with the settlement of the bictegravir-related litigation, paid dividends, acquired IPR&D payments related to collaborations, debt repayments, stock repurchases and capital expenditures, partially offset by net cash provided by operations.
During the second quarter of 2022, Gilead generated $1.8 billion in operating cash flow.
During the second quarter of 2022, Gilead made a $300 million collaboration upfront payment to Dragonfly, paid dividends of $920 million and repurchased $72 million of common stock.
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(1)
Non-GAAP diluted EPS has been recast due to an update to our non-GAAP policy in the first quarter 2022, resulting in a $0.06 reduction of previously-reported non-GAAP diluted EPS for the second quarter 2021. Refer to Non-GAAP Financial Information section below for further information.
Product Sales Performance
Total second quarter 2022 product sales were $6.1 billion, flat compared to the same period in 2021. Total product sales, excluding Veklury, increased 7% to $5.7 billion in the second quarter of 2022 compared to the same period in 2021, primarily due to growth in the HIV, Cell Therapy and Trodelvy (sacituzumab govitecan-hziy) businesses, offset partially by declining revenue in HCV.
HIV product sales increased 7% to $4.2 billion in the second quarter of 2022 compared to the same period in 2021, primarily reflecting changes in channel mix leading to higher average realized price as well as higher demand for treatment and pre-exposure prophylaxis ("PrEP") medicines.
Biktarvy sales increased 28% year-over-year in the second quarter of 2022, primarily due to higher demand and channel mix.
Descovy (FTC 200mg/TAF 25mg) sales increased 6% year-over-year in the second quarter of 2022, primarily driven by channel mix and increased demand, partially offset by inventory dynamics.
HCV product sales decreased 18% to $448 million in the second quarter of 2022 compared to the same period in 2021, primarily driven by channel mix leading to lower average realized price and fewer patient starts.
Hepatitis B virus ("HBV") and hepatitis delta virus ("HDV") product sales decreased 1% to $234 million in the second quarter of 2022 compared to the same period in 2021. Vemlidy (TAF 25mg) sales decreased 3% in the second quarter of 2022 compared to the same period in 2021, primarily driven by China Volume Based Procurement update, offset in part by volume growth in all other regions.
Cell therapy product sales increased 68% to $368 million in the second quarter of 2022 compared to the same period in 2021.
Yescarta (axicabtagene ciloleucel) sales increased 66% to $295 million in the second quarter of 2022, primarily driven by demand for relapsed or refractory ("R/R") large B-cell lymphoma ("LBCL") in the United States and Europe and R/R follicular lymphoma ("FL") in the United States.
Tecartus (brexucabtagene autoleucel) sales increased 78% to $73 million in the second quarter of 2022, primarily driven by demand for R/R mantle cell lymphoma ("MCL") in the United States and Europe and for adult patients with R/R B-cell precursor acute lymphoblastic leukemia ("ALL") in the United States.
Trodelvy sales increased by 79% to $159 million in the second quarter of 2022 compared to the same period in 2021, primarily reflecting adoption in both the second- and third-line settings for the treatment of metastatic triple-negative breast cancer ("TNBC") in the United States and Europe as well as for metastatic urothelial cancer in the United States.
Veklury sales decreased by 46% to $445 millionfor the second quarter of 2022 compared to the same period in 2021. Veklury revenue generally reflects COVID-19 related rates and severity of infections and hospitalizations, as well as the availability, uptake and effectiveness of vaccinations and alternative treatments for COVID-19.
Second Quarter 2022 Product Gross Margin, Operating Expenses and Effective Tax Rate
Product gross margin was 76.5% for the second quarter of 2022 compared to 77.4% for the same period in 2021. Non-GAAP product gross margin was 85.6% for the second quarter of 2022 compared to 86.4% in the same period in 2021. The decreases were primarily driven by Biktarvy-related royalty expense that began in the first quarter of 2022.
Research and development ("R&D") expenses for the second quarter of 2022 were $1.1 billion, relatively flat with the same period in 2021. Non-GAAP R&D expenses for the second quarter of 2022 were $1.1 billion compared to $1.0 billion(2) in the same period in 2021. GAAP and Non-GAAP R&D expenses primarily reflect increased investment in development activities and timing of clinical trial activities, primarily for oncology. GAAP R&D expenses were offset by lower restructuring expenses as compared to the prior year.
Acquired IPR&D expenses for the second quarter of 2022 were $330 million compared to $138 million(2) in the same period in 2021. The increase primarily reflects an upfront payment related to the Dragonfly collaboration.
Selling, general and administrative ("SG&A") expenses for the second quarter of 2022 were $1.4 billion, relatively flat with the same period in 2021. Non-GAAP SG&A expenses for the second quarter of 2022 were $1.3 billion compared to $1.1 billion in the same period in 2021. GAAP and Non-GAAP SG&A expenses primarily reflect increased promotional and marketing investment, including for Trodelvy, as well as higher corporate activities, including information technology projects and grants. GAAP SG&A expenses were offset by lower donations to Gilead Foundation as compared to the prior year.
The effective tax rate ("ETR") for the second quarter of 2022 was 24.5% compared to 16.5% for the same period in 2021, primarily due to a discrete tax benefit related to an intra-entity transfer of intangible assets in the three months ended June 30, 2021, and higher net unrealized losses from equity investments that are non-deductible for income tax purposes. Non-GAAP ETR for the second quarter of 2022 was 19.3% compared to 19.5% for the same period in 2021.
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(2)
Beginning in the second quarter of 2022, expenses related to development milestones and other collaboration payments made prior to regulatory approval of a developed product were reclassified from R&D expenses to Acquired IPR&D expenses in the Condensed Consolidated Statements of Income. We believe this presentation assists users of the financial statements to better understand the total costs incurred to acquire IPR&D projects. Prior periods have been recast for both GAAP and Non-GAAP reporting to reflect this classification, resulting in a reduction of previously-reported R&D expenses of $42 million and $47 million for the three and six months ended June 30, 2021, respectively, and $8 million for the three months ended March 31, 2022.
Guidance and Outlook
For the full-year, Gilead has updated its guidance and now expects:
Total product sales between $24.5 billion and $25.0 billion, compared to $23.8 billion and $24.3 billion previously.
Total product sales, excluding Veklury, between $22.0 billion to $22.5 billion, compared to $21.8 billion and $22.3 billion previously.
Total Veklury sales of approximately $2.5 billion, compared to approximately $2.0 billion previously.
Non-GAAP earnings per share between $6.35 and $6.75, compared to $6.20 and $6.70 previously.
Earnings per share between $2.90 and $3.30, compared to $3.00 and $3.50 previously.
This financial guidance excludes the impact of any expenses related to potential acquisitions or business development transactions that have not been executed, fair value adjustments of equity securities and discrete tax charges or benefits associated with changes in tax related laws and guidelines as Gilead is unable to project such amounts. A reconciliation between GAAP and non-GAAP financial information for the 2022 guidance is provided in the accompanying tables. Also see the Forward-Looking Statements described below. The financial guidance is subject to a number of risks and uncertainties, including uncertainty around the duration and magnitude of the COVID-19 pandemic. While the pandemic can be expected to continue to impact Gilead’s business and broader market dynamics, the rate and degree of these impacts as well as the corresponding recovery from the pandemic may vary across Gilead’s business.
Key Updates Since Our Last Quarterly Release
Virology
Announced FDA lifted the clinical hold placed on the Investigational New Drug Application to evaluate injectable lenacapavir for HIV treatment and pre-exposure prophylaxis following the agency’s review of the storage and compatibility data of lenacapavir injection with an alternate vial made from aluminosilicate glass.
Announced FDA accepted for review the New Drug Application resubmission for investigational lenacapavir for the treatment of HIV-1 infection in heavily treatment-experienced people with multi-drug resistant HIV-1 infection. FDA has assigned a Prescription Drug User Fee Act date of December 27, 2022.
Received a positive opinion from the European Medicines Agency’s ("EMA") Committee for Medicinal Products for Human Use ("CHMP") for investigational lenacapavir for the treatment of HIV-1 infection, in combination with other antiretroviral(s), in adults with multi-drug resistant HIV-1 infection for whom it is otherwise not possible to construct a suppressive anti-viral regimen.
Presented data at the International AIDS Conference, which included Week 48 data from the Phase 3 ALLIANCE trial evaluating Biktarvy in adults with HIV/HBV coinfection. Results from ALLIANCE showed that Biktarvy had superior HBV DNA suppression over the comparator dolutegravir/FTC/TDF, with both antiretroviral regimens similarly achieving high rates of HIV suppression. Additionally, five-year data from two Phase 3 trials of Biktarvy as first-line therapy in people living with HIV further demonstrated Biktarvy’s sustained efficacy, safety profile and high barrier to resistance.
Presented Week 48 results for the pivotal Phase 3 MYR301 trial of bulevirtide for the treatment of chronic HDV at the International Liver Congress 2022. The study met its primary endpoint, achieving statistically significant combined response rates (virologic and biochemical responses) with bulevirtide. Responses increased from Week 24 to Week 48, highlighting an improved response with prolonged treatment. The safety profile is consistent with prior reports.
Announced a new Joint Procurement Agreement for Veklury for participating member states across the European Union and the European Economic Area.
Received a positive opinion from EMA’s CHMP for Veklury to be granted full marketing authorization for the treatment of COVID-19 in adults and adolescents with pneumonia requiring supplemental oxygen and adults who do not require supplemental oxygen and are at increased risk of developing severe COVID-19.
Oncology
Presented results from the primary analysis of the Phase 3 TROPiCS-02 study of Trodelvy versus physicians’ choice of chemotherapy ("TPC") in heavily pre-treated patients with HR+/HER2- metastatic breast cancer at the American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) ("ASCO") Annual Meeting.
Announced final data from the Phase 3 ASCENT trial of Trodelvy in second-line and later metastatic TNBC at ASCO (Free ASCO Whitepaper), reinforcing Trodelvy’s survival benefit over TPC in this patient population.
Received updated NCCN recommendations for sacituzumab govitecan-hziy to a category 1 preferred recommendation in second-line and later metastatic TNBC and was added as a category 2A preferred recommendation in the investigational indication of HR+/HER2- advanced breast cancer by the NCCN Guidelines for Breast Cancer. Category 1 is the highest recommendation by NCCN, indicating that based upon high-level evidence, there is uniform NCCN consensus that the intervention is appropriate. The use of Trodelvy in patients with HR+/HER2- breast cancer is investigational, and Trodelvy has not been approved by FDA for this use.
Highlighted Yescarta and Tecartus data at ASCO (Free ASCO Whitepaper) that included findings from a subanalysis of ZUMA-7, real-world outcomes and long-term follow-ups. Real-world data for Yescarta showed consistent survival and safety data regardless of race and ethnicity, and in a ZUMA-7 subanalysis, demonstrated an over eight-fold greater median event-free survival and clinically meaningful improvements in quality of life as compared to standard of care. For Tecartus, long-term data suggested durable responses were induced in patients with R/R MCL and in adult patients with R/R ALL.
Announced approval of Yescarta by the European Commission for the treatment of R/R FL.
Received a positive opinion from EMA’s CHMP for Tecartus for the treatment of adult patients 26 years of age and above with R/R B-cell precursor ALL.
Announced FDA lifted the remaining partial clinical hold on studies evaluating magrolimab as a potential treatment for lymphoma and multiple myeloma.
Entered into a strategic research collaboration with Dragonfly to advance a number of novel natural killer ("NK") cell engager-based immunotherapies for oncology and inflammation indications. Under the agreement, Gilead will receive an exclusive worldwide license to investigational DF7001 and have options to license several additional NK cell engager programs.
Corporate
Announced that the company’s Board of Directors declared a quarterly dividend of $0.73 per share of common stock for the third quarter of 2022. The dividend is payable on September 29, 2022, to stockholders of record at the close of business on September 15, 2022. Future dividends will be subject to Board approval.
Appointed Stacey Ma, PhD as Executive Vice President, Pharmaceutical Development and Manufacturing effective July 2022.
Appointed Deborah Telman as Executive Vice President, Corporate Affairs and General Counsel effective August 2022.
Announced an $85 million contribution to the Gilead Foundation.
Certain amounts and percentages in this press release may not sum or recalculate due to rounding.
Conference Call
At 1:30 p.m. Pacific Time today, Gilead will host a conference call to discuss Gilead’s results. A live webcast will be available on View Source and will be archived on www.gilead.com for one year.
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 generally excludes acquisition-related expenses including amortization of acquired intangible assets and inventory step-up charges, 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. 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 accompanying tables.
Beginning in the first quarter of 2022, consistent with recent industry communications from the U.S. Securities and Exchange Commission ("SEC"), Gilead no longer excludes the initial costs of acquired IPR&D projects from its non-GAAP financial measures. Prior period non-GAAP financial measures are revised to conform to the new presentation.