On October 25, 2018 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the third quarter ended September 30, 2018 (Press release, Gilead Sciences, OCT 25, 2018, View Source [SID1234530106]).
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The financial results that follow represent a year-over-year comparison of the third quarter 2018 to the third quarter 2017. Total revenues were $5.6 billion in 2018 compared to $6.5 billion in 2017. Net income was $2.1 billion or $1.60 per diluted share in 2018 compared to $2.7 billion or $2.06 per diluted share in 2017. Non-GAAP net income was $2.4 billion or $1.84 per diluted share in 2018 compared to $3.0 billion or $2.27 per diluted share in 2017.
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except per share amounts) 2018 2017 2018 2017
Product sales $ 5,455 $ 6,402 $ 15,996 $ 19,825
Royalty, contract and other revenues 141 110 336 333
Total revenues $ 5,596 $ 6,512 $ 16,332 $ 20,158
Net income attributable to Gilead $ 2,097 $ 2,718 $ 5,452 $ 8,493
Non-GAAP net income $ 2,403 $ 2,990 $ 6,855 $ 9,311
Diluted earnings per share $ 1.60 $ 2.06 $ 4.15 $ 6.44
Non-GAAP diluted earnings per share $ 1.84 $ 2.27 $ 5.22 $ 7.06
Product Sales
Total product sales for the third quarter of 2018 were $5.5 billion compared to $6.4 billion for the same period in 2017. Product sales for the third quarter of 2018 were $4.1 billion in the United States, $873 million in Europe and $451 million in other locations. Product sales for the third quarter of 2017 were $4.5 billion in the United States, $1.2 billion in Europe and $663 million in other locations.
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Note: Non-GAAP financial information excludes acquisition-related, up-front collaboration, stock-based compensation and other expenses, fair value adjustments of marketable equity securities and measurement period adjustments relating to the enactment of the 2017 Tax Cuts and Jobs Act (Tax Reform). A reconciliation between GAAP and non-GAAP financial information is provided in the tables on page 7, 8 and 9.
HIV product sales(1) were $3.7 billion for the third quarter of 2018 compared to $3.3 billion for the same period in 2017. The increase was primarily due to the continued uptake of products containing emtricitabine (FTC) and tenofovir alafenamide (TAF), which include Biktarvy (bictegravir 50 mg/emtricitabine 200 mg/tenofovir alafenamide 25 mg), Descovy (emtricitabine 200 mg/tenofovir alafenamide 25 mg), Genvoya (elvitegravir 150 mg/cobicistat 150 mg/emtricitabine 200 mg/tenofovir alafenamide 10 mg) and Odefsey (emtricitabine 200 mg/rilpivirine 25 mg/tenofovir alafenamide 25 mg).
Chronic hepatitis C (HCV) product sales, which consist of Epclusa (sofosbuvir 400 mg/velpatasvir 100 mg), Harvoni (ledipasvir 90 mg/sofosbuvir 400 mg), Vosevi (sofosbuvir 400 mg/velpatasvir 100 mg/voxilaprevir 100 mg) and Sovaldi (sofosbuvir 400 mg), were $902 million for the third quarter of 2018 compared to $2.2 billion for the same period in 2017. The decline was primarily due to lower sales of Harvoni and Epclusa across all major markets as a result of increased competition.
Yescarta (axicabtagene ciloleucel), which was launched in the United States in October 2017, generated $75 million in sales during the third quarter of 2018.
Other product sales, which include products from Gilead’s chronic hepatitis B (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) and AmBisome (amphotericin B liposome for injection 50 mg/vial), were $751 million for the third quarter of 2018 compared to $874 million for the same period in 2017.
Operating Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2018 2017 2018 2017
Research and development expenses (R&D) $ 939 $ 789 $ 3,068 $ 2,584
Non-GAAP R&D expenses $ 844 $ 745 $ 2,579 $ 2,446
Selling, general and administrative expenses (SG&A) $ 948 $ 879 $ 2,925 $ 2,626
Non-GAAP SG&A expenses $ 852 $ 806 $ 2,576 $ 2,440
During the third quarter of 2018, compared to the same period in 2017:
R&D and SG&A expenses increased primarily due to higher costs to support the growth of Gilead’s business following the acquisition of Kite Pharma, Inc. (Kite) and stock-based compensation expenses associated with Gilead’s acquisition of Kite.
Non-GAAP R&D and non-GAAP SG&A expenses increased primarily due to higher costs to support the growth of Gilead’s business following the acquisition of Kite.
Cash, Cash Equivalents and Marketable Securities
As of September 30, 2018, Gilead had $30.8 billion of cash, cash equivalents and marketable securities compared to $31.7 billion as of June 30, 2018. During the third quarter of 2018, Gilead generated $2.2 billion in operating cash flow. Gilead repaid $1.8 billion principal amount of senior unsecured notes due in September 2018, paid cash dividends of $742 million and utilized $449 million on stock repurchases.
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(1) Excludes sales of Viread as Viread is primarily used for treatment of chronic HBV.
Revised Full Year 2018 Guidance
Gilead revised its full year 2018 guidance, initially provided on February 6, 2018 and revised on July 25, 2018:
(In millions, except percentages and per share amounts) Initially Provided
February 6, 2018
Reiterated
May 1, 2018 Updated
July 25, 2018
Updated
October 25, 2018
Net Product Sales $20,000 – $21,000 $20,000 – $21,000 $20,800 – $21,300
Non-GAAP
Product Gross Margin 85% – 87% 85% – 87% 85% – 87%
R&D Expenses $3,400 – $3,600 $3,400 – $3,600 $3,400 – $3,600
SG&A Expenses $3,400 – $3,600 $3,400 – $3,600 $3,400 – $3,600
Effective Tax Rate 21.0% – 23.0% 19.0% – 21.0% 18.0% – 20.0%
Diluted EPS Impact of Acquisition-related, Up-front Collaboration, Stock-based Compensation and Other Expenses $1.41 – $1.51 $1.50 – $1.60 $1.50 – $1.60
Corporate Highlights
Announced that John F. Milligan, Ph.D., will step down as President and Chief Executive Officer (CEO).
John C. Martin, Ph.D., announced his intent to step down from the Board at the time a new CEO joins the company.
Announced plans to launch authorized generic versions of Epclusa and Harvoni in the United States through a newly created subsidiary, Asegua Therapeutics LLC.
Announced that Laura Hamill has joined the company as Executive Vice President, Worldwide Commercial Operations.
Announced that Gregg Alton has been appointed Chief Patient Officer and that Diana Brainard, M.D., has been promoted to Senior Vice President, HIV and Emerging Viral Infections. Also announced that Andrew Cheng, M.D., Ph.D., Chief Medical Officer, decided to leave Gilead to pursue another opportunity.
Announced that Michael Amoroso has joined the company as Senior Vice President and Head of Worldwide Commercial, Cell Therapy.
Product and Pipeline Updates announced by Gilead during the Third Quarter of 2018 include:
HIV and Liver Diseases Programs
Announced a strategic collaboration with Precision BioSciences (Precision) to develop therapies targeting the in vivo elimination of HBV virus with Precision’s proprietary genome editing platform, ARCUS.
Announced that the China National Drug Administration has approved Genvoya for the treatment of HIV-1 infection.
Presented data at the 22nd International AIDS Conference, which included the announcement of a retrospective nationwide analysis of the impact of Truvada (emtricitabine 200mg and tenofovir disoproxil fumarate 300mg) for pre-exposure prophylaxis (PrEP) use across all 50 U.S. states and the District of Columbia. Conducted in collaboration with researchers at Emory University Rollins School of Public Health and the Centers for Disease Control and Prevention, these data demonstrated that use of once-daily oral Truvada for PrEP has had an independent and significant impact on the number of new HIV infections diagnosed in the United States from 2012 to 2016.
Oncology and Cell Therapy Programs
Announced a license agreement with Trianni, Inc. (Trianni) that grants Gilead the use of the Trianni transgenic human monoclonal antibody discovery platform to support drug discovery efforts.
Announced that the European Commission has granted Marketing Authorization for Yescarta as a treatment for adult patients with relapsed or refractory diffuse large B-cell lymphoma and primary mediastinal large B-cell lymphoma, after two or more lines of systemic therapy.
Announced a strategic collaboration with Gadeta B.V. (Gadeta) to develop novel gamma delta T cell receptor therapies in various cancers.
Inflammation Programs
Announced that FINCH 2, a global, randomized, placebo-controlled, Phase 3 study of filgotinib, an investigational, selective JAK1 inhibitor, in adults with moderately-to-severely active rheumatoid arthritis and prior inadequate response/intolerance to biologic agents, achieved its primary endpoint in the proportion of patients achieving an American College of Rheumatology 20 percent response at week 12.
Announced that the randomized, placebo-controlled Phase 2 TORTUGA study of filgotinib achieved its primary efficacy endpoint in adults with moderately to severely active ankylosing spondylitis (AS). In the study, patients treated with filgotinib achieved significantly greater improvements in AS Disease Activity Score, the primary endpoint, at week 12, with a mean change from baseline of -1.5 versus -0.6 for those treated with placebo (p<0.0001).