On February 7, 2017 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the fourth quarter and full year 2016 (Press release, Gilead Sciences, FEB 7, 2017, View Source [SID1234517656]).

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Total revenues for the fourth quarter of 2016 were $7.3 billion, compared to $8.5 billion for the same period in 2015. Net income for the fourth quarter of 2016 was $3.1 billion, or $2.34 per diluted share, compared to $4.7 billion, or $3.18 per diluted share for the same period in 2015. Non-GAAP net income, which excludes amounts related to acquisition-related, up-front collaboration, stock-based compensation and other expenses, for the fourth quarter of 2016 was $3.6 billion, or $2.70 per diluted share, compared to $4.9 billion, or $3.32 per diluted share for the same period in 2015.

Full year 2016 total revenues were $30.4 billion, compared to $32.6 billion for 2015. Net income for 2016 was $13.5 billion, or $9.94 per diluted share, compared to $18.1 billion, or $11.91 per diluted share for 2015. Non-GAAP net income for 2016, which excludes amounts related to acquisition-related, up-front collaboration, stock-based compensation and other expenses, was $15.7 billion, or $11.57 per diluted share, compared to $19.2 billion, or $12.61 per diluted share for 2015.

Three Months Ended Twelve Months Ended
December 31, December 31,
(In millions, except per share amounts) 2016 2015 2016 2015
Product sales $ 7,216 $ 8,409 $ 29,953 $ 32,151
Royalty, contract and other revenues 104 97 437 488
Total revenues $ 7,320 $ 8,506 $ 30,390 $ 32,639

Net income attributable to Gilead $ 3,108 $ 4,683 $ 13,501 $ 18,108
Non-GAAP net income* $ 3,585 $ 4,889 $ 15,713 $ 19,174

Diluted earnings per share $ 2.34 $ 3.18 $ 9.94 $ 11.91
Non-GAAP diluted earnings per share* $ 2.70 $ 3.32 $ 11.57 $ 12.61
* Non-GAAP net income and non-GAAP diluted earnings per share exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 and 8.

Product Sales

Total product sales for the fourth quarter of 2016 were $7.2 billion, compared to $8.4 billion for the same period in 2015. Product sales for the fourth quarter of 2016 were $4.9 billion in the United States, $1.4 billion in Europe, $314 million in Japan and $556 million in other locations. Product sales for the fourth quarter of 2015 were $4.8 billion in the United States, $1.7 billion in Europe, $1.4 billion in Japan and $565 million in other locations.

Total product sales during 2016 were $30.0 billion, compared to $32.2 billion in 2015. For 2016, product sales were $19.3 billion in the United States, $6.1 billion in Europe, $2.5 billion in Japan and $2.1 billion in other locations. For 2015, product sales were $21.2 billion in the United States, $7.2 billion in Europe, $1.9 billion in Japan and $1.9 billion in other locations.

Antiviral Product Sales

Antiviral product sales, which include sales of our HIV and other antiviral products and our chronic hepatitis C (HCV) products, were $6.6 billion for the fourth quarter of 2016, compared to $7.9 billion for the same period in 2015. For 2016, antiviral product sales were $27.7 billion, compared to $30.2 billion in 2015.

HIV and other antiviral product sales for the fourth quarter of 2016 were $3.4 billion, compared to $3.0 billion for the same period in 2015 and $12.9 billion for the full year 2016, compared to $11.1 billion in 2015. The increases were primarily due to the continued uptake of our tenofovir alafenamide (TAF)-based products, Genvoya (elvitegravir 150 mg/cobicistat 150 mg/emtricitabine 200 mg/tenofovir alafenamide 10 mg), Descovy (emtricitabine 200 mg/tenofovir alafenamide 25 mg) and Odefsey (emtricitabine 200 mg/rilpivirine 25 mg/tenofovir alafenamide 25 mg), partially offset by decreases in sales of tenofovir disoproxil fumarate (TDF)-based products.
HCV product sales, which consist of Harvoni (ledipasvir 90 mg/sofosbuvir 400 mg), Sovaldi (sofosbuvir 400 mg) and Epclusa (sofosbuvir 400 mg/velpatasvir 100 mg), were $3.2 billion for the fourth quarter of 2016, compared to $4.9 billion for the same period in 2015 and $14.8 billion for the full year 2016, compared to $19.1 billion in 2015. The declines were due to lower sales of Harvoni and Sovaldi, partially offset by sales of Epclusa, which was launched in 2016 across various locations.
Other Product Sales

Other product sales, which include Letairis (ambrisentan), Ranexa (ranolazine) and AmBisome (amphotericin B for liposome injection), were $621 million for the fourth quarter of 2016, compared to $523 million for the same period in 2015. For 2016, other product sales were $2.2 billion, compared to $1.9 billion in 2015.

Operating Expenses

Three Months Ended Twelve Months Ended
December 31, December 31,
(In millions) 2016 2015 2016 2015
Research and development (R&D) expenses $ 1,208 $ 757 $ 5,098 $ 3,014
Non-GAAP R&D expenses* $ 959 $ 779 $ 3,749 $ 2,845

Selling, general and administrative (SG&A) expenses $ 992 $ 1,066 $ 3,398 $ 3,426
Non-GAAP SG&A expenses* $ 938 $ 1,013 $ 3,194 $ 3,224
* Non-GAAP R&D and SG&A expenses exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 and 8.

During the fourth quarter of 2016, compared to the same period in 2015:

R&D expenses and non-GAAP R&D expenses* increased primarily due to the overall progression of Gilead’s clinical studies, including ongoing milestone payments.
R&D expenses for the fourth quarter of 2016 also include an impairment charge related to in-process R&D (IPR&D).
For 2016 compared to 2015:

R&D expenses and non-GAAP R&D expenses* increased primarily due to the overall progression of Gilead’s clinical studies, including ongoing milestone payments, and Gilead’s purchase of a U.S. Food and Drug Administration (FDA) priority review voucher.
R&D expenses for 2016 also include up-front collaboration expenses related to Gilead’s license and collaboration agreement with Galapagos NV, purchase of Nimbus Apollo, Inc. and impairment charges related to IPR&D.
SG&A expenses and non-GAAP SG&A expenses* decreased primarily due to lower branded prescription drug fee expense, partially offset by higher costs to support Gilead’s product launches and the geographic expansion of its business.
Cash, Cash Equivalents and Marketable Securities

As of December 31, 2016, Gilead had $32.4 billion of cash, cash equivalents and marketable securities, compared to $26.2 billion as of December 31, 2015, primarily due to the issuance of $5.0 billion aggregate principal amount of senior unsecured notes in September 2016. During 2016, Gilead generated $16.7 billion in operating cash flow, utilized $11.0 billion to repurchase 123 million shares of its stock and paid cash dividends of $2.5 billion.

Full Year 2017 Guidance

Gilead provided its full year 2017 guidance:

(In millions, except percentages and per share amounts) Provided
February 7, 2017
Net Product Sales $22,500 – $24,500
Non-HCV Product Sales $15,000 – $15,500
HCV Product Sales $7,500 – $9,000
Non-GAAP*
Product Gross Margin 86% – 88%
R&D Expenses $3,100 – $3,400
SG&A Expenses $3,100 – $3,400
Effective Tax Rate 25.0% – 28.0%
Diluted EPS Impact of Acquisition-related, Up-front Collaboration, Stock-Based Compensation and Other Expenses $0.84 – $0.91
* Non-GAAP product gross margin, R&D and SG&A expenses and effective tax rate exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP full year 2017 guidance is provided in the tables on page 9.

Corporate Highlights

Announced the promotion of James R. Meyers to Executive Vice President, Worldwide Commercial Operations, in November 2016.
Product & Pipeline Updates announced by Gilead during the Fourth Quarter of 2016 include:

Antiviral and Liver Diseases Programs

Announced that FDA and Japanese Ministry of Health, Labour and Welfare approved Vemlidy (tenofovir alafenamide) 25mg, a once-daily treatment for adults with chronic hepatitis B virus (HBV) infection with compensated liver disease. Additionally, the Committee for Medicinal Products for Human Use, the scientific committee of the European Medicines Agency, adopted a positive opinion on Gilead’s Marketing Authorization Application for Vemlidy.
Announced the submission of a New Drug Application (NDA) to FDA for an investigational, once-daily single-tablet regimen containing sofosbuvir 400 mg, velpatasvir 100 mg, and voxilaprevir 100 mg for the treatment of direct-acting antiviral (DAA)-experienced HCV-infected patients. The data submitted in the NDA support the use of the regimen for 12 weeks in DAA-experienced patients with genotype 1 to 6 HCV infection without cirrhosis or with compensated cirrhosis.
Announced positive results from an open-label Phase 2 trial evaluating the investigational apoptosis signal-regulating kinase 1 inhibitor selonsertib (formerly GS-4997) alone or in combination with the monoclonal antibody simtuzumab in patients with nonalcoholic steatohepatitis and moderate to severe liver fibrosis (fibrosis stages F2 or F3). The data demonstrate regression in fibrosis that was, in parallel, associated with reductions in other measures of liver injury in patients treated with selonsertib for 24 weeks. These data were presented in a late-breaking abstract session at the Liver Meeting 2016.
Announced positive two-year (96-week) data from a Phase 3 study and 48-week data from two Phase 3b studies evaluating the safety and efficacy of switching virologically suppressed HIV-1-infected patients from regimens containing Truvada (emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) to regimens containing Descovy. Results demonstrated regimens containing Descovy to be statistically non-inferior to regimens containing Truvada, with improvements in certain renal and bone laboratory parameters among patients receiving Descovy-based regimens.