Gilead Sciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited, compared with Q1 2020. Gilead is a biopharmaceutical company with one operating segment focused on medicines including HIV, viral hepatitis, oncology and COVID-19 treatments.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Total revenue | $6.423 billion | $5.548 billion; up 16% |
| Product sales | $6.340 billion | $5.467 billion; up 16% |
| Operating income | $2.890 billion | $2.402 billion |
| Net income attributable to Gilead | $1.729 billion | $1.551 billion; up 11% |
| Diluted EPS | $1.37 | $1.22; up 12% |
| Product gross margin | 78.5% | 82.3%; down 380 basis points |
| Operating cash flow | $2.610 billion | $1.436 billion |
| Cash, cash equivalents and marketable debt securities | $6.245 billion | $7.910 billion at December 31, 2020 |
| Total debt, net, as reported | $30.166 billion | $31.402 billion at December 31, 2020 |
| Working capital | $3.573 billion | $4.599 billion at December 31, 2020 |
Cash and cash equivalents were $4.065 billion at quarter-end. Investing cash use was $2.042 billion, including the MYR acquisition; financing cash use was $2.477 billion. Capital expenditures were $165 million. Management said existing capital resources and operating cash flows should cover capital needs for the foreseeable future. No amount was drawn on the $2.5 billion revolving credit facility, and Gilead reported compliance with debt covenants.
Material changes and business drivers
- Veklury: Generated $1.456 billion in sales, versus none in Q1 2020, and was the principal driver of overall revenue growth. Management cautioned that demand depends on infection, hospitalization and vaccination trends and is subject to substantial uncertainty.
- HIV: Sales declined 12% to $3.650 billion. Truvada- and Atripla-based products faced generic competition after U.S. loss of exclusivity; Biktarvy growth partly offset declines. Gilead expects Truvada sales to continue declining in 2021 and beyond as additional generics enter.
- HCV: Sales fell 30% to $510 million, mainly due to lower patient starts amid the pandemic.
- Other growth areas: Cell therapy sales rose 36% to $191 million; HBV/HDV rose 18% to $220 million. Trodelvy generated $72 million in sales following the Immunomedics acquisition.
- Cost of goods sold increased 40% to $1.361 billion. Gilead cited $506 million of higher acquisition-related amortization and inventory step-up charges, along with increased sales, contributing to lower product gross margin.
- Other expense, net was $369 million, versus $158 million, primarily reflecting $351 million in net unrealized losses on equity securities, including Galapagos. The filing says these Galapagos fair-value changes were non-deductible for tax purposes; the effective tax rate was 23.9%, versus 23.2%.
Transactions, outlook and risks
- Gilead acquired MYR GmbH in March for approximately $1.6 billion of consideration, including $1.2 billion paid at closing and contingent consideration with an acquisition-date fair value of $341 million. The deal added Hepcludex and $1.2 billion of acquired in-process R&D assets.
- Gilead and Merck agreed to jointly develop and commercialize investigational long-acting HIV combinations. Development and commercialization costs are shared 60%/40%; revenue-sharing terms include specified thresholds. The agreement had no material Q1 financial-statement impact.
- No full-year revenue or earnings guidance is stated in the provided filing text. Management highlighted continued expected generic pressure on Truvada, pandemic effects on HIV prevention and HCV treatment, and volatility in Veklury demand. It also identified 2021 clinical milestones, including Phase 3 readouts for sacituzumab govitecan, axicabtagene ciloleucel and bulevirtide.
- Litigation: Gilead reported no material accrual for the described matters. In the Yescarta patent case, it estimated a loss of approximately $1.4 billion through Q1 if the judgment is upheld on appeal, but concluded a material loss was not probable. ViiV seeks billions of dollars over Biktarvy patent claims; an adverse outcome could also entail future royalties. The filing also describes significant product-liability, PrEP patent, generic competition, antitrust and other legal matters whose outcomes are uncertain.
- Operating and commercial risks: COVID-19 may disrupt supply, trials, patient access and demand; sales depend on channel inventory and three U.S. wholesalers accounted for approximately 94% of U.S. product sales. Gilead also notes generic competition, pricing and reimbursement pressure, reliance on some single-source suppliers, and risks from clinical development and regulatory approvals.
- After quarter-end, Gilead donated equity securities valued at $206 million to the Gilead Foundation; the expense was expected to be recorded in Q2 2021. In April, Trodelvy received additional FDA approvals, and Gilead announced Veklury support and donations in India.
Important facts for investors to verify
- How much of revenue and future earnings depends on Veklury, and how demand, vaccination and infection trends are evolving.
- The pace and financial effect of Truvada/Atripla generic entry, alongside Biktarvy growth and pandemic-related recovery in HIV prevention and HCV patient starts.
- Whether acquisition-related amortization, inventory step-up costs and equity-investment fair-value swings continue to weigh on margins and reported earnings.
- Developments in the Yescarta and Biktarvy patent cases and other material litigation; the filing provides no clear estimate of ultimate exposure for most matters.
- Debt reduction, liquidity and capital allocation following acquisitions, dividends and share repurchases; Q1 dividends paid were $917 million and share repurchases were $309 million.
- Progress and regulatory outcomes for the disclosed clinical milestones, new indications and MYR/Hepcludex development.