GILEAD SCIENCES, INC. quarterly report, Q3 FY2022

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Gilead Sciences, Inc. — Q3 2022 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2022. Financial amounts are in U.S. dollars; “Q3” comparisons are against the quarter ended September 30, 2021.

Business context and results

Gilead is a biopharmaceutical company focused on HIV, viral hepatitis, oncology and other diseases. HIV remained its largest product-sales category, representing approximately 63% of product sales for the first nine months of 2022.

  • Q3 revenue: $7.042 billion, down 5%; product sales were $6.978 billion, also down 5%.
  • Q3 attributable net income: $1.789 billion, down 31%; diluted EPS was $1.42, versus $2.05.
  • Nine-month revenue: $19.892 billion, down 1%; attributable net income was $2.952 billion, down 49%; diluted EPS was $2.34, versus $4.63.
  • Q3 product gross margin: 80.0%, compared with 83.4%; nine-month margin was 78.3%, compared with 80.0%.
  • Operating income: $2.837 billion in Q3 and $5.063 billion for nine months. Nine-month operating income included a $2.7 billion IPR&D impairment charge.

Revenue mix and changes

  • HIV: Q3 sales rose 7% to $4.487 billion; nine-month sales rose 5% to $12.422 billion, driven mainly by Biktarvy demand and product/channel mix. Lower Truvada demand reflected U.S. loss of exclusivity; Genvoya sales also declined as patients switched to Biktarvy.
  • Veklury: Q3 sales fell 52% to $925 million; nine-month sales fell 31% to $2.905 billion, primarily with lower demand as U.S. hospitalizations declined. Management noted that sales may vary substantially with COVID-19 infections, hospitalizations, vaccination and competing treatments.
  • Cell therapy: Q3 sales increased 79% to $398 million; nine-month sales rose 65% to $1.040 billion, reflecting uptake of Yescarta and Tecartus.
  • Trodelvy: Q3 sales increased 78% to $180 million; nine-month sales rose 85% to $485 million.
  • Other notable movements: Q3 HCV sales rose 22% to $524 million, while nine-month HCV sales fell 8% to $1.371 billion. HBV/HDV sales rose 7% in Q3 and 4% for nine months.
  • Foreign exchange, net of hedging, reduced product sales by $205 million in Q3 and $386 million for nine months.

Cash flow, liquidity and debt

  • Nine-month operating cash flow: $6.505 billion, down from $8.179 billion. Management attributed the decline primarily to the $1.25 billion bictegravir settlement payment and higher income-tax payments.
  • Investing cash flow: $2.091 billion used; financing cash flow: $4.915 billion used. Financing included $1.5 billion of debt repayments, $2.794 billion of dividends and $604 million of share repurchases.
  • Cash and cash equivalents were $4.699 billion at September 30, 2022. Cash plus short- and long-term marketable debt securities totaled $6.942 billion, down $887 million from December 31, 2021.
  • Total current assets were $13.554 billion and current liabilities were $10.423 billion. Total debt, including the future-royalty liability, was $25.223 billion; the balance sheet classified $2.270 billion as current and $22.953 billion as long-term debt and other obligations.
  • Gilead had no borrowings under its $2.5 billion revolving credit facility and reported compliance with debt covenants.

Material items, outlook and risks

  • The $2.7 billion impairment recorded in Q1 followed revised Trodelvy HR+/HER2- metastatic breast cancer assumptions, including delayed expected launch timing and reduced expected market share in third-line-plus treatment. Further impairment could result if key assumptions worsen.
  • Q3 acquired IPR&D expense included a $389 million charge for the MiroBio acquisition. Nine-month acquired IPR&D expense also included a $300 million Dragonfly collaboration upfront payment. The filing reports no numerical earnings or revenue guidance in the supplied text.
  • Gilead acquired MiroBio for $414 million in cash. It also disclosed an agreement to acquire remaining Trodelvy rights in certain Asian markets and, after quarter-end, announced additional development and regulatory updates, including a Trodelvy FDA Priority Review and European authorizations for Yescarta and Tecartus.
  • Key risks include unpredictable Veklury demand; clinical, regulatory and commercialization uncertainty; product pricing and reimbursement pressure; dependence on patents and exposure to generic competition; manufacturing and supply constraints; foreign-exchange exposure; and significant litigation and government inquiries.
  • Legal matters include patent disputes involving sofosbuvir and other products, HIV-related antitrust claims and product-liability litigation involving more than 26,000 plaintiffs. The filing reported no material accruals for the described matters at September 30, 2022. The prior-year $1.25 billion bictegravir settlement accrual was paid in February 2022; Gilead also agreed to a 3% royalty on specified U.S. sales through October 5, 2027.
  • Three wholesalers accounted for 65% of Q3 revenue and 62% for the first nine months, making wholesaler purchasing and inventory patterns a material source of variability.

Important facts for investors to verify

  1. Whether Biktarvy and broader HIV growth can offset Veklury declines, foreign-exchange headwinds and pressure on older products.
  2. Trodelvy’s clinical and regulatory progress in HR+/HER2- disease, and the assumptions underlying its remaining IPR&D value.
  3. Future Veklury demand and the related inventory and revenue variability.
  4. Updates on patent, generic-entry, antitrust and product-liability proceedings, including potential financial or commercial consequences.
  5. Cash generation, debt reduction, capital returns and the effects of the $1.25 billion settlement and ongoing bictegravir royalties.
  6. Any subsequent company guidance or material developments: the supplied filing text provides no numerical forward outlook.