Gilead Sciences, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Gilead is a biopharmaceutical company with one operating segment, focused on medicines for HIV, viral hepatitis, cancer and other conditions. Unless otherwise stated, amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $6.590 billion | $6.423 billion; up 3% |
| Operating income | $197 million | $2.890 billion |
| Net income attributable to Gilead | $19 million | $1.729 billion; down 99% |
| Diluted EPS | $0.02 | $1.37 |
| Operating cash flow | $1.840 billion | $2.610 billion |
| Product gross margin | 78.2% | 78.5%; down 30 basis points |
Revenue growth was led by HIV products, Veklury, cell therapies and Trodelvy, partly offset by declining HCV sales and lower Truvada sales. Biktarvy sales were $2.151 billion, up from $1.824 billion. Veklury sales were $1.535 billion, up 5%; cell therapy sales rose 43% to $274 million; and Trodelvy sales rose 103% to $146 million. HCV sales fell 22% to $399 million.
Profitability was sharply reduced by a $2.7 billion impairment of acquired in-process R&D assets related to Trodelvy’s HR+/HER2- metastatic breast cancer indication. The charge followed study data and a delayed expected launch for third-line-plus patients, which lowered estimated market share and future cash flows. Gilead valued the affected asset at $6.1 billion after the revision. Lower unrealized losses on equity investments partly offset the earnings decline; the income tax benefit was $164 million.
Liquidity, debt and capital allocation
Cash and cash equivalents were $4.296 billion at March 31, versus $5.338 billion at year-end 2021. Short- and long-term marketable debt securities totaled $2.456 billion. Current assets were $12.629 billion and current liabilities were $8.558 billion. Total debt, including the liability for sold future royalties, was $26.208 billion; senior unsecured notes had a carrying amount of $25.076 billion. Gilead had no borrowings under its $2.5 billion revolving credit facility and reported compliance with debt covenants.
Operating cash flow declined $770 million, primarily because Gilead paid the $1.25 billion Biktarvy-related litigation settlement. Investing activities used $1.070 billion, including $725 million of Arcus collaboration payments. Financing activities used $1.794 billion, including $945 million in dividends, $352 million in share repurchases and $500 million in debt repayment. The quarterly dividend declared was $0.73 per share.
Changes, outlook and significant matters
- R&D expense increased 12% to $1.186 billion, principally due to Trodelvy development and headcount growth. SG&A increased 3% to $1.083 billion, mainly on higher Trodelvy promotion and marketing.
- Management said it expected the HIV business to continue recovering from COVID-19 effects in 2022 and expected the impact of Truvada’s U.S. loss of exclusivity to be largely behind it starting in Q2 2022. The filing gives no numerical full-year revenue or earnings guidance.
- Veklury demand and sales remain difficult to predict because they depend on infection and hospitalization trends, vaccination and alternative treatments. Management reported a $97 million unfavorable foreign-exchange impact on product sales, net of hedges.
- In February, Gilead settled global Biktarvy/bictegravir claims: it paid $1.25 billion and agreed to a 3% royalty on specified U.S. sales through October 5, 2027. The settlement charge had been recorded in 2021; the payment affected Q1 2022 cash flow.
- In April, Gilead entered a Dragonfly research collaboration, subject to antitrust clearance, with a $300 million upfront payment due at closing and potential additional payments and royalties. Subsequent April developments also included FDA approvals for pediatric Veklury use, commercial production at a CAR T manufacturing facility, and Yescarta as an initial treatment for certain LBCL patients.
- Key risks include clinical and regulatory setbacks, product competition and generic entry, pricing and reimbursement pressure, reliance on wholesalers and suppliers, and litigation. The filing notes FDA clinical holds involving studies of injectable lenacapavir, lenacapavir plus islatravir, and magrolimab. It also describes pending patent, antitrust, product-liability and other proceedings; outcomes and potential losses are generally uncertain.
Important facts for investors to verify
- Progress and commercial prospects for Trodelvy in HR+/HER2- disease, including whether further changes to launch timing, market share or clinical/regulatory assumptions could lead to additional impairment.
- Quarter-to-quarter and future Veklury demand, and the trajectory of HIV growth, Truvada generic erosion and HCV patient starts.
- Cash generation and liquidity after the Biktarvy settlement payment, Arcus funding and planned Dragonfly upfront payment; also monitor debt and future royalty obligations.
- Effects of the continuing 3% Biktarvy royalty and outcomes of material litigation, generic challenges and patent disputes.
- Potential higher U.S. cash tax payments following the requirement, effective in 2022, to capitalize and amortize U.S. R&D expenses.