Gilead Sciences, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial amounts are in millions of U.S. dollars unless noted. Gilead is a biopharmaceutical company with one operating segment focused on medicines for HIV, viral hepatitis, cancer and other diseases.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $6,217 | $5,143 | $12,640 | $10,691 |
| Operating income (loss) | $2,246 | $(2,983) | $5,136 | $(581) |
| Net income (loss) attributable to Gilead | $1,522 | $(3,339) | $3,251 | $(1,788) |
| Diluted earnings (loss) per share | $1.21 | $(2.66) | $2.58 | $(1.42) |
| Operating cash flow | Not separately presented for the quarter | $4,926 | $4,002 |
- Q2 revenue rose 21% year over year; first-half revenue rose 18%. Product sales increased 21% and 19%, respectively.
- Product gross margin was 77.4% in Q2 and 78.0% in the first half, down 160 and 270 basis points year over year, primarily reflecting greater acquired-intangible amortization.
- At June 30, cash and cash equivalents were $4,893; marketable debt securities were $2,468; and reported cash, cash equivalents and marketable debt securities totaled $7,361. Working capital was $3,711, down from $4,599 at year-end 2020.
- Total debt, net, was $30,175, including $2,261 of current debt and other obligations; long-term debt, net, was $27,914. Gilead repaid $1,250 of debt in the first half and reported covenant compliance. Its $2.5 billion revolving facility had no borrowings.
- First-half investing cash outflow was $2,619 and financing cash outflow was $3,408. Cash and cash equivalents declined by $1,104 to $4,893.
Material changes and business developments
- Veklury generated $829 of Q2 sales and $2,285 in the first half; it had no comparable sales in 2020. Management said sales are volatile and have declined quarter over quarter since Q4 2020.
- HIV sales fell 2% in Q2 and 7% in the first half, mainly from generic competition following the U.S. loss of exclusivity for Truvada and Atripla. Biktarvy continued to grow; it generated $1,994 in Q2 sales, up 24%.
- HCV sales increased 23% in Q2 but decreased 10% in the first half; management cited pandemic-related weakness in treatment starts in the half-year comparison. Cell therapy sales rose 39% in Q2 and 38% in the first half. Trodelvy sales were $89 in Q2.
- In Q1, Gilead acquired MYR GmbH for approximately $1.6 billion, including contingent consideration tied to U.S. approval of Hepcludex. The Q2 results include $7 of Hepcludex sales. Gilead’s 2020 Immunomedics acquisition continues to contribute significant intangible amortization and related costs.
- Q2 2020 results included a $4.5 billion acquired in-process R&D charge for the Forty Seven acquisition, a key reason reported earnings changed from a loss to a profit. Q2 2021 also included a $212 related-party donation of equity securities to the Gilead Foundation, recorded in SG&A.
Outlook, management commentary and risks
- The filing provides no specific numerical revenue or earnings guidance. Management expects Truvada sales to continue declining in 2021 and beyond as generics enter the market; U.S. HIV treatment volumes were gradually recovering, but a return to pre-pandemic levels could take several quarters.
- Veklury demand depends on infection, hospitalization and vaccination trends and may be affected by new therapies, vaccines and virus variants. Management identified uncertainty in forecasting demand and the risk of supply shortages or excess inventory.
- COVID-19 continued to weigh on HIV screening, treatment initiation and HCV patient starts, and could disrupt clinical trials, supply chains and commercial activity. The filing notes that actual results may differ materially from estimates and forward-looking statements.
- Gilead submitted an FDA application for investigational long-acting HIV drug lenacapavir in June 2021. A new collaboration with Merck will jointly develop long-acting lenacapavir/islatravir combinations, with development and commercialization costs shared 60%/40%.
- Significant legal exposures include the Yescarta patent case: Gilead said a loss was not probable, but estimated approximately $1.5 billion of loss through Q2 if the judgment were upheld in full. ViiV seeks billions in the Biktarvy patent case, with a U.S. trial set for January 2022. Other disclosed matters include patent, product-liability, antitrust and government-related litigation; outcomes are uncertain.
- Three U.S. wholesalers accounted for approximately 92% of U.S. product sales in the first half, creating channel concentration and inventory-pattern risk. The company also cited reliance on certain single-source suppliers, pricing and reimbursement pressure, generic competition, clinical-development and regulatory uncertainty, and foreign-exchange exposure.
Important facts for investors to verify
- How durable Veklury revenue is as COVID-19 infections, hospitalizations and vaccination patterns change.
- Whether growth in Biktarvy, oncology and cell therapies can offset ongoing generic-driven HIV declines and softer HCV demand.
- Progress and financial effects of the MYR and Immunomedics acquisitions, including contingent consideration, amortization and potential impairment.
- Developments in the Yescarta and Biktarvy litigation and other material legal proceedings, including potential damages and royalties.
- Cash generation, debt repayment plans, dividend sustainability and the impact of working-capital movements and equity-investment fair-value changes.