Gilead Sciences, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Amounts are in U.S. dollars unless stated otherwise. Gilead is a global biopharmaceutical company focused on HIV, viral hepatitis, oncology and other diseases.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Total revenue | $6.352 billion | $6.590 billion | Down 4% |
| Operating income | $1.705 billion | $197 million | Increase largely reflects the absence of the prior-year $2.7 billion IPR&D impairment |
| Net income attributable to Gilead | $1.010 billion | $19 million | Year-over-year comparison substantially affected by the 2022 impairment |
| Diluted EPS | $0.80 | $0.02 | Same impairment-related comparability effect |
| Product gross margin | 77.8% | 78.2% | Down 42 basis points |
| Cash from operating activities | $1.744 billion | $1.840 billion | Lower collections and higher inventory and operating spend; partly offset by a $1.25 billion settlement payment in Q1 2022 that did not recur |
Revenue mix showed HIV sales of $4.190 billion, up 13%; oncology sales of $670 million, up 59%; and liver-disease sales of $675 million, up 6%. Veklury sales fell 63% to $573 million as COVID-19 hospitalizations declined. Biktarvy revenue increased to $2.677 billion. Management attributed growth in HIV to pricing, Biktarvy demand, Descovy for PrEP and lower inventory draw-downs; cell-therapy and Trodelvy sales also grew. Foreign exchange, net of hedges, reduced product sales by $106 million.
Balance sheet, liquidity and capital allocation
- Cash, cash equivalents and marketable debt securities totaled $7.2 billion at March 31, 2023, versus $7.6 billion at year-end 2022. Cash and cash equivalents were $4.936 billion.
- Total assets were $61.876 billion; current assets were $13.456 billion and current liabilities were $10.528 billion.
- Debt, including the future-royalty liability, was $25.238 billion: $24.092 billion in senior unsecured notes and $1.146 billion related to future royalties. Long-term debt, net, was $22.956 billion. A $2.5 billion revolving credit facility had no borrowings outstanding; Gilead reported covenant compliance.
- Operating cash flow of $1.744 billion funded $969 million of dividends and $400 million of repurchases, among other uses. Net cash used in investing activities was $826 million and financing activities was $1.406 billion.
- Senior notes totaling approximately $2.25 billion mature in September 2023. The company reported no debt-covenant violations.
Material developments and unusual items
- Q1 2023 acquired IPR&D expense was $481 million, including $244 million for the Tmunity acquisition and $212 million related primarily to the Arcellx collaboration upfront payment. Tmunity also carries potential future milestone and royalty payments; Arcellx may receive milestone payments and royalties under the collaboration terms.
- FDA approval of Trodelvy for a pre-treated HR+/HER2- breast cancer indication led Gilead to reclassify $6.1 billion of related IPR&D assets to finite-lived intangible assets. Amortization expense increased to $546 million from $445 million.
- R&D expense rose 23% to $1.447 billion, and selling, general and administrative expense rose 22% to $1.319 billion. Management cited increased clinical activity, especially in oncology, and increased commercial and corporate spending.
- Other expense, net, was $174 million, primarily reflecting higher unrealized losses on equity securities, partly offset by higher interest income. Gilead also recorded a $70 million charge after waiving its option to acquire Pionyr.
Outlook, risks and contingencies
The filing provides no specific quarterly or full-year financial guidance. Management cautioned that Veklury demand and future sales are difficult to predict and may vary significantly with COVID-19 infections, hospitalizations, vaccination and alternative treatments. The filing also identifies risks from reliance on HIV products, pricing and reimbursement pressures, generic competition and patent protection, clinical-development and regulatory uncertainty, manufacturing and supply constraints, foreign exchange, and strategic investments.
Significant legal matters include HIV antitrust and consumer-protection claims, product-liability litigation involving older antiviral products, patent disputes and government inquiries. More than 25,000 active plaintiffs were reported in product-liability cases. Gilead stated that it had no material accruals for the described matters at March 31, 2023; outcomes and potential exposure are uncertain. The company also noted that the Inflation Reduction Act may increase rebates and other payment obligations and constrain pricing, though the full impact remains uncertain.
Disclosure controls and procedures were deemed effective as of March 31, 2023, and management reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether HIV growth and oncology momentum can offset continued Veklury decline and any foreign-exchange or inventory effects.
- How Trodelvy’s newly approved indication, cell-therapy growth and pipeline investments translate into sales relative to rising R&D, commercial costs and intangible-asset amortization.
- Cash generation, upcoming September 2023 note maturities, total debt and ongoing dividend and repurchase spending.
- Developments in patent, antitrust and product-liability cases, as well as any resulting accruals, payments or changes to product exclusivity.
- The commercial and financial impact of reimbursement and drug-pricing changes, including implementation of the Inflation Reduction Act.