Gilead Sciences, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unless otherwise noted, amounts are in U.S. dollars; financial statement amounts are in millions.
Business context and reporting period
Gilead is a global biopharmaceutical company focused on HIV, viral hepatitis, COVID-19 and cancer. HIV products generated approximately 63% of product sales in the first half of 2022. The company reports one consolidated business in the provided filing text.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $6,260 | $6,217 | $12,850 | $12,640 |
| Operating income | $2,029 | $2,246 | $2,226 | $5,136 |
| Net income attributable to Gilead | $1,144 | $1,522 | $1,163 | $3,251 |
| Diluted earnings per share | $0.91 | $1.21 | $0.92 | $2.58 |
| Product gross margin | 76.5% | 77.4% | 77.4% | 78.0% |
- Q2 revenue increased 1%; first-half revenue increased 2%. Growth in HIV, cell therapy and Trodelvy was partly offset by lower Veklury and hepatitis C sales.
- Q2 diluted EPS fell 25%; first-half diluted EPS fell 64%. The first-half comparison was significantly affected by a $2.7 billion IPR&D impairment recorded in Q1 2022.
- Q2 product sales included HIV $4.228 billion, Veklury $445 million, cell therapy $368 million and Trodelvy $159 million. Versus Q2 2021, these changed by +7%, -46%, +68% and +79%, respectively.
- Cash from operations was $3.642 billion for the first half, versus $4.926 billion a year earlier. The decline primarily reflected the $1.25 billion bictegravir litigation settlement payment made in Q1.
- Cash and cash equivalents were $4.739 billion at June 30, 2022; short- and long-term marketable debt securities totaled $2.261 billion. Combined cash and marketable debt securities declined $829 million from year-end 2021.
- Total debt, including the liability related to the sale of future royalties, was $26.216 billion; the $2.5 billion revolving credit facility had no borrowings. Gilead reported compliance with debt covenants. It repaid $1.0 billion of notes in July 2022.
- First-half investing cash outflow was $1.378 billion and financing cash outflow was $2.797 billion. Financing included $1.865 billion in dividends, $424 million in share repurchases and $500 million of debt repayments.
Material changes versus the prior comparable period
- HIV sales rose 7% in Q2 and 5% in the first half, led by Biktarvy demand and favorable product and channel mix. Truvada and Genvoya sales declined.
- Veklury sales fell 46% in Q2 and 13% in the first half, principally reflecting reduced COVID-19 hospitalization rates in the U.S. and Europe.
- Cell therapy sales rose 68% in Q2 and 57% in the first half, while Trodelvy sales rose 79% and 90%, respectively, reflecting continued uptake and expanded use.
- Hepatitis C sales declined 18% in Q2 and 20% in the first half, mainly from fewer patient starts and lower realized prices. The stronger U.S. dollar, net of hedges, reduced product sales by $85 million in Q2 and $182 million in the first half.
- Q2 acquired IPR&D expense increased to $330 million, mainly due to a $300 million upfront payment for the Dragonfly collaboration. First-half results also included the $2.7 billion Trodelvy-related IPR&D impairment.
- First-half 2022 includes the $1.25 billion bictegravir settlement payment and ongoing 3% royalties on specified U.S. bictegravir sales through October 5, 2027.
Outlook, management commentary and risks
- The filing provides no specific numerical full-year revenue or earnings guidance. Management said it expects the HIV business to continue recovering from the COVID-19 pandemic in 2022 and anticipates continued clinical pipeline expansion, including planned Phase 3 study starts in oncology and virology.
- Veklury sales are described as difficult to predict and subject to COVID-19 infection and hospitalization rates, vaccination, alternatives and changing demand.
- Gilead recorded a $2.7 billion partial impairment of acquired Trodelvy IPR&D after revising projected cash flows for the HR+/HER2- metastatic breast cancer indication, principally because of a delayed launch outlook and changed market-share assumptions in third-line-plus patients. Further adverse changes to assumptions could lead to additional material impairment.
- In April 2022, Gilead paid Dragonfly $300 million upfront; the agreement includes up to $630 million in development and regulatory milestones for DF7001, plus potential commercial milestones and royalties. An August 2022 agreement to acquire MiroBio for $405 million in cash was a subsequent event, subject to closing conditions.
- Material risks include dependence on HIV products; generic competition and patent disputes; drug pricing and reimbursement pressure; clinical and regulatory uncertainty; manufacturing and supply constraints, including scaling CAR T production; foreign exchange exposure; and COVID-19 effects on demand and trials.
- Disclosed legal matters include litigation involving sofosbuvir, TAF products, PrEP, HIV antitrust claims and product liability claims. The filing states that more than 25,000 plaintiffs are involved in product liability cases. In July 2022, a German court found infringement of a NuCana patent related to sofosbuvir and granted an injunction; Gilead appealed in August. Management says outcomes of many matters cannot be predicted.
- The company noted that U.S. tax rules requiring capitalization and amortization of R&D expenses from January 1, 2022 may increase current-year cash tax payments. Disclosure controls were assessed as effective at June 30, 2022.
Important facts for investors to verify
- Whether growth in Biktarvy, cell therapy and Trodelvy can offset declines in Veklury and hepatitis C products, and the effects of generic entry and pricing pressure.
- How COVID-19 trends affect Veklury sales and whether HIV and hepatitis patient volumes continue to recover.
- Trodelvy clinical, regulatory and commercial progress in HR+/HER2- breast cancer, including assumptions underlying the $2.7 billion impairment and potential for further write-downs.
- The financial impact of the bictegravir settlement’s continuing 3% royalty, other litigation outcomes and the NuCana injunction and appeal.
- Cash generation, debt reduction, dividend and repurchase spending, and any additional cash requirements from acquisitions, collaborations or U.S. tax changes.
- Revenue concentration: three U.S. wholesalers accounted for approximately 90% of U.S. product sales, and the three named major customers each represented at least 10% of total revenue in the periods shown.