On May 1, 2018 Gilead Sciences, Inc. (Nasdaq: GILD) reported its results of operations for the first quarter ended March 31, 2018 (Press release, Gilead Sciences, MAY 1, 2018, View Source [SID1234525893]).

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The financial results that follow represent a year-over-year comparison of the first quarter 2018 to the first quarter 2017. Total revenues were $5.1 billion in 2018 compared to $6.5 billion in 2017. Net income was $1.5 billion or $1.17 per diluted share in 2018 compared to $2.7 billion or $2.05 per diluted share in 2017. Non-GAAP net income, which excludes amounts related to acquisition-related, stock-based compensation and other expenses, and unrealized gains from marketable equity securities, was $2.0 billion or $1.48 per diluted share in 2018 compared to $2.9 billion or $2.23 per diluted share in 2017.

Three Months Ended
March 31,
(In millions, except per share amounts) 2018 2017
Product sales $ 5,001 $ 6,377
Royalty, contract and other revenues 87 128
Total revenues $ 5,088 $ 6,505

Net income attributable to Gilead $ 1,538 $ 2,702
Non-GAAP net income*

$ 1,958 $ 2,949

Diluted earnings per share $ 1.17 $ 2.05
Non-GAAP diluted earnings per share*

$ 1.48 $ 2.23

*

Non-GAAP net income and non-GAAP diluted earnings per share exclude acquisition-related, stock-based compensation and other expenses, and unrealized gains from marketable equity securities. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 and 8.

Product Sales

Total product sales for the first quarter of 2018 were $5.0 billion compared to $6.4 billion for the same period in 2017. Product sales for the first quarter of 2018 were $3.5 billion in the United States, $1.0 billion in Europe and $469 million in other locations. Product sales for the first quarter of 2017 were $4.5 billion in the United States, $1.3 billion in Europe and $661 million in other locations.

Antiviral Product Sales

Antiviral product sales, which include sales of HIV, chronic hepatitis B (HBV) and chronic hepatitis C (HCV) products, were $4.4 billion for the first quarter of 2018 compared to $5.8 billion for the same period in 2017.

HIV and HBV product sales were $3,329 million for the first quarter of 2018 compared to $3,265 million for the same period in 2017. The increase was primarily due to the continued uptake of tenofovir alafenamide (TAF)-based products, which include Genvoya (elvitegravir 150 mg/cobicistat 150 mg/emtricitabine 200 mg/tenofovir alafenamide 10 mg), Descovy (emtricitabine 200 mg/tenofovir alafenamide 25 mg) and Odefsey (emtricitabine 200 mg/rilpivirine 25 mg/tenofovir alafenamide 25 mg).
HCV product sales, which consist of Epclusa (sofosbuvir 400 mg/velpatasvir 100 mg), Harvoni (ledipasvir 90 mg/sofosbuvir 400 mg), Vosevi (sofosbuvir 400 mg/velpatasvir 100 mg/voxilaprevir 100 mg) and Sovaldi (sofosbuvir 400 mg), were $1,046 million for the first quarter of 2018 compared to $2,576 million for the same period in 2017. The decline was primarily due to lower sales of Harvoni and Sovaldi across all major markets and lower sales of Epclusa in the United States as a result of increased competition.
Other Product Sales

Other product sales, which include Letairis (ambrisentan), Ranexa (ranolazine), AmBisome (amphotericin B liposome for injection) and Yescarta (axicabtagene ciloleucel), were $626 million for the first quarter of 2018 compared to $536 million for the same period in 2017.

Operating Expenses

Three Months Ended
March 31,
(In millions) 2018 2017
Research and development expenses (R&D) $ 937 $ 931
Non-GAAP R&D expenses* $ 814 $ 889

Selling, general and administrative expenses (SG&A) $ 997 $ 850
Non-GAAP SG&A expenses* $ 884 $ 807

*
Non-GAAP R&D and SG&A expenses exclude acquisition-related, stock-based compensation and other expenses. A reconciliation between GAAP and non-GAAP financial information is provided in the tables on pages 7 and 8.

During the first quarter of 2018, compared to the same period in 2017:

R&D expenses increased primarily due to stock-based compensation expenses associated with Gilead’s acquisition of Kite Pharma, Inc. (Kite). The increase was partially offset by lower expenses resulting from Gilead’s purchase of a U.S. Food and Drug Administration (FDA) priority review voucher in the first quarter of 2017.
Non-GAAP R&D expenses* decreased primarily due to the 2017 impact of Gilead’s purchase of an FDA priority review voucher.
SG&A expenses increased primarily due to stock-based compensation expenses associated with Gilead’s acquisition of Kite, higher costs to support Gilead’s product launches including Biktarvy (bictegravir 50 mg/emtricitabine 200 mg/tenofovir alafenamide 25 mg) and Yescarta, geographic expansion and increased expenses to support the growth of Gilead’s business following the acquisition of Kite.
Non-GAAP SG&A expenses* increased primarily due to higher costs to support Gilead’s product launches including Biktarvy and Yescarta, geographic expansion and increased expenses to support the growth of Gilead’s business following the acquisition of Kite.
Cash, Cash Equivalents and Marketable Securities

As of March 31, 2018, Gilead had $32.1 billion of cash, cash equivalents and marketable securities compared to $36.7 billion as of December 31, 2017. During the first quarter of 2018, Gilead generated $2.3 billion in operating cash flow, fully repaid the $4.5 billion term loans borrowed in connection with Gilead’s acquisition of Kite, utilized $1.0 billion on stock repurchases and paid cash dividends of $753 million.

Full Year 2018 Guidance Reiterated

Gilead reiterates its full year 2018 guidance, initially provided on February 6, 2018:

(In millions, except percentages and per share amounts)
Initially Provided
February 6, 2018

Net Product Sales $20,000 – $21,000
Non-GAAP*
Product Gross Margin 85% – 87%
R&D Expenses $3,400 – $3,600
SG&A Expenses $3,400 – $3,600
Effective Tax Rate 21.0% – 23.0%
Diluted EPS Impact of Acquisition-related, Up-front Collaboration, Stock-based Compensation and Other Expenses $1.41 – $1.51
*
Non-GAAP Product Gross Margin, R&D and SG&A expenses and effective tax rate exclude acquisition-related, up-front collaboration, stock-based compensation and other expenses, fair value adjustments of marketable equity securities and potential measurement period adjustments relating to the Tax Cuts and Jobs Act (Tax Reform). A reconciliation between GAAP and non-GAAP full year 2018 guidance is provided in the tables on page 9.

Corporate Highlights

Announced that Norbert Bischofberger, Ph.D., has decided to step down from his role as Executive Vice President, Research and Development and Chief Scientific Officer, effective at the end of April 2018. John McHutchison, M.D., Executive Vice President, Clinical Research, has been appointed Chief Scientific Officer and assumed responsibility for the company’s research and development organization. Also effective in April, Andrew Cheng, M.D., Ph.D., Executive Vice President, Clinical Research & Development Operations, has been appointed Chief Medical Officer.
Announced that James Meyers, Executive Vice President, Commercial Operations, has retired.
Announced that Jacqueline K. Barton, Ph.D., has been appointed to the company’s Board of Directors.
Product and Pipeline Updates announced by Gilead during the First Quarter of 2018 include:

HIV Programs

Presented data at the 2018 Conference on Retroviruses and Opportunistic Infections, which included the announcement of:
Detailed 48-week results from a Phase 3 study evaluating the efficacy and safety of switching from a regimen containing abacavir, dolutegravir and lamivudine (600/50/300 mg) (ABC/DTG/3TC) to Biktarvy, a once-daily single tablet regimen, in virologically suppressed adults with HIV. Through week 48, Biktarvy was found to be statistically non-inferior to ABC/DTG/3TC with a numerically lower incidence of mild or moderate study drug-related adverse events and no treatment-emergent resistance;
48-week results from a Phase 3 study of 470 virologically suppressed adult women with HIV infection, evaluating the efficacy and safety of switching from a boosted protease inhibitor (bPI) or boosted elvitegravir-containing regimen to Biktarvy. In the ongoing study, Biktarvy was found to be statistically non-inferior to regimens containing a bPI or boosted elvitegravir and demonstrated no treatment-emergent resistance at 48 weeks; and
Results from a preclinical study conducted in collaboration with researchers at Beth Israel Deaconess Medical Center evaluating the combination of a proprietary investigational oral toll-like receptor 7 agonist, GS-9620, and a proprietary investigational broadly neutralizing antibody, as part of an HIV eradication strategy.
Announced that FDA has approved Biktarvy for the treatment of HIV-1 infection.
Oncology and Cell Therapy Programs

Announced a worldwide collaboration with Sangamo Therapeutics, Inc. (Sangamo) using Sangamo’s zinc finger nuclease technology platform for the development of next-generation ex vivo cell therapies in oncology.
Announced a clinical trial collaboration with Pfizer, Inc. (Pfizer) to evaluate the safety and efficacy of the investigational combination of Yescarta and Pfizer’s utomilumab, a fully humanized 4-1BB agonist monoclonal antibody, in patients with refractory large B-cell lymphoma.