SEC Filing | Gilead Sciences

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File No. 0-19731

GILEAD SCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware	94-3047598
(State or Other Jurisdiction of Incorporation)	(IRS Employer Identification No.)

333 Lakeside Drive, Foster City, California 94404

(Address of principal executive offices) (Zip Code)

650-574-3000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value, $0.001 per share	GILD	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of April 30, 2020: 1,254,373,400

GILEAD SCIENCES, INC.

INDEX



PART I.	FINANCIAL INFORMATION		2

	Item 1.	Condensed Consolidated Financial Statements	2

		Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019 (unaudited)	2

		Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019 (unaudited)	3

		Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (unaudited)	4

		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (unaudited)	5

		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)	6

		Notes to Condensed Consolidated Financial Statements (unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

	Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION		34

	Item 1.	Legal Proceedings	34

	Item 1A.	Risk Factors	34

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

	Item 3.	Defaults Upon Senior Securities	48

	Item 4.	Mine Safety Disclosures	48

	Item 5.	Other Information	48

	Item 6.	Exhibits	48

SIGNATURES			52

We own or have rights to various trademarks, copyrights and trade names used in our business, including the following: GILEAD^®, GILEAD SCIENCES^®, AMBISOME^®, ATRIPLA^®, BIKTARVY^®, CAYSTON^®, COMPLERA^®, DESCOVY^®, DESCOVY FOR PREP^®, EMTRIVA^®, EPCLUSA^®, EVIPLERA^®, GENVOYA^®, HARVONI^®, HEPSERA^®, LETAIRIS^®, ODEFSEY^®, RANEXA^®, SOVALDI^®, STRIBILD^®, TRUVADA^®, TRUVADA FOR PREP^®, TYBOST^®, VEMLIDY^®, VIREAD^®, VOSEVI^®, YESCARTA^® and ZYDELIG^®. LEXISCAN^® is a registered trademark of Astellas U.S. LLC. MACUGEN^® is a registered trademark of Eyetech, Inc. SYMTUZA^® is a registered trademark of Janssen Sciences Ireland UC. TAMIFLU^® is a registered trademark of Hoffmann-La Roche Inc. This report also includes other trademarks, service marks and trade names of other companies.


PART I.	FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except per share amounts)



	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	10,051	$	11,631
Short-term marketable securities	10,734		12,721
Accounts receivable, net of allowances of $793 and $758, respectively	3,907		3,582
Inventories	986		922
Prepaid and other current assets	1,272		1,440
Total current assets	26,950		30,296
Property, plant and equipment, net	4,564		4,502
Long-term marketable securities	3,529		1,488
Intangible assets, net	13,502		13,786
Goodwill	4,117		4,117
Other long-term assets	7,079		7,438
Total assets	$	59,741	$	61,627
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	590	$	713
Accrued government and other rebates	3,457		3,473
Other accrued liabilities	2,833		3,074
Current portion of long-term debt and other obligations, net	1,999		2,499
Total current liabilities	8,879		9,759
Long-term debt, net	22,098		22,094
Long-term income taxes payable	5,595		6,115
Other long-term obligations	990		1,009
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, par value $0.001 per share; 5 shares authorized; none outstanding	—		—
Common stock, par value $0.001 per share; 5,600 shares authorized; 1,254 and 1,266 shares issued and outstanding, respectively	1		1
Additional paid-in capital	3,311		3,051
Accumulated other comprehensive income	46		85
Retained earnings	18,709		19,388
Total Gilead stockholders’ equity	22,067		22,525
Noncontrolling interest	112		125
Total stockholders’ equity	22,179		22,650
Total liabilities and stockholders’ equity	$	59,741	$	61,627

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in millions, except per share amounts)



	Three Months Ended
	March 31,
	2020			2019
Revenues:
Product sales	$	5,467		$	5,200
Royalty, contract and other revenues	81			81
Total revenues	5,548			5,281
Costs and expenses:
Cost of goods sold	969			957
Research and development expenses	1,101			1,057
Selling, general and administrative expenses	1,076			1,030
Total costs and expenses	3,146			3,044
Income from operations	2,402			2,237
Interest expense	(241		)	(254		)
Other income (expense), net	(158		)	367
Income before provision for income taxes	2,003			2,350
Provision for income taxes	465			382
Net income	1,538			1,968
Net loss attributable to noncontrolling interest	(13		)	(7		)
Net income attributable to Gilead	$	1,551		$	1,975

Net income per share attributable to Gilead common stockholders - basic	$	1.23		$	1.55
Shares used in per share calculation - basic	1,262			1,276
Net income per share attributable to Gilead common stockholders - diluted	$	1.22		$	1.54
Shares used in per share calculation - diluted	1,270			1,283

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in millions)



	Three Months Ended
	March 31,
	2020			2019
Net income	$	1,538		$	1,968
Other comprehensive income:
Net foreign currency translation (loss) gain, net of tax	(39		)	21
Available-for-sale debt securities:
Net unrealized (loss) gain, net of tax	(23		)	30
Reclassifications to net income, net of tax	(11		)	—
Net change	(34		)	30
Cash flow hedges:
Net unrealized gain, net of tax	57			28
Reclassifications to net income, net of tax	(23		)	(29		)
Net change	34			(1		)
Other comprehensive (loss) income	(39		)	50
Comprehensive income	1,499			2,018
Comprehensive loss attributable to noncontrolling interest	(13		)	(7		)
Comprehensive income attributable to Gilead	$	1,512		$	2,025

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in millions, except per share amounts)



	Three Months Ended March 31, 2020
	Gilead Stockholders’ Equity													Noncontrolling Interest			Total Stockholders’ Equity
	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings
Balance at December 31, 2019	1,266		$	1	$	3,051		$	85		$	19,388		$	125		$	22,650
Net income (loss)	—		—		—			—			1,551			(13		)	1,538
Other comprehensive loss, net of tax	—		—		—			(39		)	—			—			(39		)
Issuances under employee stock purchase plan	1		—		66			—			—			—			66
Issuances under equity incentive plans	7		—		111			—			—			—			111
Stock-based compensation	—		—		141			—			—			—			141
Repurchases of common stock	(20	)	—		(58		)	—			(1,356		)	—			(1,414		)
Dividends declared ($0.68 per share)	—		—		—			—			(867		)	—			(867		)
Cumulative effect from the adoption of new accounting standard (Note 1)	—		—		—			—			(7		)	—			(7		)
Balance at March 31, 2020	1,254		$	1	$	3,311		$	46		$	18,709		$	112		$	22,179



	Three Months Ended March 31, 2019
	Gilead Stockholders’ Equity												Noncontrolling Interest			Total Stockholders’ Equity
	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings
Balance at December 31, 2018	1,282		$	1	$	2,282		$	80	$	19,024		$	147		$	21,534
Net income (loss)	—		—		—			—		1,975			(7		)	1,968
Other comprehensive income, net of tax	—		—		—			50		—			—			50
Issuances under employee stock purchase plan	1		—		63			—		—			—			63
Issuances under equity incentive plans	4		—		41			—		—			—			41
Stock-based compensation	—		—		144			—		—			—			144
Repurchases of common stock	(13	)	—		(36		)	—		(867		)	—			(903		)
Dividends declared ($0.63 per share)	—		—		—			—		(814		)	—			(814		)
Cumulative effect from the adoption of new accounting standard	—		—		—			—		8			—			8
Balance at March 31, 2019	1,274		$	1	$	2,494		$	130	$	19,326		$	140		$	22,091

See accompanying notes.

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)



	Three Months Ended
	March 31,
	2020			2019
Operating Activities:
Net income	$	1,538		$	1,968
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	68			60
Amortization expense	281			299
Stock-based compensation expense	141			143
Deferred income taxes	56			24
Net unrealized loss (gain) from equity securities	283			(197		)
Up-front and milestone expense related to collaborative and other arrangements	111			133
Other	59			40
Changes in operating assets and liabilities:
Accounts receivable, net	(376		)	32
Inventories	15			(15		)
Prepaid expenses and other	46			(43		)
Accounts payable	(109		)	(201		)
Income taxes payable	(127		)	(249		)
Accrued liabilities and other	(550		)	(417		)
Net cash provided by operating activities	1,436			1,577

Investing Activities:
Purchases of marketable debt securities	(13,158		)	(6,722		)
Proceeds from sales of marketable debt securities	9,656			575
Proceeds from maturities of marketable debt securities	3,449			6,511
Up-front and milestone payments related to collaborative and other arrangements	(112		)	(133		)
Purchases of equity securities	(8		)	(56		)
Capital expenditures	(171		)	(237		)
Other	—			(182		)
Net cash used in investing activities	(344		)	(244		)

Financing Activities:
Proceeds from issuances of common stock	177			103
Repurchases of common stock	(1,328		)	(834		)
Repayments of debt and other obligations	(500		)	(750		)
Payments of dividends	(874		)	(817		)
Other	(86		)	(68		)
Net cash used in financing activities	(2,611		)	(2,366		)
Effect of exchange rate changes on cash and cash equivalents	(61		)	20
Net change in cash and cash equivalents	(1,580		)	(1,013		)
Cash and cash equivalents at beginning of period	11,631			17,940
Cash and cash equivalents at end of period	$	10,051		$	16,927

See accompanying notes.

GILEAD SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The financial statements include all adjustments consisting of normal recurring adjustments that the management of Gilead Sciences, Inc. (Gilead, we, our or us) believes are necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

The accompanying Condensed Consolidated Financial Statements include the accounts of Gilead, our wholly-owned subsidiaries and certain variable interest entities for which we are the primary beneficiary. All intercompany transactions have been eliminated. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interest in our Condensed Consolidated Statements of Income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties.

We assess whether we are the primary beneficiary of a variable interest entity (VIE) at the inception of the arrangement and at each reporting date. This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The accompanying Condensed Consolidated Financial Statements and related Notes to Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

Segment Information

We have one operating segment, which focuses on the discovery, development and commercialization of innovative medicines in areas of unmet medical need. Our Chief Executive Officer (CEO), as the chief operating decision-maker, manages and allocates resources to the operations of our company on an entity-wide basis. Managing and allocating resources on an entity-wide basis enables our CEO to assess the overall level of resources available and how to best deploy these resources across functions and research and development (R&D) projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities to best support the long-term growth of our business. See Note 2. Revenues for additional information.

Significant Accounting Policies, Estimates and Judgments

The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate our significant accounting policies and estimates. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the recent coronavirus disease (COVID-19) could have on our significant accounting estimates. Actual results could differ materially from these estimates under different assumptions or conditions.

Reclassification

Certain amounts for the three months ended March 31, 2019 were reclassified to conform to the current period presentation. Up-front and milestone payments related to collaborative and other arrangements of $133 million previously classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows are now presented as cash flows from investing activities.

Concentrations of Risk

We are subject to credit risk from our portfolio of cash equivalents and marketable securities. Under our investment policy, we limit amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. We are not exposed to any significant concentrations of credit risk from our investment portfolio. The goals of our investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.

We are also subject to credit risk from our accounts receivable related to our product sales. Trade accounts receivable are recorded net of allowances for wholesaler chargebacks related to government and other programs, cash discounts for prompt payment and credit losses. Estimates of our allowance for credit losses consider a number of factors including existing contractual payment terms, individual customer circumstances, historical payment patterns of our customers, a review of the local economic environment and its potential impact on expected future customer payment patterns and government funding and reimbursement practices. The majority of our trade accounts receivable arises from product sales in the United States, Europe and Japan. Our allowance for credit losses was $55 million and $47 million as of March 31, 2020 and January 1, 2020, respectively. There were no write-offs charged against the allowance for the three months ended March 31, 2020.

Recently Adopted Accounting Standards

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” (ASU 2016-13) and has since modified the standard with several ASUs (collectively the “new credit loss standard”). The new credit loss standard requires measurement and recognition of expected credit losses for financial assets. On January 1, 2020, we adopted this standard using a modified retrospective approach. The adoption did not have a material impact on our Condensed Consolidated Financial Statements.

In November 2018, the FASB issued Accounting Standards Update No. 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (ASU 2018-18). ASU 2018-18 clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as customer revenue if the counterparty is not a customer for that transaction. On January 1, 2020, we adopted this standard and applied it retrospectively to January 1, 2018 when we initially adopted Topic 606. The adoption did not have an impact on our Condensed Consolidated Financial Statements.


2.	REVENUES

Disaggregation of Revenues

The following table disaggregates our product sales by product and geographic region and disaggregates our royalty, contract and other revenues by geographic region (in millions):



	Three Months Ended March 31, 2020								Three Months Ended March 31, 2019
	U.S.		Europe		Other Locations		Total		U.S.		Europe		Other Locations		Total
Product sales:
Atripla	$	81	$	7	$	7	$	95	$	133	$	16	$	22	$	171
Biktarvy	1,412		181		100		1,693		739		48		6		793
Complera/Eviplera	24		47		5		76		44		62		9		115
Descovy	363		61		34		458		233		68		41		342
Genvoya	612		151		61		824		728		193		94		1,015
Odefsey	269		127		13		409		282		106		9		397
Stribild	34		17		2		53		67		18		11		96
Truvada	383		8		15		406		551		33		22		606
Other HIV⁽¹⁾	3		2		3		8		11		1		5		17
Revenue share – Symtuza⁽²⁾	72		38		2		112		42		24		—		66
AmBisome	18		59		42		119		8		57		28		93
Ledipasvir/Sofosbuvir⁽³⁾	53		11		48		112		117		27		81		225
Letairis	83		—		—		83		197		—		—		197
Ranexa	8		—		—		8		155		—		—		155
Sofosbuvir/Velpatasvir⁽⁴⁾	311		122		131		564		230		154		107		491
Vemlidy	73		7		56		136		65		4		32		101
Viread	4		11		25		40		12		14		46		72
Vosevi	33		11		4		48		45		16		2		63
Yescarta	103		37		—		140		90		6		—		96
Zydelig	8		12		—		20		11		15		1		27
Other⁽⁵⁾	42		18		3		63		36		20		6		62
Total product sales	3,989		927		551		5,467		3,796		882		522		5,200
Royalty, contract and other revenues	17		48		16		81		22		56		3		81
Total revenues	$	4,006	$	975	$	567	$	5,548	$	3,818	$	938	$	525