Gilead Sciences Announces Third Quarter 2007 Financial Results

Gilead Sciences, Inc. (Nasdaq:GILD) announced today its results of operations for the quarter ended September 30, 2007. Total revenues for the third quarter of 2007 were $1.06 billion, up 41 percent compared to total revenues of $748.7 million for the third quarter of 2006. Net income for the third quarter of 2007 was $398.3 million, or $0.42 per diluted share, including after-tax stock-based compensation expense of $31.8 million. Excluding after-tax stock-based compensation expense, non-GAAP net income for the third quarter of 2007 was $430.1 million, or $0.45 per diluted share, compared to non-GAAP net income of $329.0 million, or $0.34 per diluted share, for the third quarter of 2006, which excluded after-tax stock-based compensation expense of $25.6 million and purchased in-process research and development (IPR&D) of $355.6 million. Product Sales Product sales were a record $961.9 million for the third quarter of 2007, compared to $670.1 million in the third quarter of 2006, a 44 percent increase. This growth was driven primarily by Gilead’s HIV product franchise, including the continued strong uptake of Atripla® (efavirenz 600 mg/ emtricitabine 200 mg/ tenofovir disoproxil fumarate 300 mg) in the United States as well as the strong growth of Truvada® (emtricitabine and tenofovir disoproxil fumarate) in Europe. Hepsera® (adefovir dipivoxil) and AmBisome® (amphotericin B) liposome for injection also experienced solid sales growth compared to the same quarter last year. HIV Franchise HIV product sales were $805.8 million in the third quarter of 2007, a 45 percent increase from $557.3 million for the same period in 2006, driven primarily by the sales volume growth in Truvada and Atripla. Truvada Truvada sales were $409.1 million for the third quarter of 2007, an increase of 32 percent from $309.0 million in the third quarter of 2006. Truvada sales accounted for approximately 51 percent of our total HIV product sales and approximately 43 percent of Gilead’s total product sales in the third quarter of 2007. Atripla Atripla sales were $241.1 million in the third quarter of 2007, an increase of 14 percent from $212.4 million in the second quarter of 2007 and more than triple the $68.4 million recorded in the third quarter of 2006, when sales of Atripla first commenced in the United States. Viread Sales of Viread® (tenofovir disoproxil fumarate) were $149.1 million in the third quarter of 2007, a 13 percent decrease from $170.6 million in the third quarter of 2006. Emtriva Emtriva® (emtricitabine) sales were $6.5 million for the third quarter of 2007, a decrease of 30 percent from $9.3 million in the third quarter of 2006. Hepsera for Chronic Hepatitis B Hepsera sales were $79.3 million for the third quarter of 2007, a 44 percent increase from $55.1 million in the third quarter of 2006, driven primarily by sales volume growth in the United States and Europe. AmBisome for Severe Fungal Infections Sales of AmBisome for the third quarter of 2007 were $68.5 million, an increase of 24 percent from $55.3 million for the third quarter of 2006, driven primarily by sales volume growth across European territories and Australia as well as a favorable foreign currency exchange impact. Royalty, Contract and Other Revenues For the third quarter of 2007, royalty, contract and other revenues resulting primarily from collaborations with corporate partners were $96.9 million, an increase of 23 percent from $78.7 million in the third quarter of 2006. The increase was driven primarily by the recognition of Tamiflu® (oseltamivir phosphate) royalties from F. Hoffmann-La Roche Ltd (Roche) of $77.4 million, compared to Tamiflu royalties of $62.7 million recognized in the third quarter of 2006, due to the higher Tamiflu sales recorded by Roche during the second quarter of 2007 compared to the same period in 2006. Research and Development Research and development (R&D) expenses in the third quarter of 2007 were $140.4 million compared to $93.3 million for the same quarter in 2006. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the third quarter of 2007 were $122.0 million, compared to $80.0 million for the same quarter in 2006. Non-GAAP R&D expenses for the third quarter of 2007 were higher primarily as a result of increased compensation and benefits related to higher headcount, as well as increased clinical study expenses related to Gilead’s respiratory and cardiovascular franchises, which were acquired in the latter part of 2006. Selling, General and Administrative Selling, general and administrative (SG&A) expenses in the third quarter of 2007 were $173.0 million compared to $132.5 million for the same quarter in 2006. Non-GAAP SG&A expenses, which exclude stock-based compensation expense, for the third quarter of 2007 were $148.4 million, compared to $116.6 million for the same quarter in 2006. Non-GAAP SG&A expenses for the third quarter of 2007 were higher primarily as a result of increased compensation and benefits related to increased headcount, increased marketing and promotional expenses as well as other consulting and support services expenses related to our cardiovascular franchise. Net Foreign Exchange Impact on Pre-Tax Earnings The net foreign exchange impact on third quarter 2007 pre-tax earnings, including revenues and expenses generated from outside the United States and impact of our hedging activities, was a favorable $17.4 million compared to the same quarter in 2006, due primarily to the stronger Euro relative to the U.S. dollar. Cash, Cash Equivalents and Marketable Securities As of September 30, 2007, Gilead had cash, cash equivalents and marketable securities of $2.22 billion compared to $1.39 billion as of December 31, 2006. The increase in cash, cash equivalents and marketable securities was primarily attributable to $1.25 billion of operating cash flows generated during the first nine months of 2007, partially offset by the Gilead’s repurchase of $454.9 million of its common stock under its stock repurchase program during the second quarter of 2007. Product and Pipeline Highlights Antiviral Franchise In July 2007, Gilead announced the presentation of 144-week data from an ongoing clinical trial, Study 934, comparing a once-daily regimen of Truvada and Sustiva® (efavirenz) to a twice-daily regimen of Combivir® (lamivudine/zidovudine) with Sustiva once daily in treatment-naive adults with HIV. These data were presented in July 2007 at the 4th International AIDS Society Conference on HIV Pathogenesis, Treatment and Prevention in Sydney, Australia by Jose Arribas, MD, of the University Hospital La Paz, Madrid, Spain (Poster #WEPEB029). Cardiovascular Franchise In September 2007, Gilead announced that data from a Phase IIb study (DAR-201) of darusentan, an investigational treatment for resistant hypertension, were published in the October 2007 edition of the Journal of Clinical Hypertension. In this study, darusentan was evaluated as an add-on antihypertensive treatment in patients who had not achieved goal blood pressure while being treated with full doses of three or more antihypertensive medications, including a diuretic. Preliminary data from this study were previously presented at the 55th Annual Scientific Session of the American College of Cardiology Conference in Atlanta, Georgia. Respiratory Franchise In August 2007, Gilead entered into an exclusive licensing and co-development agreement for P-680, an epithelial sodium channel (ENaC) inhibitor discovered by privately-held Parion Sciences, Inc. The agreement grants Gilead worldwide commercialization rights to P-680 for the treatment of pulmonary diseases, including cystic fibrosis (CF), chronic obstructive pulmonary disease and non-CF bronchiectasis. In addition, under the agreement, the companies will collaborate on a research program to identify other promising ENaC blocker-based drug candidates utilizing Parion's proprietary ENaC-based chemistry platform. Conference Call At 4:30 p.m. Eastern Time today, Gilead will host a conference call with a simultaneous webcast to discuss the results of its third quarter of 2007. During this call/webcast, Gilead’s management will be discussing the company’s third quarter 2007 results and providing a general business update. The webcast will be available live via the internet by accessing Gilead’s website at www.gilead.com. To access the webcast, please connect to the company’s website at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be needed to hear the webcast. Alternatively, please call 1-800-435-1398 (U.S.) or 1-617-614-4078 (international) and dial the participant passcode 63822863 to access the call. A replay of the webcast will be archived on the company’s website for one year, and a phone replay will be available approximately two hours following the call through October 21, 2007. To access the phone replay, please call 1-888-286-8010 (U.S.) or 1-617-801-6888 (international) and dial the participant passcode 65873786. About Gilead Gilead Sciences is a biopharmaceutical company that discovers, develops and commercializes innovative therapeutics in areas of unmet medical need. The company’s mission is to advance the care of patients suffering from life-threatening diseases worldwide. Headquartered in Foster City, California, Gilead has operations in North America, Europe and Australia. Non-GAAP Financial Information Non-GAAP net income, net income per diluted share, R&D expenses and SG&A expenses for the 2007 periods are presented excluding the impact of stock-based compensation expense and the related methodology for deriving dilutive securities. Non-GAAP net income, net income per diluted share, R&D expenses and SG&A expenses for the 2006 periods are presented excluding the impact of stock-based compensation expense and the related methodology for deriving dilutive securities, as well as the impact of the IPR&D charge incurred in connection with the acquisition of Corus Pharma, Inc. Management believes this non-GAAP information is useful for investors, taken in conjunction with Gilead’s GAAP financial statements, because management uses such information internally for its operating, budgeting and financial planning purposes. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company’s operating results as reported under United States generally accepted accounting principles. Forward-looking Statements Statements included in this press release that are not historical in nature are "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Gilead cautions readers that forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include: Gilead’s ability to sustain growth in revenues for its HIV franchise, Hepsera and AmBisome; unpredictable variability of Tamiflu royalties and the strong relationship between this royalty revenue and global pandemic planning and supply; Gilead’s ability to receive regulatory approvals in a timely manner or at all, for new and current products; Gilead’s ability to successfully develop its respiratory and cardiovascular franchises; initiating and completing clinical trials may take longer or cost more than expected; and other risks identified from time to time in Gilead’s reports filed with the U.S. Securities and Exchange Commission. You are urged to consider statements that include the words "may,” "will,” "would,” "could,” "should,” "might,” "believes,” "estimates,” "projects,” "potential,” "expects,” "plans,” "anticipates,” "intends,” "continues,” "forecast,” "designed,” "goal,” or the negative of those words or other comparable words to be uncertain and forward-looking. Gilead directs readers to its Annual Report on Form 10-K for the year ended December 31, 2006, its Quarterly Reports on Form 10-Q for the first and second quarters of 2007 and its subsequent current reports on Form 8-K. Gilead claims the protection of the Safe Harbor contained in the Private Securities Litigation Reform Act of 1995 for forward-looking statements. All forward-looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward-looking statements. Viread, Emtriva, Truvada, AmBisome and Hepsera are registered trademarks of Gilead Sciences, Inc. Atripla is a registered trademark of Bristol-Myers Squibb & Gilead Sciences, LLC. Sustiva is a registered trademark of Bristol-Myers Squibb Pharma Company. Tamiflu is a registered trademark of F. Hoffmann-La Roche Ltd. For more information on Gilead Sciences, Inc., please visit www.gilead.com or call the Gilead Public Affairs Department at 1-800-GILEAD-5 (1-800-445-3235). GILEAD SCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)           Three Months Ended Nine Months Ended September 30, September 30,   2007     2006     2007     2006   Revenues: Product sales $ 961,931 $ 670,060 $ 2,707,214 $ 1,820,104 Royalty, contract and other revenues   96,872     78,673     428,108     306,809   Total revenues   1,058,803     748,733     3,135,322     2,126,913     Costs and expenses: Cost of goods sold (1) 198,460 109,791 553,229 278,031 Research and development (1) 140,357 93,305 406,378 272,241 Selling, general and administrative (1) 172,956 132,529 525,693 426,567 Purchased in-process research and development (2)     -     355,568     -     355,568   Total costs and expenses   511,773     691,193     1,485,300     1,332,407     Income from operations 547,030 57,540 1,650,022 794,506   Interest and other income, net 29,502 36,197 80,295 102,082 Interest expense (2,989 ) (6,081 ) (10,243 ) (15,012 ) Minority interest in joint venture   2,478     1,640     7,032     3,878   Income before provision for income taxes 576,021 89,296 1,727,106 885,454 Provision for income taxes (1)   177,702     141,460     513,450     409,764   Net income (loss) $ 398,319   $ (52,164 ) $ 1,213,656   $ 475,690     Net income (loss) per share - basic $ 0.43   $ (0.06 ) $ 1.31   $ 0.52     Net income (loss) per share - diluted $ 0.42   $ (0.06 ) $ 1.26   $ 0.49   Shares used in per share calculation - basic   926,963     914,866     928,519     917,546     Shares used in per share calculation - diluted   959,043     914,866     962,804     956,202     Notes: (1)   The following is the stock-based compensation expense included in the respective captions of the condensed consolidated statements of operations above:   Three Months Ended Nine Months Ended September 30, September 30,     2007     2006     2007     2006     Stock-based compensation expense: Cost of goods sold $ 3,138 $ 2,524 $ 8,350 $ 8,236 Research and development 18,360 13,267 56,129 38,108 Selling, general and administrative 24,563 15,954 86,683 51,800 Income tax effect   (14,284 )   (6,165 )   (44,939 )   (21,340 ) Total stock-based compensation expense, net of tax $ 31,777   $ 25,580   $ 106,223   $ 76,804     (2)   For the three and nine months ended September 30, 2006, Gilead incurred $355.6 million of purchased in-process research and development as a result of the acquisition of Corus Pharma, Inc. in August 2006. GILEAD SCIENCES, INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION (unaudited) (in thousands, except per share amounts)               Below is a reconciliation of Gilead's GAAP operating results and diluted per share amounts as reported in the attached press release.  Non-GAAP net income and net income per diluted share for the 2007 periods are presented excluding the impact of stock-based compensation expense and the related methodology for deriving dilutive securities.  Non-GAAP net income and net income per diluted share for the 2006 periods are presented excluding the impact of stock-based compensation expense and the related methodology for deriving dilutive securities, as well as the impact of the purchased in-process research and development charge incurred in connection with the acquisition of Corus Pharma, Inc.  Management believes this non-GAAP information is useful for investors, taken in conjunction with Gilead’s GAAP financial statements, because management uses such information internally for its operating, budgeting and financial planning purposes.  Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company’s operating results as reported under GAAP.     Three Months Ended Nine Months Ended September 30, September 30,   2007   2006     2007   2006   Net income (loss) (GAAP) $ 398,319 $ (52,164 ) $ 1,213,656 $ 475,690 Purchased in-process research and development - 355,568 - 355,568 Stock-based compensation expense, net of tax   31,777   25,580     106,223   76,804 Net income (Non-GAAP) $ 430,096 $ 328,984   $ 1,319,879 $ 908,062     Shares used in per share calculation - diluted (GAAP) 959,043 914,866 962,804 956,202 Dilutive securities   1,780   38,780     2,108   1,335 Shares used in per share calculation - diluted (Non-GAAP)   960,823   953,646     964,912   957,537     Net income (loss) per share - diluted (GAAP) $ 0.42 $ (0.06 ) $ 1.26 $ 0.49 Net income per share - diluted (Non-GAAP) $ 0.45 $ 0.34   $ 1.37 $ 0.95 GILEAD SCIENCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)       September 30, December 31,   2007   2006 (unaudited) (Note 1)   Cash, cash equivalents and marketable securities $ 2,218,051 $ 1,389,566 Other current assets 1,778,278 1,492,355 Property, plant and equipment, net 441,797 361,299 Other noncurrent assets   879,449   842,761 Total assets $ 5,317,575 $ 4,085,981   Current liabilities $ 691,439 $ 764,276 Long-term liabilities and minority interest 1,644,291 1,505,987 Stockholders’ equity   2,981,845   1,815,718 Total liabilities and stockholders’ equity $ 5,317,575 $ 4,085,981     Note: (1) Derived from audited consolidated financial statements at that date. GILEAD SCIENCES, INC. PRODUCT SALES SUMMARY (unaudited) (in thousands)           Three Months Ended Nine Months Ended September 30, September 30,   2007   2006   2007   2006 HIV products: Truvada – U.S. $ 206,681 $ 201,482 $ 579,725 $ 589,010 Truvada – Europe 183,523 100,544 502,154 253,633 Truvada – Other International   18,880   7,007   58,503   14,592   409,084   309,033   1,140,382   857,235   Atripla – U.S. 240,217 68,373 641,706 68,373 Atripla – Europe - - - - Atripla – Other International   884   -   1,962   -   241,101   68,373   643,668   68,373   Viread – U.S. 63,488 71,795 194,841 222,439 Viread – Europe 62,944 71,931 199,892 240,251 Viread – Other International   22,676   26,898   69,950   67,151   149,108   170,624   464,683   529,841 Emtriva – U.S. 3,315 5,064 10,213 13,384 Emtriva – Europe 2,408 3,347 9,014 12,601 Emtriva – Other International   738   861   5,161   1,914   6,461   9,272   24,388   27,899 Total HIV products – U.S. 513,701 346,714 1,426,485 893,206 Total HIV products – Europe 248,875 175,822 711,060 506,485 Total HIV products – Other International   43,178   34,766   135,576   83,657   805,754   557,302   2,273,121   1,483,348 Hepsera – U.S. 32,387 23,426 94,647 69,615 Hepsera – Europe 36,087 25,012 103,004 77,242 Hepsera – Other International   10,799   6,675   28,139   17,755   79,273   55,113   225,790   164,612   AmBisome 68,508 55,313 194,764 164,740 Other products   8,396   2,332   13,539   7,404   76,904   57,645   208,303   172,144   Total product sales $ 961,931 $ 670,060 $ 2,707,214 $ 1,820,104