吉利德科學 (GILD) 2002 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by.

Welcome to the Gilead Sciences fourth quarter 2002 earnings conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

At that time, if you have a question, simply press star, then the number 1 on your telephone keypad.

If you would like to withdraw your question, please press the pound key.

As a reminder, this conference call is being recorded Thursday, January 30, 2003.

Please note that the speakers are experiencing some technical difficulties with their phones.

If they should drop off the call, please do not hang up.

We will bring them back online as quickly as possible.

Your speakers for the day are John Milligan, Senior Vice President and CFO;

John Martin, President and Chief Executive Officer; and Mark Perry, Executive Vice President of Operations.

I would now like to turn the call over to Dr. Milligan.

Please go ahead, sir.

Good afternoon and welcome to Gilead's fourth quarter conference call.

We issued a press release this afternoon providing results for the fourth quarter and year ended December 31, 2002, describing the company's quarterly highlights, which is also available on our website.

Joining me on today's call are John Martin, President and CEO;

Mark Perry, Executive Vice President of Operations; and Susan Hubbard, Director of Investor Relations.

I will begin the call by briefly reviewing the fourth quarter financials, then John Martin and Mark Perry will take you through the corporate highlights for the quarter.

We'll keep our comments relatively brief to allow time at the end of this call to answer your questions.

First, let me start with the standard Safe Harbor statement.

I would like to remind you that we will be making forward-looking statements relating to the financial results and clinical and regulatory development.

These statements are subject to the occurrences of many events outside of Gilead's control and are subject to various risks that could cause our results to differ materially from those expressed in any forward-looking statements.

I refer you to our publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business.

Gilead had a strong financial performance during the fourth quarter as sales, earnings, and operating cash flow all improved significantly.

Product sales were up over 133% compared to the same period last year, driven by higher AmBisome and Viread revenues.

Earnings grew to 17 cents a share fueled by higher revenues, improved margins, and lower spending.

Operating cash flow also improved during the quarter to $35.5m.

As a result, we have positive cash flow from operations for both the quarter and year-to-date.

Now turning to the specific results for the quarter -- the company reported net income of $35.5m, or 17 cents per diluted share for the three months ended December 31, 2002.

This compares to net income in the fourth quarter 2001 of $131.6m, or 62 cents per share, which includes the one-time gain of $157.8m from the sale of Gilead's oncology assets and related technology to OSI Pharmaceuticals.

The First Call analyst consensus for the third quarter 2002 was net income of 15 cents per share.

This positive variance is primarily a result of better-than-expected total product revenues driven by sales of Viread and AmBisome.

For the full year ended December 31, 2002, the company reported a net profit of $72.1m, or 35 cents per share.

This compares to net income of $52.3m, or 26 cents per share for 2001.

Revenues for the fourth quarter 2002 total $145m, a 95% increase over the same period last year.

For the year ended December 31, 2002, we reported revenues of $466.8m compared with revenues of $233.8m in 2001, an increase of 100%.

For the fourth quarter of 2002, Gilead reported revenues from net product sales of $139.2m.

The primary driver of Gilead's growth in revenue was sales of Viread for the treatment of HIV.

Viread revenues were $85m in its fourth full quarter on the market.

U.S. sales were $58.5m and rest-of-world sales were $26.5m.

The rest-of-world sales were primarily driven by sales in Europe.

Fourth quarter Viread revenues represent an increase of 23% from Viread revenues in the third quarter.

NDC data reveal that as of the week ended January 17, 2003, the Viread new prescription market share for the NRTI class was 15.9% with total market share increasing to 15.3%.

We are pleased with these figures indicating that a strong Viread growth in the U.S. continued through the fourth quarter and into January.

In its first full quarter on the market, sales from Hepsera for the treatment of chronic hepatitis B were $4.7m.

NDC data revealed that as of the week ended January 17th, Hepsera has garnered 32% of the new prescription market and 23% of the total prescription market relative to the other antiviral on the market, Lamivudine.

We are pleased to see that Hepsera is off to such a strong start.

Sales of AmBisome were $49.6m for the quarter, a 16% increase over the same period in 2001.

Excluding the impact of the increase in foreign currencies relative to the U.S. dollar, AmBisome sales increased by 7% when compared to the fourth quarter of 2001.

For the full year, the company reported net product sales of $423.9m.

This compared to net product sales of $191m in 2001, a 122% increase over the prior year.

Sales of AmBisome were $185.7m for the year ended December 31, 2002, a 13% increase over sales in 2001.

Excluding the impact of the increase in foreign currencies relative to the U.S. dollar, AmBisome sales grew 9% over 2001.

Sales of Viread totaled $225.8m for the year ended December 31, 2002.

U.S. revenues were $167m and rest-of-world sales were $58.8m.

For the fourth quarter of 2002, Gilead recognized net royalty revenues of $3.9m compared to $6m for the same quarter in 2001.

AmBisome royalties from Fujisawa sales in the U.S. for the fourth quarter were $3.6m.

For the fourth quarter of 2002, Gilead recognized net contract revenue of $1.9m.

This compares to $8.7m in contract revenue for the same quarter in 2001.

The decrease from last year is primarily the result of the licensing of the Selex process patent estate to Archemix last year.

Gross margins expanded by approximately 8 points to 86% compared to the fourth quarter last year.

This improvement is largely driven by favorable product mixes.

Viread accounted for more than 60% of our product sales during the quarter and also due to the favorable currency environment.

For the full year, gross margins expanded over 6 points to 83.6% for the reasons just noted.

Now turning to expenses -- research and development expenses were $35m for the fourth quarter of 2002, down 21 percent compared to the same quarter in 2001.

The decrease in R&D expenses for the fourth quarter 2002 is primarily attributable to the reduction of Viread clinical expenses and the elimination of expenses associated with the oncology program as a result of the divestiture to OSI Pharmaceuticals in December 2001.

SG&A expenses for the fourth quarter 2002 were $57.6m, up 39% from $41.5m in the same quarter of 2001.

The increased spending in SG&A for the fourth quarter 2002 is attributable to Gilead's increased global marketing efforts to support the commercial launches of Viread and Hepsera.

Finally, I'd like to discuss our strong cash flow performance for the fourth quarter and year.

Operating cash flow improved to $35.5m for the fourth quarter compared with cash used in operations of $34.2m for the same period last year.

Operating cash flow for the full year was $74.4m compared with cash used in operations of $127m last year.

This is a significant milestone for Gilead and marks the second consecutive quarter of positive cash flow from operations.

The balance sheet at December 31, 2002, shows cash, cash equivalents, and marketable securities of $942.4m, reflecting the $336.6m in net proceeds from the issuance of the senior convertible notes in December of 2002.

Now I would like to provide guidance for 2003.

As we have just completed the Triangle acquisition, we are not yet in a position to provide integrated guidance at this time.

So the following guidance is for Gilead as a stand-alone company, and we'll update this guidance to include Triangle in our first quarter conference call in April.

For the first time since its launch, we're providing Viread guidance for the full year 2003.

We expect to be able to achieve worldwide sales of Viread that are approximately double the sales in 2002 in a range of $425m to $475m.

We are providing guidance for AmBisome of $160m to $170m, down 10% to 15% over 2002 because of the increasingly competitive landscape, in particular, the launch of Vfend in Europe and in the U.S.

In addition, we will not be providing guidance on Hepsera at this time.

The product is also very early in its launch in the U.S. and will be launched over the course of 2003 and 2004 in Europe.

Contracts revenue for the year is expected to be in the range of $4m to $6m and spread fairly evenly quarter-over-quarter.

Product gross margins are projected to be approximately 84% to 86% for the full year 2003 as Viread and Hepsera contribute more to the product mix.

Our guidance for R&D spending for 2003 is $160m to $180m, up 20% to 35% over last year.

We expect SG&A spending for 2003 to be in the range of $250m to $270m, up 40$ to 50% over last year.

Finally, because of our ability to utilize our NOLs, we expect our tax rate for the full year to remain in the single digits.

In summary, as Gilead looks ahead, the company will continue to make the investments we believe necessary to build a strong and independent global business promoting our product lines, particularly Viread, AmBisome, and Hepsera.

This concludes the earnings reporting section of this conference call.

At this point, I'd like to turn the call over to John Martin and Mark Perry who will review our corporate and commercial highlights for the first quarter.

Thanks, John.

I'll begin today's discussion by reviewing business and commercial highlights, then I'll turn the call over to Mark Perry, Executive Vice President of Operations, who will discuss our commercial products and provide an update on our key milestones for 2003.

In short, 2002 was a remarkable year of transformation and achievements for Gilead.

We believe the company is now, more than ever, positioned for sustained growth and continued success.

Importantly, we brought two significant antiviral products to market in less than a year, bringing the total number of Gilead products to six.

Hepsera, for the treatment of chronic hepatitis B was approved and launched in the U.S. market in September.

With the November recommendation for approval from the European Unions, CPMP, we expect to receive marketing clearance from the European Commission for Hepsera by mid-2003.

Viread remains our biggest success story of 2002, exceeding commercial expectations.

The drug is now available in 18 countries and additional approvals in Belgium, Luxembourg, and Brazil are expected in the near future.

Viread's market share continues to increase and in the U.S. we now believe that approximately 23% of patients are receiving Viread as part of their combination therapy.

This growth has been driven in large part by the compelling 48-week data presented from our treatment naïve study in 2002.

We also reached an important financial milestone in 2002 -- strong product revenues from Viread and AmBisome coupled with careful expenses management resulted in profitability for the fourth quarter and full year 2002.

We are very proud of this achievement, which has only been accomplished by a select few biopharmaceutical companies.

In 2002 and beyond we will continue to focus on operating efficiencies and strong revenue growth in order to increase shareholder value.

Importantly, we also spent considerable effort in 2002 preparing the company for the future.

Through research programs and clinical trials, we have strengthened the position of our product portfolio and expanded our pipeline.

Currently, GS7340, a novel pro-drug of the active agent in Viread is being tested in a Phase I, II study.

In addition, our research efforts have yielded a novel protease inhibitor, GS4338, that is currently in IND workup and appears to meet the criteria we set to proceed with development -- potency, unique resistance profile, and potential for once-daily dosing for the treatment of HIV.

Through our corporate development efforts, we were very pleased to announce the acquisition of Triangle Pharmaceuticals in December.

As you know, we completed the deal last week, making Triangle a wholly owned subsidiary of Gilead.

We welcome our new employees in Durham, North Carolina, to our growing team.

This acquisition strategically enriches the Gilead pipeline and strengthens our antiviral franchise.

The potential value in the Triangle product portfolio is very promising, especially the opportunity to co-formulate Viread and FTC.

We look forward to leverage our experienced sales force to successfully launch FTC into the HIV marketplace later this year.

Finally, I'd like to talk briefly about our commitment to global health, with its efficacy, strong safety profile, and simple, one-tablet, once-daily dosing, Viread has an attractive profile to help address the HIV epidemic in developing parts of the world.

This past quarter we announced the Viread access program, which will provide Viread at no profit to every nation in Africa and 15 additional countries classified as least-developed by the United Nations.

In addition, we are taking part in a multinational clinical study trial sponsored by Family Health International, which will evaluate Viread as the method of HIV prevention in resource-poor countries.

We are very proud to be a part of studies like this, designed to develop solutions to the global AIDS epidemic.

In summary, this year has been a very productive one for Gilead, as the company has further solidified its position as a global leader in antiviral drug development and commercialization.

In the year to come, we look forward to continuing our mission of discovering, developing, and providing novel therapeutics for patients in need.

I'd now like to turn the call over to Mark Perry for a detailed discussion of our commercial products.

Thanks, John.

I'll begin today by giving you an update on the Hepsera launch and then turn to Viread and our other commercial products.

As you know, we began launching Hepsera in the U.S. within days of its approval on September 20th.

Through January 17th, Hepsera has garnered 32% of the new prescription market and 23% of the total prescription market relative to the other antiviral on the market, Lamivudine.

We reported sales for the fourth quarter of $4.7m above our expectations for the first quarter on the market.

We were very pleased with the performance of Hepsera this early in the launch.

As we outlined for you in our last conference call, the immediate opportunity for Hepsera lies in patients who are currently under the care of a specialist and, in particular, those patients who are Lamivudine resistant or Interfereon intolerant.

From anecdotal information related to us by our U.S. sales force, we believe the majority of prescriptions written today are for this subset of patients.

However, we are also seeing some first-line use as well as proactive switching from Lamivudine to Hepsera.

We attribute this initial momentum in part to our presence of the American Association for the Study of Liver Disease Conference in November, which included a CME symposium and a clinical review forum.

We had over 450 physicians in attendance at these events.

In addition, over 200 physicians have attended our regional consultants' meeting we've held around the country where Hepsera data has been presented and discussed.

Similar to the HIV market, the hepatitis market is driven by a relatively small number of specialists, mainly hepatologists and gastroenterologists who write the majority of the prescriptions.

Therefore, we believe we can effectively promote this product to the effort of a small and focused sales force.

We initially launched Hepsera in the U.S. with our sales force of 62 representatives who are also promoting Viread as well as AmBisome, which we co-promote with Fujisawa.

Since the launch, we've had the opportunity to gain additional insights into the hepatitis market and, as a result, have decided to establish a separate sales force of approximately 20 representatives dedicated to Hepsera and AmBisome.

We will augment our promotional efforts with three new medical science liaisons who will be dedicated to Hepsera.

These medical science liaisons will continue to develop thought leader advocacy by organizing local seminars and facilitating data-driven discussions, which we think will be a critical factor in shifting the treatment paradigm for chronic hepatitis B.

In addition, our current HIV specialized sales force will be increased to 65 reps supported by eight medical science liaisons to continue to drive the success of Viread and to support the launch of FTC, or emtricitibine, in the second half of this year.

We expect to have this additional recruiting complete and the new team members on board by April or May.

Upcoming milestones for Hepsera include the release of 96-week data from our pivotal Study 438 in "e" antigen negative, or precore mutant, chronically HBV-infected patients, which we anticipate will be presented at the European Association for the Study of the Liver Conference in Istanbul, Turkey, in March.

This ongoing study designed to continue for another five years will be very important in defining the long-term efficacy, safety, and resistance profile of Hepsera in "e" antigen negative patients over time.

In addition, we anticipate the publication of our 48-week pivotal data from Studies 437 and 438 in a peer review journal later this year.

This will provide us with yet another tool to educate physicians on the clinical benefits of treatment with Hepsera.

As we announce an approval, the wholesale acquisition cost for Hepsera is $5,353 per year, or approximately $440 per month.

At this early stage of the launch, the reimbursement landscape for Hepsera appears to be favorable.

Gilead's goal over the next three to six months is to establish broad formulary placement equivalent to the other hepatitis B therapies.

While the formulary review process is underway, insured patients treated with Hepsera are generally covered.

In a small number of cases, prior authorization is currently required in order to ensure reimbursement.

In other words, the physician is required to call in to a patient's plan to verify the diagnosis of chronic hepatitis B. For patients with hepatitis B, about 78% of the prescriptions are covered by private, third-party payors, and about 12% are covered by Medicaid, and another 10% fall into other categories, primarily self-pay.

As you know, in November of last year, we received an opinion from the European CPMP recommending the approval of Hepsera with a broad indication.

We expect to receive final regulatory clearance of Hepsera in the next couple of months and begin launching the product in Europe immediately thereafter.

The rollout for Hepsera in Europe will be very similar to that of Viread with launches first in the United Kingdom, Germany, and France followed by important Southern European markets of Spain, Portugal, Greece, and Italy, as pricing is obtained in late 2003 and into 2004.

In addition, applications are currently under review in Canada, Australia, Switzerland, and Turkey, countries where we have retained rights to the drug.

In December of this year, GlaxoSmithKline, who is our marketing partner for territories outside North America, Australia, and Europe, initiated a 480-patient Phase III study necessary for approval in China.

Within six weeks, GSK had already enrolled 300 of the targeted 480 patients for this study.

This rapid enrollment underscores GSK's experience in this market and the urgent need for new treatments for chronic hepatitis B in the Asian territories.

I would now like to turn to Viread.

We are extremely pleased with the success of this product in its first full year on the market in the U.S. and the rollout in Europe since its February 2002 approval.

As John stated earlier, Viread sales in the fourth quarter totaled $85m including $58.5m in the U.S. and $26.5m from rest-of-world sales, primarily Europe.

This has resulted in full year 2000 sales for the product of $225.8m worldwide.

In the U.S. for the week ended January 17, Viread new prescription market share for the NRTI class was 15.9% and total market share increased to 15.3%.

By both measures, Viread market share now exceeds that of Zyogen, Videx EC, and Trizivir, and is very close to Zarent's market share levels.

We estimate that there are approximately 85,000 patients on Viread currently in the U.S. and that our patient share is approximately 23%.

As John Milligan stated, we are, for the first time, providing guidance for worldwide Viread sales, which we expect to at least double in 2003 over 2002.

We are confident we can achieve sales at this level through the generation and presentation of additional data, label expansions and updates, additional market penetration, and growth in various geographies.

The profile of Viread continues to be one of the best of any anti-retroviral currently on the market.

From the clinical data we have generated, its efficacy, safety, tolerability, convenience, and resistance profile support its use in all stages of a patient's HIV disease.

We will continue to augment this data set with additional presentations throughout 2003.

This includes, importantly, the 96-week data from Study 903, which will be presented at the Retrovirus Conference in Boston on February 10.

As you know, Study 903 is an ongoing clinical study in 600 treatment-naïve patients comparing Viread to BMS's D4T, with a background therapy of GSK's Lamivudine and BMS's Efavirin.

The initial 48-week efficacy and safety data were presented in 2002.

These data demonstrate that both arms of the study are highly efficacious.

Important safety data also emerged from this study during the first 48 weeks regarding D4T's significant effects on the level of triglycerides and cholesterol when compared to the Viread arm of the study.

The data also suggests that Viread has favorable effects on mitochondrial DNA content through 48 weeks when taken as part of combination therapy.

In addition, patients receiving Viread had significantly fewer adverse events associated with mitochondrial toxicity compared to the patients receiving D4T.

At the upcoming Retrovirus Conference, we will present the 96-week results from this study.

These data demonstrate durable efficacy in both arms out to two years.

As I indicated, we saw that 48 weeks of the safety profiles of Viread and D4T were diverging with respect to changes in triglyceride and cholesterol levels and mitochondrial toxicity.

This differentiation is even more pronounced at 96 weeks.

These safety differences have long-term consequences and also affect the patient's quality of life.

This, in turn, can cause adherence issues with a negative impact on therapeutic outcomes.

We expect that the 48-week data from Study 903, which we submitted to the FDA for inclusion in the U.S. package insert, and to the EMEA to support an expanded indication in Europe will both be included in the labels later this year.

We will continue to generate additional data to support the growth of Viread, looking at specific combinations including the use of Viread and FTC together to prepare for the launch of FTC in the second half of this year.

We will also have a significant presence at all major 2003 HIV conferences including the Retrovirus Conference in February, the International AIDS Conference in July, and the ICAC in September.

On the international front, the European launch of Viread was completed in the major markets including most recently Italy, which just launched earlier this month.

We expect Europe to contribute significantly to the overall growth of Viread sales in 2003 and the coming years.

Moving to AmBisome, performance of this product continues to be strong with fourth quarter sales of $49.6m, up 16% over the same quarter in 2001.

Because of increasing competition emerging in the antifungal market, particularly with Pfizer's U.S. and European introduction of Vfend late last year, we are focused on protecting our market share in Europe where AmBisome is considered the gold standard antifungal.

Importantly, the European labels for Vfend and Merck's Cancidas do not have the indications that are as broad as AmBisome.

AmBisome is the only antifungal agent with five positive studies in empiric therapy, published in peer review journals, including data published in the "New England Journal of Medicine," showing that in a head-to-head study, Vfend did not achieve the predefined end point of non-inferiority to AmBisome.

In order to enhance our competitive edge, we are initiating the study known as the Ambiload Study, that will evaluate the use of AmBisome earlier in treatment and at a high loading dose to determine its impact on improving survival.

Turning briefly to Tamiflu -- Tamiflu is now approved in all major markets including the U.S., Japan, and the European Union.

Roche has launched the product in both capsule and suspension form in 13 countries in Europe, including the large markets of the United Kingdom, Germany, France, and Portugal in time for this flu season.

The current incidence of the flu in Europe to date has been sporadic.

In the U.S. the flu season is off to a slow start, although we've seen some outbreaks in the Southern states where some schools were temporarily closed to contain the spread of the virus.

The territory hit the hardest this year has been Japan, where the incidence is very high and Roche has reported that it was temporarily unable to meet the demand.

A government survey of 5,000 medical institutions showed that over 330,000 people had been hit with the flu since December.

That's a tenfold rise from the 30,000 cases reported last year at this time.

Roche is committed to providing Japan with an additional supply of Tamiflu in February and March to meet the demand.

Worldwide there appears to be significant influenza B circulating this season.

Because Tamiflu is active against all strains of influenza A and B, it is effective in treating ailments associated with flu B. The older treatments, Amantadine and Rimantadine, are only effective against influenza A.

As you know, Gilead receives royalties on a net worldwide sales of Tamiflu on a one-quarter lag.

Therefore, we will report royalties in the first and second quarter of 2003 corresponding to Roche's sales in the fourth quarter of 2002 and the first quarter of 2003.

Turning now to our product pipeline, we were very pleased to complete the acquisition of Triangle Pharmaceuticals and are in the process of integrating the Triangle organization.

This acquisition brings to Gilead a pipeline of products including FTC, or Emtricitabine, which is currently under regulatory review in the U.S. and Europe for the treatment of HIV.

In the U.S., the FDA's PDUFA deadline for the review of the FTC marketing application is July 3, 2003.

In anticipation of its approval, our sales and marketing teams are preparing to train our sales force on the properties of the product, and our chemical process and manufacturing teams have initiated work of the co-formulation of FTC and Viread, which could result in the first combination product doses one pill, once daily.

We intend to aggressively launch FTC following approval in the U.S. focusing on the strength of the data, which demonstrates that the product with reliable once-daily dosing is comparable in efficacy and safety to 3TC and superior to D4T based on head-to-head clinical studies.

We believe that we can effectively promote both Viread and FTC as stand-alone products based on their individual attributes as well as their synergies, setting the stage for the potential introduction of the co-formulated product in early 2005.

Triangle's other products in development include FTC for chronic hepatitis B in Phase III development; amdoxivir, or DAPD, a nucleoside analog in Phase II clinical studies for the treatment of HIV; and clevudine, or L-FMAU, a nucleoside analog in Phase I and II studies for the treatment of chronic hepatitis B. We will be evaluating data from ongoing clinical studies to determine the potential of and the best path forward for these compounds.

We will provide you with more guidance on these clinical candidates later in the year.