Gilead Sciences (GILD)
Q1 2012 Earnings Call
April 26, 2012 5:00 pm ET
Susan Hubbard - Vice President of Investor Relations
Robin L. Washington - Chief Financial Officer, Principal Accounting Officer and Senior Vice President
Kevin B. Young - Executive Vice President of Commercial Operations
Norbert W. Bischofberger - Chief Scientific Officer and Executive Vice President of Research & Development
John F. Milligan - President and Chief Operating Officer
Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division
Mark J. Schoenebaum - ISI Group Inc., Research Division
Rachel L. McMinn - BofA Merrill Lynch, Research Division
Matthew Roden - UBS Investment Bank, Research Division
Yaron Werber - Citigroup Inc, Research Division
Sapna Srivastava - Goldman Sachs Group Inc., Research Division
Robyn Karnauskas - Deutsche Bank AG, Research Division
Thomas Wei - Jefferies & Company, Inc., Research Division
Michael J. Yee - RBC Capital Markets, LLC, Research Division
Lee Kalowski - Crédit Suisse AG, Research Division
Christine Chiou - Barclays Capital, Research Division
Brian Skorney - Brean Murray, Carret & Co., LLC, Research Division
Philip Nadeau - Cowen and Company, LLC, Research Division
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Ladies and gentlemen, thank you for standing by, and welcome to Gilead Sciences First Quarter 2012 Earnings Conference Call. My name is Stacy, and I will be your conference operator for today. [Operator Instructions] As a reminder, this conference call is being recorded today, April 26, 2012. I would now like to turn the call over to Susan Hubbard, Vice President of Investor Relations. Please go ahead.
Thank you, Stacy, and good afternoon, everyone. Welcome to Gilead's First Quarter 2012 Earnings Conference Call. We issued a press release this afternoon providing earnings results for the quarter. This press release is available on our website as are the slides to provide more detail around some of the topics we will cover on today's call.
The speakers for today will be John Milligan, President and Chief Operating Officer; Norbert Bischofberger, Executive Vice President of R&D and Chief Scientific Officer; Kevin Young, Executive Vice President of Commercial Operations; and Robin Washington, Senior Vice President and Chief Financial Officer. Robin will first discuss our financial results. Kevin will review our commercial performance, and Norbert will then provide an update on our research and development progress. John Milligan will wrap up our prepared remarks by discussing our Quad drug and our future outlook and opportunities. Our Chairman and CEO, John Martin will not be participating on today's call as he is currently out of the office.
As a reminder, during today's call we will be making forward-looking statements regarding our financial outlook in addition to regulatory and product development plan. These risks include the possibility of unfavorable results from our clinical studies, including those evaluating GS-7977, GS 5885 and GS-9669 alone or in combination with other antivirals. The possibility that we may be unable to meet the anticipated timing for receiving clinical data and making regulatory filings, and the possibly that we aren't able to develop an all oral antiviral regimen for HBV genotype 1 patients or a pan-genotypic regimen for all HCV patients.
These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed in any forward-looking statements. A discussion of these risks can be found on our latest SEC disclosure documents and recent press releases. In addition, please note we undertake no duty to update or revise them.
We also will be using non-GAAP financial measures to help you understand our underlying business performance. The GAAP reconciliations are provided in our press release, as well as on our corporate website. I will now turn the call over to Robin Washington.
Robin L. Washington
Thank you, Susan, and thank you, all for joining us today. 2012 began with solid first quarter financial results. Our commercial execution continued, delivering product sales of $2.2 billion, an increase of 19% year-over-year and 4% sequentially despite a challenging macroeconomic environment.
The U.S. contributed $1.3 billion to product sales, up 25% compared to $1 billion in the first quarter of last year. Europe contributed $764 million to product sales, up 7% year-over-year, driven primarily by growing underlying product demand.
Non-GAAP product gross margin decreased to 74.5% from 75.7% in the same period of last year, primarily due to the higher cost of efavirenz and changes in product mix, as Atripla and Complera increased as a percentage of revenue while Truvada decreased.
Non-GAAP R&D expenses for the quarter was $331 million compared to $237 million in the same period of last year, due to increased clinical activities, particularly in liver disease and expenses associated with the continued advancement of our product pipeline.
Non-GAAP SG&A expenses for the quarter were $308 million, up from $263 million in the same period of last year, primarily due to an increase in expenses to support the ongoing growth of our business and an increase in the U.S. pharmaceutical excise tax.
During the first quarter, we completed our $11.1 billion acquisition of Pharmasset, and have allocated the purchase price as follows: the balance sheet includes in-process research and development of $10.7 billion, goodwill of $75 million and net assets and liabilities assumed of $64 million.
The GAAP income statement includes a $194 million compensation charge expense for acceleration of unvested stock option. This compensation expense also negatively impacted operating cash flow for the quarter.
Turning to interest and other income and expense. During the quarter, we recorded a net loss of $40 million or $0.03 per share related to Greek bonds as a result of the Greek government debt restructuring. Subsequent to the restructuring, we sold all of our Greek bond holdings, which as you may recall, relates to payments for accounts receivable from the years 2007 through 2009. We no longer hold any Greek bonds, thereby eliminating any further exposure to write-down.