<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1996
OR
/ / 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)
<TABLE>
<S> <C>
DELAWARE 94-3047598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
353 LAKESIDE DRIVE, FOSTER CITY, 94404
CALIFORNIA
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
CODE: 415-574-3000
</TABLE>
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 _____
Number of shares outstanding of the issuer's common stock, par value $.001
per share, as of April 12, 1996: 28,322,049.
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GILEAD SCIENCES, INC.
INDEX
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<CAPTION>
PAGE NO.
---------------
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes
Consolidated Balance Sheets -- March 31, 1996 and December 31, 1995........................ 3
Consolidated Statements of Operations -- for the three months ended March 31, 1996 and
1995...................................................................................... 4
Consolidated Statements of Cash Flows -- for the three months ended March 31, 1996 and
1995...................................................................................... 5
Notes to Consolidated Financial Statements................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................... 9
SIGNATURES............................................................................................ 10
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
GILEAD SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................................... $ 49,364 $ 27,420
Short-term investments............................................................................. 254,449 128,239
Prepaid expenses and other current assets.......................................................... 2,530 1,558
----------- ------------
Total current assets............................................................................. 306,343 157,217
Property and equipment, net.......................................................................... 7,928 8,369
Other assets......................................................................................... 1,162 1,073
----------- ------------
$315,433 $166,659
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................................... $ 839 $ 2,412
Accrued clinical and preclinical expenses.......................................................... 5,255 3,923
Other accrued liabilities.......................................................................... 3,464 2,229
Deferred contract revenues......................................................................... 2,500 208
Current portion of equipment financing obligations and long-term debt.............................. 2,892 2,906
----------- ------------
Total current liabilities........................................................................ 14,950 11,678
Noncurrent portion of equipment financing obligations and long-term debt............................. 2,812 3,482
Commitments
Stockholders' equity:
Common stock, par value $.001 per share; 35,000,000 shares authorized; 28,305,016 shares and
23,769,878 shares issued and outstanding at March 31, 1996 and December 31, 1995, respectively.... 28 24
Additional paid-in capital......................................................................... 422,504 265,460
Unrealized gains (losses) on investments, net...................................................... (136) 167
Accumulated deficit................................................................................ (123,556) (112,754)
Deferred compensation.............................................................................. (1,169) (1,398)
----------- ------------
Total stockholders' equity....................................................................... 297,671 151,499
----------- ------------
$315,433 $166,659
----------- ------------
----------- ------------
</TABLE>
Note: The consolidated balance sheet at December 31, 1995 has been derived from
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
3
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GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1996 1995
-------- -------
(UNAUDITED)
<S> <C> <C>
Total revenues................................................................................................. $ 779 $ 930
Operating costs and expenses:
Research and development..................................................................................... 9,309 8,054
Selling, general and administrative.......................................................................... 4,839 2,765
-------- -------
Total operating costs and expenses............................................................................. 14,148 10,819
-------- -------
Loss from operations........................................................................................... (13,369) (9,889)
Interest income, net........................................................................................... 2,567 1,016
-------- -------
Net loss....................................................................................................... $(10,802) $(8,873)
-------- -------
-------- -------
Net loss per share............................................................................................. $ (0.42) $ (0.46)
-------- -------
-------- -------
Common shares used in the calculation of net loss per share.................................................... 25,669 19,105
-------- -------
-------- -------
</TABLE>
See accompanying notes.
4
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GILEAD SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss................................................................................................. $ (10,802) $ (8,873)
Adjustments used to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................................................... 1,084 1,104
Changes in assets and liabilities:
Prepaid expenses and other current assets............................................................ (972) (379)
Other assets......................................................................................... (89) 143
Accounts payable..................................................................................... (1,573) 293
Accrued clinical and preclinical expenses............................................................ 1,332 248
Other accrued liabilities............................................................................ 1,235 786
Deferred contract revenues........................................................................... 2,292 (800)
---------- ----------
Total adjustments.................................................................................. 3,309 1,395
---------- ----------
Net cash used in operating activities.............................................................. (7,493) (7,478)
---------- ----------
Cash flows from investing activities:
Purchases of short-term investments...................................................................... (158,631) (23,508)
Sales of short-term investments.......................................................................... 3,883 --
Maturities of short-term investments..................................................................... 28,235 46,863
Capital expenditures..................................................................................... (414) (168)
---------- ----------
Net cash (used in) provided by investing activities................................................ (126,927) 23,187
---------- ----------
Cash flows from financing activities:
Payments of equipment financing obligations and long-term debt........................................... (684) (702)
Proceeds from issuance of common stock................................................................... 157,048 107
---------- ----------
Net cash (used in) provided by financing activities................................................ 156,364 (595)
---------- ----------
Net increase in cash and cash equivalents.................................................................. 21,944 15,114
Cash and cash equivalents at beginning of period........................................................... 27,420 15,296
---------- ----------
Cash and cash equivalents at end of period................................................................. $ 49,364 $ 30,410
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
5
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GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information at March 31, 1996, and for the three month periods ended
March 31, 1996 and 1995, is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which, in the opinion of management, are
necessary to state fairly the financial information set forth therein in
accordance with generally accepted accounting principles. The interim results
are not necessarily indicative of results to be expected for the full fiscal
year. These financial statements should be read in conjunction with the audited
financial statements for the fiscal year ended December 31, 1995 included in the
Company's annual report to security holders furnished to the Securities and
Exchange Commission pursuant to Rule 14a-3(b) in connection with the Company's
1996 Annual Meeting of Stockholders.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common stock equivalents relating to stock
options are excluded from the computation as their effect is antidilutive.
DEFERRED COMPENSATION
The Company records deferred compensation on option grants for the
difference between the grant price and the market value on the date of grant and
amortizes such amounts over the five year vesting period of the options.
2. INVESTMENTS
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. The Company's debt securities, which consist primarily of U.S. Treasury
Securities, are classified as available-for-sale and are carried at estimated
fair value in cash equivalents and short-term investments. Unrealized gains and
losses are reported as a separate component of stockholders' equity. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses on available-for-sale
securities are included in interest income and expense. The cost of securities
sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income. At
March 31, 1996, the contractual maturities of the debt securities do not exceed
two years.
3. AGREEMENT WITH GLAXO
In March 1996, Gilead and Glaxo Wellcome Inc. ("Glaxo") entered into a new
collaborative research agreement, extending for five years the existing
collaboration between the parties. Under the terms of the new agreement, Glaxo
will fund Gilead's ongoing research in the code blocker field for five years.
Each party has a worldwide right to the other party's patent rights to research,
develop, manufacture and sell products based on code blocker technology for all
applications. Glaxo will have the primary right to develop any products
identified during the collaboration. Gilead is entitled to payments for
achievement of regulatory milestones, as well as royalties on any product sales.
Glaxo has a right to terminate the collaborative research and funding at any
time after two years, in which case Gilead could develop code blocker technology
independently or with a third party. Under the terms of the agreement the
Company received $3.0 million in March 1996 to fund research during the first
year of the new agreement.
6
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4. AUTHORIZED COMMON STOCK
On January 22, 1996, the Board of Directors approved an amendment to the
Company's certificate of incorporation, increasing the number of shares of
common stock the Company is authorized to issue from 35,000,000 to 60,000,000.
This increase is subject to stockholder approval.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in June 1987, Gilead has devoted substantially all of
its resources to its research and development programs. To date, Gilead has not
received any revenues from the sale of products. The Company has been
unprofitable since its inception and expects to incur substantial losses for the
next several years, due primarily to its research and development programs,
including preclinical studies, clinical trials and manufacturing, as well as
increasing commercialization and marketing and sales efforts in anticipation of
potential product sales. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. There can be
no assurance that the Company will successfully develop, commercialize,
manufacture and market its products or ever achieve or sustain product revenues
or profitability. As of March 31, 1996, the Company's accumulated deficit was
approximately $123.6 million.
The successful development and commercialization of the Company's products
will require substantial and ongoing efforts at the forefront of the life
sciences industry. There are currently no commercially available products based
on the nucleotide technologies being developed by the Company. The Company is
pursuing preclinical or clinical development of a number of product candidates.
Even if these product candidates appear promising during various stages of
development, they may not reach the market for a number of reasons. Such reasons
include the possibilities that the potential products will be found ineffective
or unduly toxic during preclinical or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical to market or be precluded from commercialization by proprietary
rights of others.
As an early stage company in an industry undergoing rapid change, the
Company faces significant challenges and risks, including the risks inherent in
its research and development programs, uncertainties in obtaining and enforcing
patents, the lengthy and expensive regulatory approval process, intense
competition from pharmaceutical and biotechnology companies, increasing pressure
on pharmaceutical pricing from payors, patients and government agencies,
limitations on the availability of capital and uncertainties associated with the
eventual market acceptance of VISTIDE-Registered Trademark- (cidofovir
injection) or any of the Company's products in development. These risks are
discussed in greater detail in the Company's Annual Report on Form 10-K for the
period ended December 31, 1995. Stockholders and potential investors in the
Company should carefully consider these risks in evaluating the Company and
should be aware that the realization of any of these risks could have a dramatic
and negative impact on the Company's stock price.
This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, the risks discussed in the
Company's Annual Report on Form 10-K for the period ended December 31, 1995.
RESULTS OF OPERATIONS
REVENUES
The Company had total revenues of $0.8 million and $0.9 million for the
quarters ended March 31, 1996 and 1995, respectively. Revenues during these
periods resulted primarily from the Company's collaborative research and
development agreement with Glaxo. In March 1996, the Company and Glaxo entered
into a new collaborative research agreement, extending for five years the
existing collaboration between the parties.
7
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OPERATING COSTS AND EXPENSES
For the quarter ended March 31, 1996, the Company's research and development
expenses increased 16% to $9.3 million from $8.1 million for the same period in
1995. This increase was due primarily to increases in research and development
staffing, preclinical expenses and expenses associated with the Company's
ongoing clinical trials for several product candidates. The Company expects its
research and development expenses in the remainder of 1996 will grow
significantly reflecting anticipated increased expenses related to additions to
staffing, preclinical studies, clinical trials and manufacturing.
Selling, general and administrative expenses were $4.8 million and $2.8
million for the quarters ended March 31, 1996 and 1995, respectively,
representing an increase of 75%. This increase was incurred to support the
Company's establishment of marketing and sales capabilities in advance of
potential product launch and to support the expanded research and development
efforts, as well as to expand corporate development activities and related legal
expenses and patent activities. The Company expects its selling, general and
administrative expenses to significantly increase during the remainder of 1996
in connection with the establishment of sales and marketing capability in
anticipation of potential product sales, related commercialization efforts and
corporate development activities.
NET INTEREST INCOME
The Company had net interest income of $2.6 million and $1.0 million for the
quarters ended March 31, 1996 and 1995, respectively, representing an increase
of 153%. Net interest income has significantly increased due to the Company's
higher average cash and cash equivalents and short-term investment balances
which resulted from the Company's two public offerings of common stock completed
in February 1996 and August 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments were $303.8 million at
March 31, 1996 compared to $155.7 million at December 31, 1995. This increase is
the result of the Company's public offering of common stock in February 1996
which generated $155.6 million in net proceeds. No significant construction or
build-out costs or other significant capital expenditures are expected to be
incurred during 1996. During 1996, the Company expects to incur substantial
research and development and selling, general and administrative expenses,
including expenses related to additions to staffing, preclinical studies,
clinical trials and commercialization expenses and marketing and sales expenses
in anticipation of potential product launch. The Company is actively seeking
additional collaborative agreements with corporate partners. There can be no
assurance, however, that any such agreements will be entered into or that they
will reduce the Company's funding requirements. The Company expects that
additional equity or debt financings may be required to fund its operations.
There can be no assurance that such funds will be available on favorable terms,
if at all.
Net cash used in operations was $7.5 million for each of the three month
periods ended March 31, 1996 and 1995, respectively. The Company expects its
cash requirements to grow in future periods due to higher expenses. However, the
Company believes that its existing capital resources will be adequate to satisfy
its capital needs for the foreseeable future. The Company's future capital
requirements will depend on many factors, including the progress of the
Company's research and development, the scope and results of preclinical studies
and clinical trials, the cost, timing and outcomes of regulatory reviews, the
rate of technological advances, determinations as to the commercial potential of
the Company's products under development, the commercial performance of any of
the Company's products that receive marketing approval, administrative and legal
expenses, the status of competitive products, the establishment of manufacturing
capacity or third-party manufacturing arrangements, the establishment of sales
and marketing capabilities and the establishment of collaborative relationships
with other companies.
8
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the Quarter ended March 31,
1996.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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<S> <C>
GILEAD SCIENCES, INC.
--------------------------------------------
(Registrant)
Date: April 26, 1996 /s/ MICHAEL L. RIORDAN
--------------------------------------------
Michael L. Riordan
Chairman and President
Date: April 26, 1996 /s/ MICHAEL F. BIGHAM
--------------------------------------------
Michael F. Bigham
Executive Vice President for Operations
and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
10
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Operations found on
pages 3 and 4 of the Company's Form 10-Q for the year-to-date and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 49,364
<SECURITIES> 254,449
<RECEIVABLES> 2,530<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 306,343
<PP&E> 7,928<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 315,433
<CURRENT-LIABILITIES> 14,950
<BONDS> 2,812
0
0
<COMMON> 28
<OTHER-SE> 297,643
<TOTAL-LIABILITY-AND-EQUITY> 315,433
<SALES> 0
<TOTAL-REVENUES> 779
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,802)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> 0
<FN>
<F2>Includes Prepaid expenses and other current assets.
<F1>Property, plant and equipment is net of depreciation.
</FN>
</TABLE>
