<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1997
--------------------------------------
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)
Delaware 94-3047598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Lakeside Drive, Foster City, California 94404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415-574-3000
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 15, 1997: 29,037,447.
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GILEAD SCIENCES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements and Notes
Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Operations -- for the three
months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -- for the three
months ended March 31, 1997 and 1996 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
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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
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
Current assets: (unaudited) (Note)
Cash and cash equivalents $ 104,742 $ 131,984
Short-term investments 192,652 163,979
Other current assets 3,340 4,290
---------- ----------
Total current assets 300,734 300,253
Property and equipment, net 10,301 9,172
Other assets 1,365 1,248
---------- ----------
$ 312,400 $ 310,673
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,514 $ 2,501
Accrued clinical and preclinical expenses 5,549 5,007
Other accrued liabilities 5,554 4,433
Deferred revenues 6,747 527
Current portion of equipment financing
obligations and long-term debt 3,507 3,631
---------- ----------
Total current liabilities 24,871 16,099
Noncurrent portion of equipment financing
obligations and long-term debt 2,215 2,914
Commitments
Stockholders' equity:
Common stock, par value $.001 per share;
60,000,000 shares authorized;
29,031,249 shares and 28,758,165 shares
issued and outstanding at March 31, 1997
and December 31, 1996, respectively 29 29
Additional paid-in capital 428,680 426,577
Unrealized gains (losses) on investments, net (508) 89
Accumulated deficit (142,434) (134,486)
Deferred compensation (453) (549)
---------- ----------
Total stockholders' equity 285,314 291,660
---------- ----------
$ 312,400 $ 310,673
---------- ----------
---------- ----------
Note: The consolidated balance sheet at December 31, 1996 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
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
---------- ---------
Revenues:
Product sales, net $ 3,034 $ -
Contract revenues 2,330 779
Royalty revenues 102 -
--------- --------
Total revenues 5,466 779
Costs and expenses:
Cost of sales 487 -
Research and development 10,826 9,309
Selling, general and administrative 6,147 4,839
--------- --------
Total costs and expenses 17,460 14,148
--------- --------
Loss from operations (11,994) (13,369)
Interest income, net 4,046 2,567
--------- --------
Net loss $ (7,948) $ (10,802)
--------- --------
--------- --------
Net loss per share $ (0.27) $ (0.42)
--------- --------
--------- --------
Common shares used in the
calculation of net loss per share 28,930 25,669
--------- --------
--------- --------
See accompanying notes.
4
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GILEAD SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited)
(in thousands)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
-------------- ------------
Cash flows from operating activities:
Net loss $ (7,948) $ (10,802)
Adjustments used to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 753 1,084
Changes in assets and liabilities:
Other current assets 950 (972)
Other assets (117) (89)
Accounts payable 1,013 (1,573)
Accrued clinical and preclinical expenses 542 1,332
Other accrued liabilities 1,121 1,235
Deferred revenues 6,220 2,292
---------- ---------
Total adjustments 10,482 3,309
---------- ---------
Net cash provided by (used in)
operating activities 2,534 (7,493)
---------- ---------
Cash flows from investing activities:
Purchases of short-term investments (113,446) (158,631)
Sales of short-term investments 78,391 3,883
Maturities of short-term investments 5,785 28,235
Capital expenditures (1,786) (414)
---------- ---------
Net cash used in investing
activities (31,056) (126,927)
---------- ---------
Cash flows from financing activities:
Payments of equipment financing obligations
and long-term debt (823) (684)
Proceeds from issuance of common stock 2,103 157,048
---------- ---------
Net cash provided by
financing activities 1,280 156,364
---------- ---------
Net increase (decrease) in cash and cash
equivalents (27,242) 21,944
Cash and cash equivalents at beginning of period 131,984 27,420
---------- ---------
Cash and cash equivalents at end of period $ 104,742 $ 49,364
---------- ---------
---------- ---------
See accompanying notes.
5
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GILEAD SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information at March 31, 1997, and for the three month periods ended
March 31, 1997 and 1996, 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, 1996 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 1997 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.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" (EPS). The Statement is effective
for both interim and annual financial statements for periods ending after
December 15, 1997. Under the Statement, primary EPS computed in accordance
with Accounting Principle Board Opinion No. 15 will be replaced with a new
simpler calculation called "basic EPS" and the Company will be required to
restate comparative EPS amounts for all prior periods. Under the new
requirements, basic EPS for the three months ended March 31, 1997 and 1996
will be unchanged from primary EPS as disclosed. Fully diluted EPS will not
change significantly but has been renamed "diluted EPS". Gilead plans to
implement the Statement in the fourth quarter of 1997.
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, corporate commercial paper, bonds and notes of domestic
corporations and asset-backed 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
6
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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, 1997, the contractual maturities
of the debt securities do not exceed three years.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Since its inception in June 1987, Gilead has devoted the substantial
portion of its resources to its research and development programs, with
significant expenses relating to commercialization beginning in 1996. With
the exception of the third quarter of 1996, when the Company entered into two
collaborations with significant initial license fees, the Company has
incurred losses since its inception. Gilead expects to incur losses for the
next several years due primarily to its research and development programs,
including preclinical studies, clinical trials and manufacturing, as well as
marketing and sales efforts in support of VISTIDE-Registered Trademark-
(cidofovir injection) and other potential products.
On June 26, 1996 the U.S. Food and Drug Administration (FDA) granted
marketing clearance of VISTIDE for the treatment of cytomegalovirus (CMV)
retinitis in patients with AIDS. The Company is independently marketing VISTIDE
in the United States with an antiviral specialty sales force and has entered
into a collaboration agreement with Pharmacia & Upjohn S.A. ("P&U") to market
VISTIDE in all countries outside the United States. Sales of VISTIDE in the
United States were lower in the first quarter of 1997 as compared to the
third or fourth quarters of 1996, due primarily to the effectiveness of new
AIDS therapeutics, which appear to be reducing the incidence of opportunistic
infections such as CMV retinitis. The Company cannot predict the impact of
this trend on future sales of VISTIDE. The Company expects, however, that
its financial results will continue to 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
additional products or achieve profitability. As of March 31, 1997, the
Company's accumulated deficit was approximately $142.4 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. The Company is pursuing preclinical or clinical
development of a number of additional 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 a 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, and uncertainties associated with the eventual market acceptance of
VISTIDE 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 year ended December 31, 1996. 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.
7
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This report contains forward-looking statements relating to clinical and
regulatory developments, marketing and sales matters, future expense levels
and financial results. These statements involve inherent 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 year ended December 31,
1996, particularly those relating to the development and marketing of
pharmaceutical products.
RESULTS OF OPERATIONS
REVENUES
The Company had total revenues of $5.5 million and $0.8 million for the
quarters ended March 31, 1997 and 1996, respectively. Total revenues
included net product sales of $3.0 million from the sale of VISTIDE for the
quarter ended March 31, 1997, with no product sales in the previous period.
Revenues of approximately $0.8 million in both periods resulted from the
Company's collaborative research and development agreement with Glaxo. In
addition, revenues in 1997 included $1.6 million of contract revenue from
Hoffmann-La Roche related to the collaboration agreement to develop and
commercialize therapies for the treatment and prevention of viral influenza.
The Company also recorded royalty income in the first quarter of 1997 of
approximately $0.1 million attributable to an expanded access program
conducted by Pharmacia & Upjohn for VISTIDE in France.
OPERATING COSTS AND EXPENSES
The Company's cost of sales was $0.5 million for the quarter ended March
31, 1997. The Company had no cost of sales for the three months ended March
31, 1996. Cost of sales resulted from the Company's sale of VISTIDE, which
was launched in June 1996.
For the quarter ended March 31, 1997, the Company's research and
development expenses increased 16% to $10.8 million from $9.3 million for the
same period in 1996. This increase was due primarily to expansion in the
Company's ongoing clinical trials for several product candidates and a
related increase in research and development staffing. The Company expects
its research and development expenses will grow in the remainder of 1997,
reflecting anticipated increased expenses related to clinical trials for
several product candidates as well as related increases in staffing,
preclinical studies and manufacturing.
Selling, general and administrative expenses were $6.1 million and $4.8
million for the quarters ended March 31, 1997 and 1996, respectively,
representing an increase of 27%. This increase was incurred to support the
Company's marketing and sales activities, primarily related to VISTIDE, and
to support the expanded research and development efforts, as well as general
and administrative activities. The Company expects its selling, general and
administrative expenses to increase during the remainder of 1997 in
connection with the ongoing sales and marketing activities related to the
sale of VISTIDE and other potential products as well as continued support of
expanded research and development facilities.
NET INTEREST INCOME
The Company had net interest income of $4.0 million and $2.6 million for
the quarters ended March 31, 1997 and 1996, respectively, representing an
increase of 58%. Net interest income has significantly increased due to the
Company's higher average cash and cash equivalents and short-term investment
balance for the quarter ended March 31, 1997 as compared to the same quarter
in 1996. The Company's public offering of common stock
8
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completed in February 1996 resulted in a higher cash and cash equivalents and
short-term investment balance for one month of the quarter ended March 31,
1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments were $297.4 million
at March 31, 1997 compared to $296.0 million at December 31, 1996. During
the remainder of 1997, the Company expects to incur construction and
equipment costs of approximately $1.3 million related to the final build-out
of a 37,000 square foot facility leased in August 1996, as well as
improvements to other leased facilities. In addition, during the remainder
of 1997 the Company expects to incur research and development and selling,
general and administrative expenses in excess of amounts incurred in 1996 for
the equivalent period.
Net cash provided by operations was $2.5 million for the three months
ended March 31, 1997 as compared to net cash used in operations of $7.5
million for the three months ended March 31, 1996. Cash provided by
operations during the 1997 period resulted from net product revenues and from
payments received for the Company's collaborative agreements, which are
deferred until they are earned. The Company believes that its existing
capital resources, supplemented by net product revenues and contract
revenues, 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 VISTIDE and any of
the Company's products in development that receive marketing approval,
administrative and legal expenses, the status of competitive products, the
establishment of manufacturing capacity or third-party manufacturing
arrangements, the expansion of sales and marketing capabilities and the
establishment of additional collaborative relationships with other companies.
The Company may in the future require additional funding, which could be
in the form of proceeds from equity or debt financings or additional
collaborative agreements with corporate partners. If such funding is
required, there can be no assurance that it will be available on favorable
terms, if at all.
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, 1997.
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.
GILEAD SCIENCES, INC.
-------------------------------
(Registrant)
Date: April 25, 1997 /S/ John C. Martin
-------------------------------
John C. Martin
President and Chief
Executive Officer
Date: April 25, 1997 /s/ Mark L. Perry
-------------------------------
Mark L. Perry
Vice President,
Chief Financial Officer
and General Counsel
(Principal Financial and
Accounting Officer)
10
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 104,742
<SECURITIES> 192,652
<RECEIVABLES> 3,340 <F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 300,734
<PP&E> 10,301 <F1>
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<TOTAL-ASSETS> 312,400
<CURRENT-LIABILITIES> 24,871
<BONDS> 2,215
0
0
<COMMON> 29
<OTHER-SE> 285,285
<TOTAL-LIABILITY-AND-EQUITY> 312,400
<SALES> 3,034
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