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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2000
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
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GILEAD SCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3047598
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
333 LAKESIDE DRIVE, FOSTER CITY, 94404
CALIFORNIA (Zip Code)
(Address of principal executive
offices)
650-574-3000
Registrant's telephone number, including area code:
------------------------
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 28, 2000: 44,556,597
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GILEAD SCIENCES, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets--March 31, 2000 and
December 31, 1999........................................... 3
Condensed Consolidated Statements of Operations--For the
three months ended March 31, 2000 and 1999.................. 4
Condensed Consolidated Statements of Cash Flows--For the
three months ended March 31, 2000 and 1999.................. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 13
SIGNATURES............................................................ 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 37,296 $ 47,011
Marketable securities..................................... 254,496 247,383
Accounts receivable....................................... 46,666 45,599
Inventories............................................... 20,986 20,959
Prepaid expenses and other................................ 8,162 11,029
-------- --------
Total current assets.................................... 367,606 371,981
Property, plant and equipment, net.......................... 52,224 51,398
Other noncurrent assets..................................... 14,492 13,429
-------- --------
$434,322 $436,808
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,570 $ 9,481
Accrued clinical and preclinical expenses................. 4,633 5,467
Accrued compensation and employee benefits................ 9,345 9,901
Other accrued liabilities................................. 13,543 15,004
Deferred revenue.......................................... 5,565 4,833
Long-term obligations due within one year................. 3,017 3,191
-------- --------
Total current liabilities............................. 42,673 47,877
Accrued litigation settlement expenses due after one year... 6,590 6,853
Long-term obligations due after one year.................... 4,508 5,253
Convertible subordinated debentures......................... 79,508 79,533
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, par value $.001 per share; 100,000,000
shares authorized; 44,542,942 shares and 44,092,779
shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively......................... 45 44
Additional paid-in capital................................ 759,035 749,081
Accumulated other comprehensive loss...................... (2,999) (2,527)
Deferred compensation..................................... (45) (74)
Accumulated deficit....................................... (454,993) (449,232)
-------- --------
Total stockholders' equity.................................. 301,043 297,292
-------- --------
$434,322 $436,808
======== ========
- ------------------------
Note: The condensed consolidated balance sheet at December 31, 1999 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
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
Revenues:
Product sales, net........................................ $ 36,340 $ 32,048
Royalty revenue, net...................................... 8,042 2,088
Contract revenue.......................................... 840 4,140
-------- --------
Total revenues.............................................. 45,222 38,276
Costs and expenses:
Cost of product sales..................................... 7,947 7,399
Research and development.................................. 26,626 25,598
Selling, general and administrative....................... 17,590 21,831
-------- --------
Total costs and expenses.................................... 52,163 54,828
-------- --------
Loss from operations........................................ (6,941) (16,552)
Interest income............................................. 3,945 4,441
Interest expense............................................ (1,537) (1,670)
-------- --------
Loss before provision for income taxes and equity in loss of
unconsolidated affiliate.................................. (4,533) (13,781)
Provision for income taxes.................................. 307 82
Equity in loss of unconsolidated affiliate.................. 921 1,613
-------- --------
Net loss.................................................... $ (5,761) $(15,476)
======== ========
Basic and diluted net loss per common share................. $ (0.13) $ (0.37)
======== ========
Common shares used to calculate basic and diluted net loss
per common share.......................................... 44,340 41,756
======== ========
See accompanying notes
4
GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
OPERATING ACTIVITIES:
Net loss.................................................. $ (5,761) $(15,476)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 2,893 2,992
Other non-cash transactions............................. 94 523
Equity in loss of unconsolidated affiliate.............. 921 1,613
Net unrealized loss on foreign currency transactions.... 1,211 2,525
Changes in assets and liabilities:
Accounts receivable................................... (2,439) (1,625)
Inventories........................................... (27) (215)
Prepaid expenses and other assets..................... 2,926 1,077
Accounts payable...................................... (2,868) 198
Accrued liabilities................................... (3,241) (5,514)
Deferred revenue...................................... 732 1,989
-------- --------
Net cash used in operating activities....................... (5,559) (11,913)
INVESTING ACTIVITIES:
Purchases of marketable securities........................ (59,657) (29,335)
Sales of marketable securities............................ 5,990 32,563
Maturities of marketable securities....................... 46,278 32,367
Capital expenditures...................................... (3,724) (3,715)
Investment in unconsolidated affiliate.................... (2,450) --
-------- --------
Net cash provided by (used in) investing activities......... (13,563) 31,880
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuances of common stock................... 9,996 9,996
Repayments of long-term debt.............................. (913) (1,180)
-------- --------
Net cash provided by financing activities................... 9,083 8,816
-------- --------
Effect of exchange rate changes on cash..................... 324 (441)
-------- --------
Net increase (decrease) in cash and cash equivalents........ (9,715) 28,342
Cash and cash equivalents at beginning of period............ 47,011 101,136
-------- --------
Cash and cash equivalents at end of period.................. $ 37,296 $129,478
======== ========
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued upon the conversion of convertible
subordinated debentures................................... $ 25 $ --
======== ========
See accompanying notes
5
GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. The information at March 31, 2000 and for the
three-month periods ended March 31, 2000 and 1999 includes all adjustments
(consisting only of normal recurring adjustments) that the management of Gilead
Sciences, Inc. ("Gilead" or the "Company") believes necessary for fair
presentation of the balances and results for the periods presented. These
interim financial results are not necessarily indicative of results to be
expected for the full fiscal year.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Examples include provisions for sales returns and bad debts and
accrued clinical and preclinical expenses. Actual results may differ from these
estimates. The accompanying consolidated financial statements include the
accounts of the Company and its wholly and majority-owned subsidiaries;
significant intercompany transactions have been eliminated. Certain prior period
amounts have been reclassified to conform to the 2000 presentation. The
accompanying financial information should be read in conjunction with the
audited financial statements for the fiscal year ended December 31, 1999
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
On July 29, 1999, Gilead acquired all of the outstanding shares of NeXstar
Pharmaceuticals, Inc. ("NeXstar") in a business combination accounted for as a
pooling of interests. Accordingly, the financial information for the three
months ended March 31, 1999 has been restated to represent the combined
financial results of Gilead and NeXstar.
COMPREHENSIVE LOSS
Following are the components of comprehensive loss (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
Net loss.................................................... $(5,761) $(15,476)
Net foreign currency translation gain (loss)................ (196) 19
Net unrealized loss on available-for-sale securities........ (276) (526)
------- --------
Comprehensive loss.......................................... $(6,233) $(15,983)
======= ========
BASIC AND DILUTED NET LOSS PER COMMON SHARE
For all periods presented, both basic and diluted net loss per common share
are computed by dividing the net loss by the number of weighted average common
shares outstanding during the period. The impact of convertible debentures,
stock options and warrants could potentially dilute basic earnings per share in
the future, but were excluded from the computation of diluted net loss per
common share as their effect is antidilutive for the periods presented.
6
GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(unaudited) (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which
establishes accounting and reporting standards for derivative instruments,
including forward foreign exchange contracts, and hedging activities. In
June 1999, the FASB issued SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT
NO. 133. SFAS No. 133 is now effective for fiscal years beginning after
June 15, 2000 and, therefore, the Company will adopt this accounting standard
effective January 1, 2001. Management has not yet determined the impact of SFAS
No. 133 on its financial position or results of operations.
The Company has recognized nonrefundable technology access fees received in
connection with collaboration agreements as revenue when received, when the
technology has been transferred and when all contractual obligations of the
Company relating to the fees are fulfilled. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "REVENUE
RECOGNITION IN FINANCIAL STATEMENTS." Among other things, SAB No. 101 describes
the SEC Staff's position on the recognition of certain nonrefundable upfront
fees received in connection with research collaborations. The Company is
evaluating the applicability of SAB No. 101 to its existing collaborative
agreements. Should the Company conclude that the approach described in SAB
No. 101 is more appropriate, it will change its method of accounting to
recognize such fees over the term of the related agreement. Any required
adjustment would be recognized as a cumulative effect of a change in accounting
principle.
2. INVENTORIES
Inventories are summarized as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
Finished goods.............................................. $ 6,087 $ 3,463
Work in process............................................. 4,874 6,793
Raw materials............................................... 10,025 10,703
------- -------
Total inventories........................................... $20,986 $20,959
======= =======
3. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company has determined that it has only one reportable segment because
management has organized the business around its functional lines.
7
GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(unaudited) (Continued)
3. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
(CONTINUED)
Product sales revenues consist of the following (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
AmBisome.................................................... $34,586 $29,336
DaunoXome................................................... 1,051 1,267
VISTIDE..................................................... 703 1,445
------- -------
Consolidated total.......................................... $36,340 $32,048
======= =======
The following table summarizes total revenues from external customers by
geographic region. Revenues are attributed to countries based on the location of
Gilead's customer or collaborative partner (in thousands).
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
United States............................................... $ 6,566 $ 6,731
Germany..................................................... 5,393 5,220
United Kingdom.............................................. 5,843 3,245
Italy....................................................... 4,348 4,285
Spain....................................................... 3,577 3,925
Switzerland................................................. 5,976 2,813
Other European countries.................................... 10,028 8,779
Other foreign countries..................................... 3,491 3,278
------- -------
Consolidated total.......................................... $45,222 $38,276
======= =======
For the three months ended March 31, 2000 and 1999, revenues from one
customer accounted for approximately 16.1% and 10.1% of product revenues,
respectively.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Gilead Sciences, Inc. was incorporated in Delaware on June 22, 1987, and is
an independent biopharmaceutical company that seeks to provide accelerated
solutions for patients and the people who care for them. The Company discovers,
develops, manufactures and commercializes proprietary therapeutics for
challenging infectious diseases (viral, fungal and bacterial diseases) and
cancer. Currently, the Company markets AmBisome-Registered Trademark-
((amphotericin B) liposome for injection), an antifungal agent,
DaunoXome-Registered Trademark- (daunorubicin citrate liposome injection), a
drug approved for the treatment of Kaposi's Sarcoma, and
VISTIDE-Registered Trademark- (cidofovir injection) for the treatment of
cytomegalovirus ("CMV") retinitis. Hoffmann-La Roche Inc. ("Roche") markets
Tamiflu-TM- (oseltamivir phosphate) for the treatment of influenza, under a
collaborative agreement. In addition, the Company is developing products to
treat diseases caused by human immunodeficiency virus ("HIV"), hepatitis B virus
("HBV"), bacterial infections and cancer.
On July 29, 1999, Gilead entered into a business combination with NeXstar
Pharmaceuticals, Inc. ("NeXstar"). The business combination has been accounted
for as a pooling of interests and the Company's historical consolidated
financial statements for the three months ended March 31, 1999 have been
restated in the accompanying condensed consolidated financial statements to
include the financial position, results of operations and cash flows of NeXstar.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The following discussion of the Company's financial condition and results of
operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve risks and uncertainties. Our actual financial and operating results
could differ materially from our expectations. Some of the factors that could
cause or contribute to these differences are listed below. You should also read
the "Risk Factors" included in our Annual Report on Form 10-K for the year ended
December 31, 1999, for more detailed information regarding these and other risks
and uncertainties that can affect our actual financial and operating results.
REGULATORY PROCESS. The FDA and foreign agencies could reject or limit the
commercialization of our products for a number of reasons including: if they
disagree with the results or designs of our clinical trials; if they believe our
products have unacceptable efficacy, toxicity or tolerability; or if they
believe our products can not be safely and efficiently manufactured on a
commercial basis. If these agencies reject or limit the commercialization of our
products, our financial results would be adversely affected. In addition, these
agencies could require us to conduct additional unanticipated clinical trials on
our products, the cost of which could be substantial.
AMBISOME SALES. We rely on sales of AmBisome for a significant portion of
our operating income. There are lower priced products that compete with AmBisome
and there are products being developed that could compete with AmBisome in the
future. If these lower priced products achieve further market acceptance, or
should these products in development become commercially available, revenues
from sales of AmBisome would likely decrease, resulting in a reduction of
operating income.
MARKET ACCEPTANCE OF PRODUCTS. The ability of our products to achieve and
sustain market acceptance will depend on a number of factors including: the
receipt and scope of regulatory approvals; the availability of public and
private insurance and reimbursement for our products; safety, efficacy,
tolerability and cost of our products; and how our products compare to
competitive products. If our products do not achieve and sustain market
acceptance, our results of operations will suffer. Tamiflu is in a new class of
drugs that represent a new approach to treating the flu. In order for Tamiflu to
achieve market acceptance, our marketing partner, Roche, must change attitudes
toward flu treatment.
9
COLLABORATIONS. We depend on collaborations for the development and
commercialization of certain products and for revenue, including the
collaboration with Roche for sales of Tamiflu and the collaboration with
Fujisawa Healthcare, Inc. ("Fujisawa") for sales of AmBisome in the United
States and Canada. These collaborations could fail for a number of reasons,
including if our partners do not devote sufficient resources to the development,
commercialization or marketing of our products, or if disputes arise with our
partners. We will also seek additional collaborations, including a collaboration
for adefovir dipivoxil for the treatment of HBV. If our collaborations fail or
if we are unable to establish additional collaborations, our financial results
would be adversely affected.
FOREIGN CURRENCY FLUCTUATIONS. A significant portion of our sales is
denominated in foreign currencies. Increases in the value of the U.S. Dollar
against these foreign currencies may reduce our U.S. Dollar return on these
sales and negatively impact our financial condition. The hedging techniques we
use can reduce but not eliminate the effects of foreign currency fluctuations.
UNCERTAIN FINANCIAL RESULTS. We expect that our financial results will
continue to fluctuate from quarter to quarter and that such fluctuations may be
substantial. We have never been profitable on a full-year basis and we may never
achieve or sustain profitability. As of March 31, 2000, our accumulated deficit
was $455.0 million.
RESULTS OF OPERATIONS
REVENUES
The Company had total revenues of $45.2 million and $38.3 million for the
quarters ended March 31, 2000 and 1999, respectively. Total revenues include
revenues from net product sales, net royalties and contracts (including research
and development ("R&D") collaborations).
Net product sales revenues were $36.3 million and $32.0 million for the
quarters ended March 31, 2000 and 1999, respectively. Sales of AmBisome
accounted for 95% and 92% of these revenues in the first quarter of 2000 and
1999, respectively. Gilead also recognized product sales revenues of
$1.1 million and $0.7 million from the sale of DaunoXome and VISTIDE,
respectively, during the first quarter of 2000. A significant majority of the
Company's product sales are denominated in foreign currencies. In future
periods, the combined levels of sales of VISTIDE and DaunoXome are expected to
be relatively flat as compared to 1999 amounts.
Net royalty revenues were $8.0 million and $2.1 million for the quarters
ended March 31, 2000 and 1999, respectively. In October 1999, the U.S. Food and
Drug Administration approved Tamiflu for the treatment of influenza in adults.
The Company co-developed Tamiflu with Roche, which owns the commercial rights to
the product and is required to pay Gilead a royalty on net sales. In the first
quarter of 2000, the Company recognized royalty revenue of $5.4 million from
Roche's sales of Tamiflu in the fourth quarter of 1999. The Company also
recognized net royalty revenue from sales of AmBisome in the United States by
Fujisawa of $2.2 million and $1.5 million during the first quarter of 2000 and
1999, respectively. Net royalty revenues in both of these periods also includes
amounts recognized from sales of VISTIDE by Pharmacia & Upjohn S.A. outside the
United States. In future periods, royalties from sales of VISTIDE are expected
to be relatively flat.
Also included in total revenues are contract revenues of $0.8 million and
$4.1 million for the quarters ended March 31, 2000 and 1999, respectively.
Contract revenue for the first quarter of 2000 and 1999 includes $0.4 million
and $0.7 million, respectively, received from Roche as reimbursement of expenses
related to the continued development of Gilead's proprietary influenza
neuraminidase inhibitors. In the first quarter of 1999, the Company recognized a
$2.0 million milestone payment from Roche based upon the commencement of pivotal
clinical trials of Tamiflu in Japan. Also in the first quarter of 1999, the
Company recognized a performance-based milestone of $1.0 million from SKW
America's, Inc. ("SKW").
10
SKW is the 51% owner of Proligo L.L.C. ("Proligo"), an entity in which Gilead
holds the remaining 49% ownership interest.
COST OF PRODUCT SALES
Cost of product sales was $7.9 million and $7.4 million for the three-month
periods ended March 31, 2000 and March 31, 1999, respectively. In connection
with most of its European product sales, the Company prices its products in the
currency of the country into which they are sold ("Payment Currencies"). A
significant majority of the Company's manufacturing costs are in U.S. Dollars.
It is likely that any decline in the value of the Payment Currencies relative to
the U.S. Dollar would negatively impact gross margins since the Company's
manufacturing costs would remain approximately the same while its revenues,
which are reported in U.S. Dollars, would decline. Gilead's cost of product
sales was 22% of net product sales for the three-month period ended March 31,
2000, and 23% of net product sales revenue for the quarter ended March 31, 1999.
Except for the potential impact of unpredictable and uncontrollable changes in
Payment Currencies relative to the U.S. Dollar, the Company expects the
relationship between cost of product sales and net product sales revenues to be
materially consistent for the foreseeable future, provided there are no
significant changes in the nature or mix of product sales.
OPERATING EXPENSES
R&D expenses for the first quarter of 2000 were $26.6 million, compared to
$25.6 million for the same period in 1999. This increase is primarily due to
increased expenses in 2000 relative to 1999 for the development programs for
tenofovir disoproxil fumarate for HIV and adefovir dipivoxil for HBV. Such
increases were offset, in part, by significantly lower expenses in the 2000
period relative to 1999 for the development of adefovir dipivoxil for HIV, a
program the Company discontinued in the fourth quarter of 1999, and by Gilead's
reduced research activities at its Boulder, Colorado facility. The Company
expects its R&D expenses to continue to increase in 2000 relative to 1999,
primarily reflecting increased expenses related to the continued late-stage
development of tenofovir disoproxil fumarate for HIV and adefovir dipivoxil for
HBV.
Selling, general and administrative ("SG&A") expenses were $17.6 million and
$21.8 million for the quarters ended March 31, 2000 and 1999, respectively. One
factor contributing to this decrease of $4.2 million is that the first quarter
of 1999 includes $1.5 million of merger-related expenses. In addition, the first
quarter of 1999 includes costs incurred to expand the Company's sales, marketing
and operational capacity in anticipation of the then-planned commercial launch
of adefovir dipivoxil for HIV. Finally, the first quarter of 2000 reflects the
impact of cost savings related to the elimination of duplicate SG&A positions
and functions within the combined Gilead and NeXstar organization. The Company
expects its SG&A expenses to increase in the remainder of 2000 to support both
ongoing marketing and sales activities and the planned increase in R&D
activities.
INTEREST INCOME AND INTEREST EXPENSE
The Company reported interest income of $3.9 million and $4.4 million for
the quarters ended March 31, 2000 and 1999, respectively. This decrease is
primarily due to the Company's declining balance of cash, cash equivalents and
marketable securities. At March 31, 2000 and 1999, Gilead had cash, cash
equivalents and marketable securities of $291.8 million and $341.0 million,
respectively.
The Company incurred interest expense of $1.5 million and $1.7 million,
respectively, for the quarters ended March 31, 2000 and 1999. The Company's
reported interest expense continues to decline as it repays its outstanding debt
obligations.
11
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE
For the three months ended March 31, 2000, the Company recorded
$0.9 million as its equity in the loss of Proligo, representing its 49% share of
losses for the three months ended February 29, 2000, the first quarter of
Proligo's fiscal year. The Company's reported equity in the loss of Proligo was
$1.6 million for the three months ended February 28, 1999. The Company's
investment in Proligo is reported in other noncurrent assets on the balance
sheet. The carrying amount of this investment is $8.9 million at March 31, 2000.
In January 2000, the Company funded Proligo with an additional $2.5 million in
cash to maintain its percentage ownership interest in Proligo. The Company has
no commitments to provide additional funding to Proligo.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities totaled $291.8 million at
March 31, 2000, compared to $294.4 million at December 31, 1999. This decrease
of $2.6 million is primarily due to the use of cash to fund operating
activities, to purchase capital items and to fund the $2.5 million investment in
Proligo, partially offset by proceeds from issuances of stock under employee
stock plans.
The Company's accounts receivable balance at March 31, 2000 was
$46.7 million as compared to $45.6 million at December 31, 1999. The growth in
receivables is primarily due to increased sales of AmBisome and proportionately
increased sales of the Company's products in countries in which payments tend to
be relatively slow. In certain cases, these slow payment practices reflect the
pace at which governmental entities reimburse the Company's customers. Sales to
customers in countries that tend to be relatively slow paying have in the past
increased, and in the future may further increase, the average length of time
that accounts receivable are outstanding. This, in turn, may increase the
financial risk of certain of the Company's customers. In certain countries in
which payments have been slow, particularly Greece, Spain and Italy, the
Company's accounts receivable are significant. At March 31, 2000, the Company's
past due accounts receivable for Greece, Spain and Italy totaled approximately
$15.0 million, of which approximately $6.4 million was more than 120 days past
due. To date, the Company has experienced only modest losses with respect to the
collection of its accounts receivable and believes that the past due accounts
receivable for Greece, Spain and Italy are collectible. The Company continually
seeks to improve its collection process to ensure that it collects as much as
possible from its product sales and that such collections are timely.
Other significant changes in working capital during the three months ended
March 31, 2000 include a $2.9 million decrease in prepaids and other current
assets. This decrease primarily consists of a $1.3 million repayment of
royalties due from Fujisawa from sales of AmBisome and a reduction of
$1.4 million of prepaid expenses, primarily insurance. The Company also reported
decreases in accounts payable, accrued clinical and preclinical expenses and
other accrued liabilities between December 31, 1999 and March 31, 2000. These
balances can fluctuate significantly based on the timing of payments. All of the
changes in working capital described above are based on amounts that do not take
into account the effect of exchange rate changes on cash.
The Company maintains a $10.0 million unsecured line of credit (the "Credit
Agreement") that bears interest at a floating rate with a major financial
institution. Under the terms of the Credit Agreement, the Company is required to
maintain certain financial ratios and there are limitations on the Company's
ability to incur additional debt or to engage in certain significant
transactions. The Credit Agreement, which includes a foreign exchange facility,
expires on April 16, 2001. As of March 31, 2000, the Company had no outstanding
borrowings under the Credit Agreement.
The Company believes that its existing capital resources, supplemented by
net product revenues and contract and royalty revenues, will be adequate to
satisfy its capital needs for the foreseeable future. As of March 31, 2000,
Gilead was entitled to additional cash payments of up to $21.2 million from
Roche upon achieving specific additional developmental and regulatory
milestones, although there can be no assurance
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that any of the milestones will be met. The Company's future capital
requirements will depend on many factors, including its continuing integration
with NeXstar, the progress of the Company's research and development efforts,
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 AmBisome and any of the Company's
products in development that receive marketing approval, administrative
expenses, the status of competitive products, the establishment of manufacturing
capacity or third-party manufacturing arrangements, the expansion of sales and
marketing capabilities, possible geographic expansion 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2000, the Company's $79.5 million 6.25% convertible
subordinated debentures had a fair value of $115.6 million. There have been no
other significant changes in market risk as compared to the disclosures in Item
7A of the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 27--Financial Data Schedule
(b) Reports on Form 8-K
None.
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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.
/s/ GILEAD SCIENCES, INC.
--------------------------------------------
(Registrant)
Date: May 12, 2000 /s/ JOHN C. MARTIN
--------------------------------------------
John C. Martin
President and Chief Executive Officer
Date: May 12, 2000 /s/ SHARON A. SURREY-BARBARI
--------------------------------------------
Sharon A. Surrey-Barbari
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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