EFTA00598622.pdf

Morgan Stanley Stock Rating Equal-weight Industry View In-Une J , 21 2: I - Gilead Sciences Inc. HCV Still Near and LT Focus Upside Sovaldi (4611M vs cons) drove a $0.57 EPS beat: Sovaldi (4611M), Truvada (+$18M), Viread (+$24M) and Complera (+$22M) drove the $685M rev beat vs cons. Better gross margins (89% vs MSe 86%) and a lower tax rate (14.6% with a 1 qtr 3.6% catch-up) represented the majority of the delta between our $2.14 and Gilead's reported EPS of $2.36. Mgt. also gavels' time guidance incorporating Sovaldi with revs of $21- 23B (prior $11.3-11.56). This suggests 2H Sovaldi revs of -'$3.945-5.745B, below the 1H total of $5.7558. Mgt. cited warehousing and inventory destocking ahead of the all-oral launch as potential contributing factors. Sovaldi still the centerpiece: Near and long-term Sovaldi sales continue to dominate the debate. On the near-term, guidance seems to imply a seq. deceleration for 3O followed by an uptick in 4O after the all-oral launch, inline with our model. Hwr, with the implied 2H run-rate below 1H reported sales, it appears a modest disappointment vs high expectations. Nonetheless, sig. investor expectations for an early all-oral approval ahead of the 10/10 PDUFA (and the assoc sales bolus) is likely to offset any guidance concerns. While we agree early approval could represent 2014 upside, it could conversely make the 2015 comp that much harder. On the LT, our view remains that there are risks to sustainability of the HCV franchise. Separately, the early approval of idelalisib (CLL & iNHL) was a nice positive offset by the boxed warning and REMS. We still see it as a 10-15% mkt share drug with $1 B+ pot. Capital allocation continues to represent the other LT driver, but mgt. Isn't pointing to a deal: While mgt. repurchased 15.2M shares in the qtr ($1.28) and said it will finish another $1.78 in buybacks by Sept., a near-term deal to ease LT Sovaldi tail concerns didn't appear immine a see continued investor focus on dividends and as the cash from Sovaldi builds. We expect a muted stock reaction even as Sovaldi delivered given high expectations: We believe cons expectations of a Sovaldi beat have been a major driver of GILD over the last few weeks, thus the beat was widely expected. With guidance not suggesting sig. upside to cons, we expect GILD to not move much tomorrow. Our 2014E/2015E EPS ests move modestly higher to $8.17/$9.19 ($7.58/$8.43 prior) on tax-rate, gross margin and share count changes to our model. MORGAN STANLEY RESEARCH NORTH AMERICA 7.1;r4.-.713er Jey e C.; _LC. Matthew Harrison • David Friedman. M. Key Ratios and Statistics Reuters: GILD.O Bloomberg: GILD US Biotechnology / United Stales of America Shr price. close (Jul 23. 2014) $90.34 Mkt cap. curt (mm) $152.143 62-Week Range $90.74-55.96 Fiscal Year ending 12/3 12/14e 12/15e 12/16e ModelWare EPS (5) 2.05 8.16 9.19 10.17 Prior ModelWare EPS ($) 7.58 8.42 9.64 PIE 36.7 11.1 9.8 8.9 Consensus EPS ($)§ 1.98 6.73 8.22 9.35 Div yld (%) 0.0 - 0.5 1.2 Unless othenvaa noted. all metrics ate based on Morgan Stanley ModetWare framework (please see explanabon later in Ills note) § a Consensus data is provided by Thomson Reuters Estrne: a a Morgan Stanley Research estimates Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result. investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures. refer to the Disclosure Section, lo cated at the end of this report. EFTA00598622 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Risk-Reward Snapshot: Gilead (GILD, EW, PT $81) Sovaldi peak and duration, HIV patent expirations drive Risk-Reward Exhrlal 1 S 160 140 120 100 60 60 40 20 0 Jan-15 JS-12 Jan-13 Jul-13 Jan-14 Jul 14 • FiriooTanpi(Jul-15) 1.1abmiceiSiod.Poitomionoo • CocroniSiockPeco Jul-1S Source: Morgan Slarty Research estimates. Thomson Reuleis Price Target $81 We derive our PT from a discounted cash flow analysis that uses a WACC of 10•% and a 2% terminal growth rate. The main drivers are the HIV franchise and Sovaldi. Bull DCF Case $145 The number of treated HCV patients do not decline post 2017E and competition is less robust; Gilead transitions more than half of HIV sales to new regimens We assume: 1) -35B in 2020E antiviral sales. of which 6168 is from HCV. 2) The number of naive US HCV patients treated is stable at -2001vyr. 3) HCV pricing is not impacted by competition, and 4) CompleraiEvipleraiStribild/TAF take -60% patient share of HIV Base DCF Case $81 US treated HCV patients decline modestly post 2017E, around half of HIV sales are transltioned to new regimens. We assume: 1) -208 in 2020E antiviral sales. of which -$62 is from HCV. 2) The number of naive US HCV patients treated declines to -115Wyr. 3) HCV pricing is modestly impacted by competition (-15%). and 4) ComplerarEvipleraiStribild/TAF take -35% patient share of HIV Bear DCF Case $34 Rapid peak and then erosion of the HCV market, HIV cliffs: 1) -9B in 2020E antiviral sales. of which -$500M is from HCV. 2) The number of naive US HCV patients treated declines to baseline. 3) HCV pricing/share is aggressively impacted by competitors (- 70%). 4) ComplerarEviplera/Stribild/TAF take -20% patient share of HIV Investment Thesis We are EW Gilead as we believe some of the risks around HCV have been overlooked suggesting risk to out-year estimates. This is balanced by the potential for a solid hemionc franchise in idelalisib and time to switch HIV patients away from therapies that go generic. • HCV (Sovaldi): HCV demand is off to a strong start with sales likely of at least $10B in the first year. That said, we don't have confidence that peak revenues will continue after all the patients in care are treated (-2017E). We highlight risks on multiple fronts including pricing. competition and high consensus expectations. • HIV: Gilead has done a good job of switching naïve patients to the new STRs (Stribild and Complera), but TruvadaiAtripla still hold -60% of the market right now. which means a significant number still need to be switched. This is a potential source of LT risk. However. there is still time and we've yet to get all the TAF data. • Oncology (Idelalisib): We believe idelalisib can be a $1 -2B US asset. That said. duration of therapy is currently unclear (the major driver of sales) given the liver function issues. If LFTs cause short duration. there could be downside to sales. However. we note expectations are modest. Risks to our price target 1) A longer peak to HCV sales. 2) A higher peak of HCV sales followed by a rapid decline. 3) Unexpected toxicity or competition in HCV, 4) Unexpected toxicity in idelalisib, 5) Early pipeline success for simtuzumab 2 EFTA00598623 Morgan Stanley MORGAN STANLEY RESEARCH Exhibit 2 Gilead 2014 Variance MSe 2O14E MSe %YiY July 23. 2014 Gilead Sciences inc. 2O14A Actual % Y/Y Difference Consensus 2O14E* Difference Product Sales (WW): Atripla $923 -2% $871 -7% -6% $875 ($4) 0% Tmvada $807 0% $807 0% 0% $789 $18 2% Viread $269 8% $261 4% -3% $237 $24 10% CompleraiEviplera $265 40% $299 59% 13% $277 $22 8% Stribild $248 150% $270 171% 9% $262 $7 3% Sovaldi 53.625 NM $3,481 NM -4% $2.870 $611 21% Other $30 NM $24 •13% •19% Total Antiviral Products $6.197 168% $6,012 160% .3% Letairis $156 22% $145 13% -7% $134 $11 8% Ranexa $129 21% $122 14% •5% $119 $3 2% AmBisome $89 18% $95 26% 7% $87 $7 8% Cayman $40 18% $39 16% -2% Other $1 •13% $0 NM MN Total Product Sales $6.612 149% $6.413 141% •3% $340 56.073 1784% Royalty. Contract. Other Revs $93 •16% $122 11% 31% Total Revenues $6.705 142% $6,535 136% -3% $5.850 $685 12% COGS $927 40% $723 9% -22% Gross Profil $5.778 174% $5,812 176% 1% M $575 18% $542 11% -6% SG&A $535 42% $569 51% 6% Operating Income $4,668 276% $4,701 278% 1% Interest Expense. Nel ($76) NM ($102) NM 34% Other Income (Expense). Nel ($20) NM ($4) NM -82% Pretax Income $4,572 293% $4,595 295% 1% Taxes $963 192% $671 104% -30% Tax tale 2f% •26% 15% -48% -31% Net loss from noncontroiling interest ($5) NM ($5) NM 6% Net Income (Non-GAAP) $3,613 330% $3,930 368% 9% Non-GAAP EPS (excl. options) $2.14 331% $2.36 376% 11% $1.79 $0.57 32% GAAP EPS $1.96 331% 52.20 382% 12% Diluted Shares Outstanding 1678 1663 NM Gross Margin 86% 13% 89% 17% 3% 85% M (% of Sales) 9% •51% 8% -53% -3% SG&A (% of Sales) 8% -41% 9% -36% 9% Operating Margin 70% 55% 72% 60% 3% Seine: Company Dela. Morgan Santry Research 3 EFTA00598624 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Exhitin 3 Gilead Income Statement 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E GIN% Scene $1410inen1 10144 20144 3014E 4014E Produci5.0% 6.469 7.350 8002 9.3% 10.804 4171 6.413 5.796 7.672 24.813 27.797 29.280 26.763 25.286 22933 22660 Rey=0•1441(1011* MM.* 542 559 283 301 316 128 122 71 43 365 377 390 403 418 433 448 Toll R.ynae 7.011 7949 8.385 9.7% 11902 4.999 6.636 6867 7.716 25.171 26.174 29.670 27.166 25.703 23.364 23.100 5.530 6257 22.628 0008 1.533 1.793 2.046 2.401 2.708 611 723 964 1.233 3.532 4.679 4.909 4.647 4.544 4.434 4.491 Or048 P7041 6481 1157 1339 7.302 8.493 4.388 5.812 4.903 6.482 21.646 23.495 24,761 22519 21.159 18932 18.618 631 839 1.119 1.4% 1.948 558 542 600 660 350 2.515 2.691 2325 2.896 2.968 3.042 Go, 061044101 32 3-2.4B $06A 820 913 1.091 1.226 1.557 500 569 2.703 2.973 3.121 3.090 3.059 3.029 Operailna Income 3.430 4.405 4.126 41490 4.988 3930 4.701 663 5.161 15.946 18.278 19.098 16972 16.173 12.961 12447 Mem, 4/wee -70 -109 -182 .307 -76 '102 -102 .82 363 -400 383 364 .341 -343 -332 Cesar income (emonso. nal 42 60 67 .37 -20 -4 67 30 123 239 325 371 376 356 Pian none 1803 4357 4011 4.189 4.673 3934 4.595 3.587 5.136 16.614 16.000 19.954 16934 15.202 12.939 12971 Tates 950 1.154 987 1.123 1.240 751 671 636 663 3.020 2.732 2.308 1.848 1.851 1.705 1.782 Tar Rate 25% 26% 15% 17% 17% 22% 15% It% 77% 032% 15% /2% //IS /2% 13% 14% Net Moose 0.644,10) 2443 3.203 3.024 3036 3.433 2.483 15268 18.645 14486 13.350 11233 10.789 Na loss Inn noncortrohna emoted. '10 '12 'IS 44 '18 5 5 5 II 'II 'II 0 0 0 0 NM Income 10 Gilead 61440-08.481 2853 9,214 AO* 3,004 3.451 Mae 3230 2.957 4.213$ 13.611 11286 16863 14.686 13.350 11233 10.789 7k4semp tPs5na 0646580 $584 $183 096 82.0$ $1.48 1136 11.78 1296 $8.17 $9.19 $10.18 1932 96.96 18.05 1840 ipallesus 1.62 7.94 6.73 8.23 935 M75 Nen gaap EPS (al. omons) $1.46 $1.76 EIS $1.73 61.91 $1.44 $232 $1.74 $253 5901 5333 59,94 6905 $166 $788 $787 GOAP EP5 Owl comes/ $1.41 $1.66 $1.77 $1.64 41.32 $1.32 $220 $1.60 $249 $7.97 $5.98 $9.94 $805 $4.64 $788 $7.86 Eitiee %OM • GAAP 1409 1.712 1.615 1.515 1.529 1.537 1.533 1.532 1.531 1.526 1523 1.499 1.443 1.366 1278 1.190 MAW Shares. CIAAP 1 ass 1.747 1.550 1.583 1.686 1.680 1.664 1.663 1.662 1667 1.664 1.638 1576 1.491 1.397 1,300 DAM Shares- eon4144P 1.818 1.743 1.576 1.590 1.685 1.679 1.663 1.662 1.661 1.626 1.663 1.637 1.576 1.490 1.396 1.300 COGS (poaduci revensa) 24% 24% 25% 28% 25% 13% 11% 24% 26% 25% 25% 25% 25% 25% 24% 26% Goss Mamie (Mel awenue) 78% 77% 78% 75% 76% 88% 89% 84% 84% 86% 83% 83% 83% 82% 81% 81% Co. Oulciance 85-88% (es 3%43 44881 12% 11% 19% 13% 14% 10% 9% 14% 15 14% 14% 14% 14% 14% 14% 14% S A (es a %Oita%) 12% 11% 13% 15% 17% 11% 8% 18% 16% 17% 17% 17% 17% 17% 17% 17% Operang lMrgm 55% 55% 49% 47% 45% 67% 72% 63% 67% 67% 65% 64% 61% 59% 55% 54% 58170.0 slaty 58% 59% 53% 50% 48% 69% 73% 65% 68% 69% a% 66% 63% 61% 91% 57% Nel /Malin 41% 40% 36% 32% 31% 50% 60% 50% 55% 54% 54% 66% 54% 52% 48% 47% "'" ."7-6(11/1• Nei 120(11.1617611619 27% 14% 10% 16% 15% 104% 141% 114% 152% 133% 12% 5% -9% 4% 4% Total revenue 31% 13% 5% 16% 15% 97% 136% 111% 147% 125% 12% 5% 41% 4% .1% COGS - 37% 27% IT% 1% 14% 33% 17% 34% 13% 30% 0% 21% 9% 46% 11% 23% 59% 27% 30% 21% 32% 7% 5% 7% 4% 5% 2% 2% 1% 2% 3064 14% 11% 20% 12% V% 50% 51% 62% 42% 51% 15% 10% 5% -1% -1% -1% 00On% AS& OMIT/ 3% 1% -11% -4% 4% 50% 60% 39% 53% 51% -4% -1% 4% -3% 4% -2% ESIMAmarqn 3% 2% .10% 4% -5% 43% 53% 34% 47% 45% -4% •1% .5% -3% .5% 3% Seine: Germany Dela Morgan Stanley Research EFTA00598625 Morgan Stanley M0RGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. EPhitA 4 Gilead Product Revenues (1 of 2) Product Revenue 20094 2010A woe 2,382 2927 US (2021 Expiator') 1.646 1.909 EU (2018 Expkarn:nl 678 910 ROW 59 106 Runde 2,490 21650 US (2021 Expired:ell 1.178 1.309 EU (2018 ExpOixonl 1.170 1.171 ROW 142 170 Plowed WM 732 US (2018 Explremn. Teva cetWemen0 290 320 EU (2018 Expiration) 273 293 ROW 105 119 CompleradEvIpbra US (2023 Explre0:01 EU (2022 Experaecni ROW Stribid US (2029 Expealen) EU (2027 Expiraton) ROW TAF US (20222029 Expiration) EU (202112027 Expiration) ROW SovNdl US (2029 Expiation. 2030 for FCC) EU (2028 Expiration. 2029 for FCC) ROW Other AMIvIrgl 300 228 CoblcIsnoTybora (2027 Expiration) TOW ArelVela Product* 5,839 6537 Soiree. Company Da Morgan Stanley Research 2011A 3,225 2.022 1.043 160 2,875 1.385 1.257 232 oodll EtNi 173 7,050 2012A 20134 2014E 2015E 2016E 2017E 2018E 2018E 2020E 1014 2014 3014E 4014E 3.574 3,648 780 871 917 1.009 3,577 3,572 3,559 3405 3,331 2.741 2,534 2253 2.356 490 sea 610 678 2.356 2.447 2.507 2505 2.503 2.500 2.497 1.103 1,062 237 234 237 270 978 869 782 717 573 177 20 219 231 53 56 71 61 243 256 269 283 255 64 16 3.181 3,136 760 807 803 799 3,169 3,140 3,125 3.124 2,779 2.139 1,892 1813 1.570 368 400 430 448 1.645 1.679 1.711 1.742 1.771 1.797 1.822 1316 1296 323 338 300 278 1.240 1.163 1,101 1.054 844 259 ea 253 270 69 69 73 73 284 296 313 326 164 82 41 849 969 211 261 249 294 1.014 1.064 1,113 1.166 822 241 29 388 428 81 117 115 121 433 432 430 425 304 81 8 336 354 84 88 93 117 382 408 430 454 318 100 15 125 177 46 57 41 56 199 224 253 286 200 60 6 342 809 261 299 310 362 1.212 1.689 2.292 2.604 2.101 20418 2.943 280 503 130 154 195 237 717 1.043 1.453 1.566 1.673 1.788 1.910 53 268 109 132 MO 97 438 569 749 834 914 910 912 9 39 it 13 15 19 58 75 91 104 115 120 120 68 639 216 270 289 316 1.080 1.911 2.787 3.346 3863 4.132 4,418 58 510 187 229 223 206 646 1.330 1.820 2.111 2346 2596 2.862 24 24 31 51 102 208 534 698 1.154 1.416 1,430 1.448 0 5 5 9 15 7 36 53 69 80 92 105 111 474 998 1,372 1,800 1,995 446 834 1.072 1.326 1.407 23 129 248 404 510 5 35 53 68 78 139 2.274 3,481 2,765 4,374 12,894 14.073 13,649 10.045 8,471 7219 7,016 136 2 098 3.032 2.100 3.590 10.619 9,212 7.394 5,247 4.645 4.041 3.933 3 164 401 600 680 1.845 3.559 4.240 2.750 2.078 1519 1.302 0 3 49 65 104 231 1.302 2.015 2.047 1.750 1.659 1.782 138 109 18 24 25 55 123 152 164 193 237 266 301 10 15 25 100 125 150 165 180 195 6.142 9,340 4,506 6012 5.369 7214 23,104 25,706 26,813 24.032 22,359 19,736 19,328 EFTA00598626 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Exhibit 5 Gilead Product Revenues (2 of 2) Product Revenue 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 1014 2014 3014E 4014E Letalas (US Only . Patent ExpluMon 2018) 184 240 293 410 520 123 145 156 156 624 718 789 852 639 320 64 Raneaa (US Only. Patent Expiratean 2019) 131 240 320 373 449 ❑2 122 129 129 516 593 682 771 856 933 700 AmEusome (US Paten] 2016: EU 2008) 299 306 330 347 352 92 95 89 89 314 359 305 153 IS 2 0 Other Products 17 67 109 127 143 36 39 53 84 210 422 690 955 1.416 1.943 2.569 Cayston (US 4, EU Patents 2021) 48 91 107 139 36 39 42 44 161 185 207 228 246 261 271 Other 17 19 18 20 4 0 0 I i 4 4 4 4 4 4 4 Idelalisib (2025 Esplreti0n) 10 39 49 233 479 723 1.166 1,678 2,294 Total Product Sales 6,469 7.390 8,102 9.398 10,804 4,871 6,413 5,796 7,672 24,813 27,797 29.280 26,763 25,286 22,933 22,660 Royatly.contract and other revenue 542 559 283 304 398 128 122 71 43 366 377 390 403 418 433 448 Royalty Revenue 492 546 269 291 384 120 118 68 40 351 363 376 389 404 419 434 Tamill3 RayateS 393 387 76 44 13$ 52 58 5 -25 90 90 90 90 90 90 90 Other PoyaTher, 99 159 193 247 249 72 60 63 65 261 273 286 300 314 329 345 Contract and other revenue 50 14 14 14 14 4 4 3 3 14 14 14 14 14 14 14 Total Rev nu 7,011 7,949 8,385 9,703 11,203 4,999 6,535 5,867 7.716 25,178 28,174 29.670 27,166 25.703 23.366 23,109 Smote: Company Data. 1.5angan Stanley Research EFTA00598627 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Exhite 6 Gilead Balance Sheet 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E Current assets Cash and Equivalents 1.273 908 9.884 1.804 2.113 10.875 21.989 30255 34.444 34.626 32.346 27.517 Marketable Securities 384 1.191 16 59 19 530 989 1.403 1,776 2.111 2.413 2.684 Trade Receivables. nel 1.390 1.622 1,951 1.751 2.100 4,721 5.282 5.563 5,094 4.819 4.381 4.333 Inventories 1.052 1.204 1,390 1.745 2.056 2,681 3.552 3.726 3,528 3.449 3.366 3.409 Deferred Taxes. Net 295 279 208 263 331 331 331 331 331 331 331 331 Prepaid Expenses & Taxes 352 388 342 535 564 1,385 1.409 1.483 1,358 1.285 1,168 1.155 Other Current Assets 67 116 127 0 92 378 394 415 380 386 350 347 Total current assets 4,813 5.708 13,919 6,156 7274 20.899 33247 43.177 46.910 47.006 44.354 39.775 Property. Plant & Equipment. Net 700 701 774 1,100 1.166 1.521 1.960 2.455 2.904 3224 3,680 4.029 Non-Current Portion of Prepaid Royalties 226 204 175 176 199 225 254 287 325 367 415 470 Non-Current Deferred Tax Asset 101 153 144 131 155 155 155 155 155 155 155 155 Intangible Assets. net 1,062 893 2,067 11,736 11.900 11.658 11.416 11.174 10.932 10,690 10,448 10206 Long Term Marketable Securities 2,248 3.219 64 720 439 439 439 439 439 439 439 439 Goodwill 463 533 0 1.061 1.169 1.169 1,169 1.169 1.169 1.169 1.169 1.169 Other Assets 86 181 161 159 195 413 435 428 392 371 374 370 Total assets 9.699 11,593 17.303 21,240 22.497 36.479 49.774 59.284 63.225 63,521 61.034 56.612 Current liabilities Accounts Payable 811 803 1.206 1,327 1.256 1,638 2,170 2,276 2,155 2,107 2,056 2,082 Accrued Expensestomp & Employee Ben. 132 148 173 237 244 547 613 645 591 559 508 502 Accrued Liabilities 800 765 1,059 1,433 2.018 1,860 1,826 1.982 2,081 2.095 2,110 2,125 Deferred Revenue 123 103 75 103 111 111 111 111 111 111 111 111 Curren1 Portion of Long Term Debt 6 646 2 1.169 2.697 0 1,167 0 0 0 0 0 Total current liabilities 1,872 2.465 2,515 4,270 6.325 4.176 5.885 5.014 4.938 4.872 4.784 4.920 Deferred Tax Liabilities 87 107 136 116 162 162 162 162 162 162 162 162 Long-Term Debt 1,155 2239 7.606 7.055 3.939 9,821 7.932 7.932 7.232 7.232 7.232 6,733 Long-Term Deferred Revenue 43 33 32 21 22 22 22 22 22 22 22 22 Other long.term obligations 36 27 148 228 304 904 904 904 904 904 904 904 Total liabilities 3,193 5.471 10.436 11,689 10.752 15.085 14,905 14.034 13.258 13.192 13,105 12.642 &enmity Interest 138 258 128 241 375 358 340 323 323 323 323 323 Preferred Stock 0 0 0 0 0 0 0 0 0 0 0 0 Common Stock 1 1 1 1 2 2 2 2 2 2 2 2 Additional paid-in capital 4.377 4.648 4,903 5,650 5.387 4,870 4.172 -82 -7.488 -17.435 -28,411 -40.551 (Accumulated Deficit) Retained Earnings 1.995 1.184 1.777 3.705 6.105 16.289 30.479 45.132 57.255 67.564 76.141 84,322 Accumulated Other Comprehensive Income -6 31 58 -46 .124 .124 -124 -124 -124 -124 .124 -124 Total stockholders' equity 6,367 5.864 6.739 9,310 11.369 21.036 34,528 44.927 49.644 50,006 47.606 43.648 Total Liabilities and equity 9.699 11.593 17.303 21,240 22.497 36.479 49,774 59.284 63.225 63,521 61.034 56,612 Source: Company Gala Morgan &aniey Resoaich EFTA00598628 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Exhibit 7 Gilead Cash Flow Statement 2009 2010 2011 2012 2013 2014E 2015E 2018E 2017E 2018E 2019E 2020E Nel Income (Loss) 2.626 2.890 2.789 2.574 3.057 13.278 14.919 16.261 14263 12.886 10.722 10.226 Depreciation 8 Arnorlization 213 265 302 278 345 379 423 475 527 581 634 691 Slock.based compensation expense 100 118 152 209 252 318 349 384 423 465 511 583 In-process research antl developmetd impalement charges 136 27 0 0 0 0 0 0 0 0 0 Tax Benefits Related to Employee Stock Options 88 82 37 -2 6 Deterred Income Taxes -42 12 64 -39 -98 0 0 0 0 0 0 0 Anwatoalion of Bond Discount 0 26 27 0 0 0 0 0 Other 64 10 48 -2 105 glfillatli1MHIIMAISAla2HkaM26) Accot.nts receivable. net -356 -349 -376 198 -315 -2.620 -582 -280 469 274 438 48 Inventories -75 -181 -201 -350 -343 -625 -871 -174 198 78 84 .43 Prepaid Expenses -66 20 -14 -129 -170 -1.133 -70 -129 123 25 104 -38 Accowas Payable 204 -4 429 117 -98 362 532 107 -121 -48 -51 26 Arwood Lialalities and taxes payable 275 436 411 318 342 166 11 189 45 -18 -36 10 Deferred Revenue 49 -30 -29 23 22 0 0 0 0 0 0 0 Net cash provided by fined in) operating activities 3.080 2,834 3.639 3.195 3.105 10.168 14.759 16,832 15,927 14,244 12,406 11.483 Purchases Of Marketable Stultifies -2.614 -5.503 -5.128 -1.245 -257 -5.128 -5.128 -5.128 -5.128 2.128 2.128 2.128 Proceeds From Sales Of Marketable Securities 1.441 3.034 8.650 528 494 4.615 4.615 4.615 4.815 4.615 4.615 4.615 Proceeds From t4wwities Of lAarkelable Securities 436 684 788 45 78 2 53 99 140 178 211 241 Acqtisitions. Net &Cash -1.248 -91 -589 -10.752 -379 0 0 0 0 0 0 0 PUICh3305 of PP8E -230 -62 -132 -397 -191 -492 -621 -728 -734 -759 -748 -798 Other -25 0 -218 -21 7 38 21 -3 4 Net cash used in investing activities -2.216 3.590 -11.848 -254 -1.221 -1.102 -1.135 4.071 -1.073 -1.063 -1.066 Cash Flows from Financing Activities Proceeds hoot issuances ol common stock (tor ESO) 223 221 212 466 313 204 184 132 106 85 68 33 Excess tax benefits born SIOCk-based compensation 80 82 41 114 279 162 108 70 51 45 39 20 Proceeds lion, sale otIpayrnents w settle) warrants 155 -1.040 Floceedsr(pmchases) ol converlible note hedges -363 214 2.774 Proceeds foomtirepayrnents ol) debt financing -311 2.457 4.009 305 -4.440 3.759 -750 -1.167 4399 0 0 -499 Contributions from (dstrIbutions to) nonconoolIng Merest -45 132 -115 131 152 Repurchases ol common stock -998 .4.023 -2283 4367 222 -1.320 -4.840 -7.986 -10.542 -11.596 -12.755 Dividends pad 0 -746 2.139 -2.577 2.144 -2.045 Other 0 -3.110 0 0 0 0 0 0 Net cash provided by financing activities -1,051 -1,339 1,784 583 -2,544 -185 -2,643 -7.431 -10,668 -12,989 34 83 ` 3_ -16,248 Erect of Exchange Raze Changes on Cash 1 77 -17 8 2 Change in cash -186 -365 8.976 -8.080 309 8.762 11.114 8.266 4.189 182 -2.280 4.229 Cash at berynnow of year 1.459 1.273 908 9.884 1.804 2.113 10.875 21.989 30.255 34.444 34.628 32.346 Lisa al end ci Year 1413 900 9.564 1.504 411.1 10.0/0 L1.Wp 30433 34.444 .54.040 .14..40 2/ toll Sowce. Company Dwa. Morgan Santry Research EFTA00598629 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. 9 EFTA00598630 Morgan Stanley MORGAN STANLEY RESEARCH UnP.t.AS ":TANI.C." July 23. 2014 Gilead Sciences Inc. NI ModelWare Morgan Stanley ModelWare is a proprietary analytic framework that helps clients uncover value, adjusting for distortions and ambiguities created by local accounting regulations. For example. ModelWare EPS adjusts for onetime events, capitalizes operating leases (where their use is significant), and converts inventory from LIFO costing to a FIFO basis. ModelWare also emphasizes the separation of operating performance of a company from its financing for a more complete view of how a company generates earnings. Disclosure Section The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC. and/or Morgan Stanley MIR S.A.. C M and/or Morgan Stanley Mexico. Casa de Bolsa. S.A. de V.. 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Idenix Pharmaceuticals. Inc., ImmunoGen Inc.. Ironwood Pharmaceuticals, Inc.. Ophthotech Corp. Within the last 12 months. Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Akebia Therapeutics Inc. AMAG Pharmaceuticals, Inc., Amgen Inc., Celgene Corp. Chimenx Inc. Cubist Pharmaceuticals Inc., Gilead Sciences Inc.. GW Pharmaceuticals PLC. Ironwood Pharmaceuticals, Inc., Ophthotech Corp. Portola Pharmaceuticals Inc, Relypsa. Inc.. Synageva Biopharma Corp. Ultragenyx Pharmaceutical Inc. Versartis. Inc.. Within the last 12 months. Morgan Stanley has received compensation for investment banking services from Akebia Therapeutics Inc, AMAG Pharmaceuticals. Inc.. Amgen Inc.. Biogen Idec Inc., Celgene Corp. Chimerix Inc, Cubist Pharmaceuticals Inc., Gilead Sciences Inc.. GW Pharmaceuticals PLC. Ironwood Pharmaceuticals. Inc., Ophthotech Corp. Portola Pharmaceuticals Inc, Relypsa. Inc.. Synageva Biopharma Corp. Theravance Inc, Ultragenyx Pharmaceutical Inc, Versartis, Inc.. In the next 3 months. Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Akebia Therapeutics Inc, Alexion Pharmaceuticals. Alnylam Pharmaceuticals, AMAG Pharmaceuticals. Inc., Amgen. Inc., Auxilium Pharmaceuticals, Biogen Idec Inc. Celgene Corp, Chimerix Inc. Cubist Pharmaceuticals Inc.. Gilead Sciences Inc.. GW Pharmaceuticals PLC. ImmunoGen Inc.. Incyte Corporation. Infinity Pharmaceuticals Inc. InterMune. Ironwood Pharmaceuticals, Inc., Lexicon Pharmaceuticals. Inc.. Neurocrine Biosciences Inc. NPS Pharmaceuticals, Ophthotech Corp. Pharmacydics Inc.. Portola Pharmaceuticals Inc, Regeneron Pharmaceuticals Inc., Relypsa, Inc.. Synageva Biopharma Corp, Theravance Inc, Ultragenyx Pharmaceutical Inc, Versartis, Inc., Vertex Pharmaceuticals. XenoPort Inc. Within the last 12 months. Morgan Stanley has received compensation for products and services other than investment banking services from Amgen Inc.. Auxilium Pharmaceuticals. Biogen Mee Inc., Celgene Corp. Cubist Pharmaceuticals Inc., Vertex Pharmaceuticals. Within the last 12 months. Morgan Stanley has provided or is providing investment banking services to. or has an investment banking client relationship with, the following company: Akebia Therapeutics Inc, Alexion Pharmaceuticals. Alnylam Pharmaceuticals. AMAG Pharmaceuticals. Inc., Amgen Inc., Auxilium Pharmaceuticals, Biogen Idec Inc., Celgene Corp, Chimerix Inc. Cubist Pharmaceuticals Inc.. Gilead Sciences Inc.. GW Pharmaceuticals PLC, ImmunoGen Inc., Incyte Corporation, infinity Pharmaceuticals Inc. InterMune, Ironwood Pharmaceuticals. Inc., Lexicon Pharmaceuticals. Inc.. Neurocrine Biosciences Inc, NPS Pharmaceuticals. Ophthotech Corp. Pharmacydics Inc.. Portola Pharmaceuticals Inc. Regeneron Pharmaceuticals Inc.. Relypsa, Inc., Synageva Biopharma Corp, Theravance Inc. Ultragenyx Pharmaceutical Inc, Versartis, Inc., Vertex Pharmaceuticals. XenoPort Inc. Within the last 12 months. Morgan Stanley has either provided or is providing non-investment banking. securities•related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: AMAG Pharmaceuticals. Inc., Amgen Inc.. Auxilium Pharmaceuticals. Biogen Idec Inc., Celgene Corp, Cubist Pharmaceuticals Inc., Gilead Sciences Inc., InterMune, Portola Pharmaceuticals Inc. Regeneron Pharmaceuticals Inc.. Vertex Pharmaceuticals. Morgan Stanley & Co. LLC makes a market in the securities of Akebia Therapeutics Inc, Alexion Pharmaceuticals. Alnylam Pharmaceuticals. AMAG Pharmaceuticals. Inc., Amgen Inc.. Auxilium Pharmaceuticals. Biogen Idec Inc., Celgene Corp, Chimerix Inc, Cubist Pharmaceuticals Inc., Gilead Sciences Inc.. Idenix Pharmaceuticals. Inc.. ImmunoGen Inc.. Incyte Corporation, Infinity Pharmaceuticals Inc, InterMune, Ironwood Pharmaceuticals. Inc.. Lexicon Pharmaceuticals. Inc.. Neurocrine Biosciences Inc, NPS Pharmaceuticals, Ophthotech Corp. Pharmacyclics Inc.. Portola Pharmaceuticals Inc. Regeneron Pharmaceuticals Inc., Relypsa. Inc., Synageva Biopharma Corp. Theravance Inc. Versartis. Inc.. Vertex Pharmaceuticals. XenoPort Inc. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research. Investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. 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Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight. Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In adation. since Morgan Stanley Research contains more complete information concerning the analysts views, investors should carefully read Morgan Stanley Research. in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Global Stock Ratings Distribution (as of June 30. 2014) For disclosure purposes only (in accordance with NASD and NYSE requirements). we include the category headings of Buy. Hold. and Sell alongside our ratings of Overweight. Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy. Hold or Sell to the stocks we cover. Overweight, Equal-weight. Not-Rated and Underweight are not the equivalent of buy. hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating. with a buy recommendation: we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively. Stock Rating Category Coverage Universe Investment Banking Clients (SC) Count % of Yr of % of Rating Total Count Total IBC Category Overweight/Buy 1080 35% 367 38% 34% Equal-weight/Hold 1339 44% 469 49% 35% Not-Rated/Hold 113 4% 23 2% 20% Underweight/Sell 546 18% 98 10% 18% Total 3,078 957 Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis. over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's Industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not•Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry(or industry teams) coverage universe, on a risk•adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's Industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified. the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects theperformance of his or her industry coverage universe over the next 12.18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12.18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark. as indicated below. Benchmarks for each region are as follows: North America • 500: Latin America - relevant MSCI country index or MSCI Latin America Index: Europe • MSCI Europe: Japan - TOPIX: Asia - relevant MSC country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Stock Price. Price Target and Rating History (See Rating Definitions) 11 EFTA00598632 Morgan Stanley MORGAN STANLEY RESEARCH 120 110 100 90 80 70 60 SO 40 30 20 10 0 0701 07.^ : OM 20 1 201. 20 3 Stock Reline II lotory i 7/1/11 t WI, 11/21/11 : NA/I) 24/12 1 041 64/13 i NA/17 3/24/14 2 Ea Pr ce Target History: 11/21/11 t NA; 2.4/12 t 32.25) le/4/12 t 31.61 12/14/12 t 43.6) 1443 1 441 2/6/13 t 461 4/22/13 t 66) 6/9/13 1 NA) 3/26/14 t 76) 716114 8 SI Source: Morgan Stanley Research Me Fermat : MINVOIVYY Price Tweet •-• No Price 'forget Assigned (NA) Stock Price (Not Covered byCurrent Analyst) — Stock Price tCesereil by end. Analyse )ma Stock and Industry Ratings (obbrwiation• below) appear • Skids Rotine/Industry View Stock Ratings: Overweight (0) Equal-weight (E) Underweight (U) Not-Rated (IM) No Rating Available (NA) Industry View: Attractive (A) In-line (I) Cautious (C) No Rating (NR) Effective January 13. 2014. the stocks covered by Mayen Stanley Asia Pacific will be rated relative to the analyst's industry (or industry team's) coverage. Effective January 13. 2014. the industry view benchmarks foe Kwym. Stanley Rsia Pacific we as follow: relevant PISCI country index or MSCI sub-regional index or MSC' AC Asia Pacific ex Jape. Index. July 23. 2014 Gilead Sciences Inc. Gilead Sciences Inc. (GILD.0) - As of 7/23/14 in USD Industry : Biotechnology • 0/I FHA 16471 s'1/VI- ^5 • Er CRIB . -.-.- 32.5 44 443 _tri.r.v.r.„.„,, ao . res—r-rn I ISICISINIOI JIrIMISINI . i inistnIJ st ri t:IOINIDIJI Min 4 I II IJ 07/01 2014 Important Disclosures for Morgan Stanley Smith Barney LLC Customers Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC or on the Morgan Stanley Wealth Management dsclosure 000 ar For Morgan Stanley specific disclosures. you may refer to Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the same person who reviews the Equity Research report on behalf ol Morgan Stanley. This could create a conflict of Merest. Other Important Disclosures Morgan Stanley & Co. 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Morgan Stanley Research. or any portion thereol may not be reprinted, sold or redistributed without the written consent of Morgan Stanley. 13 EFTA00598634 Morgan Stanley MORGAN STANLEY RESEARCH The Americas 1585 Broadway New York. NY 10036-8293 United States Tel: +1 (1) 212 761 4000 Europe 20 Bank Street. Canary Wharf London E14 4AD United Kingdom Tel: +44 (0) 20 7 425 8000 Japan 1-9-7 Otemachi. Chiyoda-ku Tokyo 100-8104 Japan Tel: +81 (0) 3 6836 5000 Asia/Pacific 1 Austin Road West Kowloon Hong Kong Tel: +852 2848 5200 Industry Coverage:Biotechnology Pharmacyclics Inc. (PCYC.0) E (03.262014) $103.92 Regeneron Pharmaceuticals Inc. E (01262014) $310.27 (REGN.0) Sock Ratings Phase !ales: for Company (Ticker) are subject lo change. see research each company. ' Ilislohcal prices are rot spit adyslecl. Rating (as of)Price• (07/23/2014) David Friedman, M. AMAG Pharmaceuticals. Inc. E(11/212011) $19.04 (AMAG.0) Akebia Therapeutics Inc (AKBA.0) 0 (04/14/2014) $23.19 Alexion Pharmaceuticals (ALXN.0) 0 (09/07/2010) $173.08 Alnylam Pharmaceuticals E (01/14)2014) $55.86 (ALNY.0) Auxilium Pharmaceuticals U (03/06/2014) $19.6 (AUXL.0) Chimerix Inc (CMRX.0) 0 (05/06/2013) $22.87 Cubist Pharmaceuticals Inc. 0(11/132013) $62.58 (CBST.0) GW Pharmaceuticals PLC 0 (04)22/2014) $86.68 (GWPH.0) Idenix Pharmaceuticals. Inc. E(03/182011) $24.32 (IDIX.0) Incyte Corporation (INCY.0) U (01/23/2013) $48.98 InterMune (ITMN.0) E (09/07)2010) $46.4 Ironwood Pharmaceuticals. Inc. E (04)24)2013) $15.05 (IRW0.0) Lexicon Pharmaceuticals. Inc. U(08/11/2013) $1.59 (U(RX.0) NPS Pharmaceuticals (NPSP.0) + • $29.33 Neurosis Biosciences Inc E (01/08/20 4) $13.71 (NBIX.0) Ophthotech Corp (OPHT.0) 0 (10/21/20 3) $40.63 Panda Pharmaceuticals Inc 0 (06/17/20 3) $24.92 (PTLA.0) Relypsa. Inc. (RLYP.0) 0 (12/10/20 3) $24.98 Synageva Biopharma Corp 0 (04)20/20 2) $72.44 (GEVk0) Theravance Inc (THRX.0) U (07/22/20 3) $25.32 Ultragenyx Pharmaceutical Inc 0 (02/25/20 4) $43.05 (RARE.0) Versartis. Inc. (VSAR.0) 0 (04/15/20 4) $23.45 Vertex Pharmaceuticals (VRTX.0) E (05/08/20 2) $98.14 XenoPorl Inc (XNPT.0) U (06/11/20 3) $4.39 Matthew Harrison Amgen Inc. (AMGN.0) 0 (03/2620 4) $122.01 Bingen Idec Inc. (BIIB.0) 0 (03'26/20 4) $337.6 Celgene Corp (CELG.0) E (0326/20 4) $89.12 Gaead Sciences Inc. (GILD.0) E (03/26/20 4) $90.34 ImmunoGen Inc. (IMGN.0) U (06/25/20 4) $11.38 Infinity Pharmaceuticals Inc 0 (06/25/20 4) $9.82 (INFLO) 0 2014 Morgan Stanley EFTA00598635