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8-K - FORM 8-K - GILEAD SCIENCES INCd260880d8k.htm
EX-12.1 - GILEAD SCIENCES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - GILEAD SCIENCES INCd260880dex121.htm
EX-99.3 - CONSENT OF GRANT THORNTON LLP - GILEAD SCIENCES INCd260880dex993.htm
EX-99.1 - FINANCIAL STATEMENTS OF PHARMASSET, INC - GILEAD SCIENCES INCd260880dex991.htm

Exhibit 99.2

GILEAD SCIENCES, INC. AND PHARMASSET, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL STATEMENTS

The unaudited pro forma condensed combined financial statements and related financial information presented below are based on, and should be read in conjunction with: (i) the historical condensed consolidated financial statements and the related notes thereto of Gilead Sciences, Inc. (“Gilead”) included in its Annual Report on Form 10-K for the year ended December 31, 2010 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2011; and (ii) the historical condensed financial statements and the related notes thereto of Pharmasset, Inc. (“Pharmasset”) filed herewith as Exhibit 99.1. The unaudited pro forma condensed combined balance sheet and statements of income give effect to the acquisition of Pharmasset, as if it had occurred on January 1, 2010 for income statement purposes and as if the acquisition had occurred on September 30, 2011 for balance sheet purposes.

The historical condensed consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable and (3) with respect to the statements of income, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements and the separate historical financial statements of Gilead and Pharmasset.

The unaudited pro forma condensed combined financial information has been presented for informational purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.


GILEAD SCIENCES, INC. AND PHARMASSET, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

BALANCE SHEET

AS OF SEPTEMBER 30, 2011

(in thousands)

 

     Historical     Pro Forma
Adjustments
(Note 5)
    Pro Forma
Combined
 
     Gilead
    Pharmasset
(Note 2)
     

Assets

        

Current assets:

        

Cash and cash equivalents

   $ 909,359      $ 166,455      $ (501,338 ) (a)    $ 574,476   

Short-term marketable securities

     1,347,776        —          (1,347,776 ) (a)      —     

Accounts receivable, net

     1,867,092        —          —          1,867,092   

Inventories

     1,337,751        —          —          1,337,751   

Deferred tax assets

     283,856        —          —          283,856   

Prepaid taxes

     194,973        —          —          194,973   

Prepaid expenses

     90,817        —          —          90,817   

Other current assets

     115,643        3,528        43,380   (a)      162,551   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     6,147,267        169,983        (1,805,734     4,511,516   

Property, plant and equipment, net

     761,190        1,983        —          763,173   

Noncurrent portion of prepaid royalties

     181,080        —          —          181,080   

Noncurrent deferred tax assets

     82,728        —          —          82,728   

Long-term marketable securities

     3,224,981        —          (3,143,181 ) (a)      81,800   

Intangible assets

     2,111,003        —          10,898,579   (b)      13,009,582   

Other noncurrent assets

     131,649        239        23,420   (a)      155,308   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 12,639,898      $ 172,205      $ 5,973,084      $ 18,785,187   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

        

Current liabilities:

        

Accounts payable

   $ 1,063,723      $ 5,703      $ —        $ 1,069,426   

Accrued government rebates

     412,372        —          —          412,372   

Accrued compensation and employee benefits

     149,092        —          —          149,092   

Income taxes payable

     33,672        —          —          33,672   

Other accrued liabilities

     495,312        7,495        —          502,807   

Deferred revenues

     68,673        633        (633 ) (c)      68,673   

Current portion of long-term debt and other obligations, net

     1,587        2,470        747,530   (f)      751,587   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     2,224,431        16,301        746,897        2,987,629   

Long-term deferred revenues

     34,704        1,425        (1,425 ) (c)      34,704   

Long-term debt, net

     3,891,758        116        5,449,884   (f)      9,341,758   

Long-term income taxes payable

     117,025        —          —          117,025   

Other long-term obligations

     138,774        91        —          138,865   

Stockholders’ equity:

        

Common stock

     757        76        (76 ) (d)      757   

Additional paid-in capital

     4,809,752        478,848        (478,848 ) (d)      4,809,752   

Accumulated other comprehensive income (loss)

     (15,541     —          (26,153 ) (e)      (41,694

Retained earnings (accumulated deficit)

     1,321,796        (324,652     282,805   (e)      1,279,949   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total controlling interest stockholders’ equity

     6,116,764        154,272        (222,272     6,048,764   

Noncontrolling interest

     116,442        —          —          116,442   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     6,233,206        154,272        (222,272     6,165,206   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 12,639,898      $ 172,205      $ 5,973,084      $ 18,785,187   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements,

which are an integral part of these statements.


GILEAD SCIENCES, INC. AND PHARMASSET, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2010

(in thousands, except per share amounts)

 

     Historical     Pro Forma
Adjustments
(Note 5)
    Pro Forma
Combined
 
     Gilead     Pharmasset
(Note 2)
     
Revenues:         

Product sales

   $ 7,389,921      $ —        $ —        $ 7,389,921   

Royalty revenues

     545,970        —          —          545,970   

Contract and other revenues

     13,529        998        —          14,527   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     7,949,420        998        —          7,950,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Cost of goods sold

     1,869,876        —          —          1,869,876   

Research and development

     1,072,930        57,832        —          1,130,762   

Selling, general and administrative

     1,044,392        17,295        —          1,061,687   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     3,987,198        75,127        —          4,062,325   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     3,962,222        (74,129     —          3,888,093   

Interest and other income, net

     60,287        496        (50,126 ) (g)      10,657   

Interest expense

     (108,961     (2,083     (247,497 ) (h)      (358,541
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     3,913,548        (75,716     (297,623     3,540,209   

Provision for income taxes

     1,023,799        —          (97,667 ) (i)      926,132   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2,889,749        (75,716     (199,956     2,614,077   

Net loss attributable to noncontrolling interest

     11,508        —          —          11,508   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to controlling interest

   $ 2,901,257      $ (75,716   $ (199,956   $ 2,625,585   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to Gilead common stockholders - basic

   $ 3.39          $ 3.07   
  

 

 

       

 

 

 

Shares used in per share calculation - basic

     856,060            856,060   
  

 

 

       

 

 

 

Net income per share attributable to Gilead common stockholders - diluted

   $ 3.32          $ 3.01   
  

 

 

       

 

 

 

Shares used in per share calculation - diluted

     873,396            873,396   
  

 

 

       

 

 

 

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements,

which are an integral part of these statements.


GILEAD SCIENCES, INC. AND PHARMASSET, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(in thousands, except per share amounts)

 

     Historical     Pro Forma
Adjustments
(Note 5)
    Pro Forma
Combined
 
     Gilead
    Pharmasset
(Note 2)
     

Revenues:

        

Product sales

   $ 5,969,025      $ —        $ —        $ 5,969,025   

Royalty revenues

     204,615        —          —          204,615   

Contract and other revenues

     11,367        650        —          12,017   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     6,185,007        650        —          6,185,657   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Cost of goods sold

     1,539,963        —          —          1,539,963   

Research and development

     826,915        57,082        —          883,997   

Selling, general and administrative

     895,764        11,575        —          907,339   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     3,262,642        68,657        —          3,331,299   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     2,922,365        (68,007     —          2,854,358   

Interest and other income, net

     40,216        12        (37,925 ) (g)      2,303   

Interest expense

     (130,420     (660     (149,094 ) (h)      (280,174
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     2,832,161        (68,655     (187,019     2,576,487   

Provision for income taxes

     704,861        (973     (62,658 ) (i)      641,230   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2,127,300        (67,682     (124,361     1,935,257   

Net loss attributable to noncontrolling interest

     11,192        —          —          11,192   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to controlling interest

   $ 2,138,492      $ (67,682   $ (124,361   $ 1,946,449   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to Gilead common stockholders - basic

   $ 2.72          $ 2.47   
  

 

 

       

 

 

 

Shares used in per share calculation - basic

     787,272            787,272   
  

 

 

       

 

 

 

Net income per share attributable to Gilead common stockholders - diluted

   $ 2.66          $ 2.42   
  

 

 

       

 

 

 

Shares used in per share calculation - diluted

     802,762            802,762   
  

 

 

       

 

 

 

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements,

which are an integral part of these statements.


GILEAD SCIENCES, INC. AND PHARMASSET, INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

1. Description of Transaction

On November 21, 2011, Gilead and Pharmasset announced that the companies signed a definitive agreement (the “Acquisition”) under which Gilead will acquire Pharmasset for $137.00 per share in cash through a tender offer. Upon completion of the transaction, Pharmasset would become a wholly-owned subsidiary of Gilead.

2. Basis of Presentation

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting, and was based on the historical financial statements of Gilead and Pharmasset. For ease of reference, all pro forma financial statements use Gilead’s fiscal periods. Accordingly, the financial results for Pharmasset for the year ended December 31, 2010 were derived from the audited financial statements included in Pharmasset’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010, plus the unaudited condensed financial results for the three months ended December 31, 2010 from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2010, less the unaudited condensed financial results for the three months ended December 31, 2009 from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2009. The financial results for Pharmasset for the nine months ended September 30, 2011 were derived from audited financial statements included in Pharmasset’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011 less the unaudited condensed financial results for the three months ended December 31, 2010 from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2010. Certain reclassifications have been made to the historical financial statements of Pharmasset to conform with Gilead’s presentation, primarily related to the presentation of prepaid assets, other non-current assets and deferred rent.

Under the acquisition method of accounting, the total purchase price of $11.1 billion is to be allocated to the net tangible and intangible assets acquired and liabilities assumed of Pharmasset based on their estimated fair values. Management has made a preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on various estimates. The acquisition accounting is dependent upon certain valuations that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments included herein are preliminary, have been made solely for the purpose of providing unaudited pro forma condensed combined financial information and may be revised as additional information becomes available or as additional analyses are performed. Differences between the preliminary estimates reflected in these unaudited pro forma condensed combined financial statements and the final acquisition accounting will likely occur. These differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements or the combined company’s future results of operations and financial position.

The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Acquisition, the costs to integrate the operations of Gilead and Pharmasset or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

3. Accounting Policies

The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies. Upon consummation of the Acquisition, Gilead will conduct a review of Pharmasset’s accounting policies. As a result of that review, Gilead may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the unaudited pro forma combined financial statements. At this time, Gilead is not aware of any differences that would have a material impact on the combined financial statements.

4. Purchase Price

For purposes of presentation in the unaudited pro forma condensed combined financial statements, the estimated total purchase price for Pharmasset is $11.1 billion in cash. A preliminary estimate of the fair value of the assets to be


acquired and the liabilities to be assumed by Gilead for this acquisition, reconciled to the estimate of consideration expected to be transferred is shown below. The final valuation of net assets acquired is expected to be completed as soon as possible after the acquisition date (in thousands):

 

Allocation of purchase price

  

Tangible assets and liabilities

  

Cash and cash equivalents

   $ 163,869   

Other current assets

     3,528   

Property, plant and equipment, net

     1,983   

Other noncurrent assets

     239   

Accounts payable

     (5,703

Other accrued liabilities

     (7,495

Other long-term obligations

     (91
  

 

 

 

Total net tangible assets

     156,330   
  

 

 

 

Intangible assets

  

Goodwill, IPR&D, and other intangible assets

     10,898,579   
  

 

 

 

Total allocated purchase price

   $ 11,054,909   
  

 

 

 

5. Pro Forma Adjustments

For purposes of preparing these unaudited pro forma condensed combined financial statements, we assumed the following adjustments:

Pro Forma Condensed Combined Balance Sheet as of September 30, 2011

 

  (a) Assumes the following sources and uses of cash (in thousands):

 

Assumed sources of cash

  

Sale of short-term marketable securities

   $ 1,347,776   

Sale of long-term marketable securities

     3,143,181   

Issuance of debt to fund the acquisition

     6,200,000   
  

 

 

 

Total assumed sources of cash

     10,690,957   
  

 

 

 

Assumed uses of cash

  

Repayment of Pharmasset’s outstanding debt

     (2,586

Short-term debt issuance costs

     (43,380

Long-term debt issuance costs

     (23,420

Acquisition costs

     (68,000

Cash purchase price

     (11,054,909
  

 

 

 

Total assumed uses of cash

     (11,192,295
  

 

 

 

Net cash adjustment

   $ (501,338
  

 

 

 


  (b) Reflects a preliminary estimate of $10.9 billion for the portion of the total purchase price to be allocated to goodwill and other intangible assets. This preliminary allocation of the purchase price assumes that the intangible assets acquired consist of goodwill or other indefinite-lived intangible assets such as in-process research and development.

 

  (c) Reflects $2.1 million to reduce the carrying value of deferred revenue to the estimated fair value of Pharmasset’s obligations under Pharmasset’s contract revenue agreements.

 

  (d) Reflects the elimination of Pharmasset’s historical common stock and additional paid in capital as part of the Acquisition.

 

  (e) Assumes the following changes to accumulated other comprehensive income (loss) and retained earnings (in thousands):

 

Elimination of net unrealized gain on sale of marketable securities

   $ 26,153   

Elimination of Pharmasset’s accumulated deficit

     324,652   

Estimated acquisition related costs

     (68,000
  

 

 

 

Net change in retained earnings

   $ 282,805   
  

 

 

 

 

  (f) Assumed debt related adjustments (in thousands):

 

Short-term debt adjustments

  

Short-term debt issued

   $ 750,000   

Repayment of Pharmasset’s outstanding debt

     (2,470
  

 

 

 

Total short-term debt adjustments

   $ 747,530   
  

 

 

 

Long-term debt adjustments

  

Long-term debt issued

   $ 5,450,000   

Repayment of Pharmasset’s outstanding debt

     (116
  

 

 

 

Total long-term debt adjustments

   $ 5,449,884   
  

 

 

 

Pro Forma Condensed Combined Statements of Income for the Year Ended December 31, 2010 and for the Nine Months Ended September 30, 2011

 

  (g) Reflects an estimate of forgone interest income on cash and short-term and long-term marketable securities balances.

 

  (h)

Reflects an estimate of the additional interest expense calculated based on weighted average rates of 3.33% for the year ended December 31, 2010 and 3.58% for the nine months ended September 30, 2011, $6.2 billion in debt incurred to fund the Acquisition and $67 million in debt issuance cost, partially offset by the elimination of Pharmasset’s interest expense incurred on Pharmasset’s outstanding debt which was assumed to be paid off immediately prior to the Acquisition. A change of  1/8 of a percent (0.125%) in the interest rate assumed for these pro forma purposes would result in an $8 million change in pro forma interest expense. A change of $10 million in the amount of new debt incurred would have a less than $1 million change in the annual pro forma interest expense.

 

  (i) Reflects the estimated tax benefit as a result of the assumed reduction of taxable income resulting from additional interest expense and lower interest income following the Acquisition.

Forward-looking Statements

These Unaudited Pro Forma Condensed Combined Financial Statements may be deemed to be forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and similar expressions. Such statements may include, but are not limited to, statements about the benefits of the


pending acquisition between Gilead and Pharmasset, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts. These forward-looking statements are based largely on management’s expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Neither Gilead nor Pharmasset undertake any obligation to update publicly or revise any forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that the expected synergies from the Acquisition will not be realized, or will not be realized within the expected time period, including the tender of sufficient shares by Pharmasset’s stockholders; the risk that the businesses will not be integrated successfully; disruption from the Acquisition making it more difficult to maintain business and operational relationships; the possibility that the Acquisition does not close, including, but not limited to, due to the failure to satisfy the closing conditions; Gilead’s and Pharmasset’s ability to accurately predict future market conditions; dependence on the effectiveness of Gilead’s and Pharmasset’s patents and other protections for innovative products; Gilead’s ability to advance Pharmasset’s product pipeline; risks of unfavorable results from Gilead and Pharmasset’s clinical trials; the risk of new and changing regulation and health policies in the U.S. and internationally and the exposure to litigation and/or regulatory actions. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in Gilead’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed with the SEC, Pharmasset’s Annual Report on Form 10-K for the year ended September 30, 2011 filed with the SEC, included in the “Risk Factors” section of each of these filings, and each company’s other filings with the SEC available at the SEC’s Internet site (http://www.sec.gov).