Attached files
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8-K - FORM 8-K - GILEAD SCIENCES INC | d260880d8k.htm |
EX-12.1 - GILEAD SCIENCES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - GILEAD SCIENCES INC | d260880dex121.htm |
EX-99.3 - CONSENT OF GRANT THORNTON LLP - GILEAD SCIENCES INC | d260880dex993.htm |
EX-99.1 - FINANCIAL STATEMENTS OF PHARMASSET, INC - GILEAD SCIENCES INC | d260880dex991.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 companys 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 |
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Gilead |
Pharmasset (Note 2) |
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Assets |
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Current assets: |
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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 | |||||||||||
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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 | |||||||||||
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Total assets |
$ | 12,639,898 | $ | 172,205 | $ | 5,973,084 | $ | 18,785,187 | ||||||||
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Liabilities and Stockholders Equity |
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Current liabilities: |
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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 | |||||||||||
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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: |
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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 | ||||||||||
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Total controlling interest stockholders equity |
6,116,764 | 154,272 | (222,272 | ) | 6,048,764 | |||||||||||
Noncontrolling interest |
116,442 | | | 116,442 | ||||||||||||
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Total stockholders equity |
6,233,206 | 154,272 | (222,272 | ) | 6,165,206 | |||||||||||
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Total liabilities and stockholders equity |
$ | 12,639,898 | $ | 172,205 | $ | 5,973,084 | $ | 18,785,187 | ||||||||
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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 |
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Gilead | Pharmasset (Note 2) |
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Revenues: | ||||||||||||||||
Product sales |
$ | 7,389,921 | $ | | $ | | $ | 7,389,921 | ||||||||
Royalty revenues |
545,970 | | | 545,970 | ||||||||||||
Contract and other revenues |
13,529 | 998 | | 14,527 | ||||||||||||
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Total revenues |
7,949,420 | 998 | | 7,950,418 | ||||||||||||
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Costs and expenses: |
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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 | ||||||||||||
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Total costs and expenses |
3,987,198 | 75,127 | | 4,062,325 | ||||||||||||
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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 | ) | ||||||||
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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 | |||||||||||
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Net income (loss) |
2,889,749 | (75,716 | ) | (199,956 | ) | 2,614,077 | ||||||||||
Net loss attributable to noncontrolling interest |
11,508 | | | 11,508 | ||||||||||||
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Net income (loss) attributable to controlling interest |
$ | 2,901,257 | $ | (75,716 | ) | $ | (199,956 | ) | $ | 2,625,585 | ||||||
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Net income per share attributable to Gilead common stockholders - basic |
$ | 3.39 | $ | 3.07 | ||||||||||||
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Shares used in per share calculation - basic |
856,060 | 856,060 | ||||||||||||||
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Net income per share attributable to Gilead common stockholders - diluted |
$ | 3.32 | $ | 3.01 | ||||||||||||
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Shares used in per share calculation - diluted |
873,396 | 873,396 | ||||||||||||||
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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 |
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Gilead |
Pharmasset (Note 2) |
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Revenues: |
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Product sales |
$ | 5,969,025 | $ | | $ | | $ | 5,969,025 | ||||||||
Royalty revenues |
204,615 | | | 204,615 | ||||||||||||
Contract and other revenues |
11,367 | 650 | | 12,017 | ||||||||||||
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Total revenues |
6,185,007 | 650 | | 6,185,657 | ||||||||||||
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Costs and expenses: |
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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 | ||||||||||||
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Total costs and expenses |
3,262,642 | 68,657 | | 3,331,299 | ||||||||||||
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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 | ) | ||||||||
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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 | ||||||||||
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Net income (loss) |
2,127,300 | (67,682 | ) | (124,361 | ) | 1,935,257 | ||||||||||
Net loss attributable to noncontrolling interest |
11,192 | | | 11,192 | ||||||||||||
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Net income (loss) attributable to controlling interest |
$ | 2,138,492 | $ | (67,682 | ) | $ | (124,361 | ) | $ | 1,946,449 | ||||||
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Net income per share attributable to Gilead common stockholders - basic |
$ | 2.72 | $ | 2.47 | ||||||||||||
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Shares used in per share calculation - basic |
787,272 | 787,272 | ||||||||||||||
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Net income per share attributable to Gilead common stockholders - diluted |
$ | 2.66 | $ | 2.42 | ||||||||||||
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Shares used in per share calculation - diluted |
802,762 | 802,762 | ||||||||||||||
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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 Gileads fiscal periods. Accordingly, the financial results for Pharmasset for the year ended December 31, 2010 were derived from the audited financial statements included in Pharmassets 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 Pharmassets 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 Gileads 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 companys 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 Pharmassets 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 |
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Tangible assets and liabilities |
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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 | ) | ||
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Total net tangible assets |
156,330 | |||
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Intangible assets |
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Goodwill, IPR&D, and other intangible assets |
10,898,579 | |||
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Total allocated purchase price |
$ | 11,054,909 | ||
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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 |
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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 | |||
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Total assumed sources of cash |
10,690,957 | |||
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Assumed uses of cash |
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Repayment of Pharmassets 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 | ) | ||
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Total assumed uses of cash |
(11,192,295 | ) | ||
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Net cash adjustment |
$ | (501,338 | ) | |
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(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 Pharmassets obligations under Pharmassets contract revenue agreements. |
(d) | Reflects the elimination of Pharmassets 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 Pharmassets accumulated deficit |
324,652 | |||
Estimated acquisition related costs |
(68,000 | ) | ||
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Net change in retained earnings |
$ | 282,805 | ||
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(f) | Assumed debt related adjustments (in thousands): |
Short-term debt adjustments |
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Short-term debt issued |
$ | 750,000 | ||
Repayment of Pharmassets outstanding debt |
(2,470 | ) | ||
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Total short-term debt adjustments |
$ | 747,530 | ||
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Long-term debt adjustments |
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Long-term debt issued |
$ | 5,450,000 | ||
Repayment of Pharmassets outstanding debt |
(116 | ) | ||
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Total long-term debt adjustments |
$ | 5,449,884 | ||
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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 Pharmassets interest expense incurred on Pharmassets 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 companys plans, objectives, expectations and intentions and other statements that are not historical facts. These forward-looking statements are based largely on managements 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 Pharmassets 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; Gileads and Pharmassets ability to accurately predict future market conditions; dependence on the effectiveness of Gileads and Pharmassets patents and other protections for innovative products; Gileads ability to advance Pharmassets product pipeline; risks of unfavorable results from Gilead and Pharmassets 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 Gileads Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed with the SEC, Pharmassets 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 companys other filings with the SEC available at the SECs Internet site (http://www.sec.gov).