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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the transition period from                              to                             

Commission File No.
0-19731

GILEAD SCIENCES, INC.
(Exact name of registrant as specified in its charter)

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 ý    No o

        Number of shares outstanding of the issuer's common stock, par value $.001 per share, as of July 31, 2002: 195,844,405

GILEAD SCIENCES, INC.
INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

See accompanying notes.

3

GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

See accompanying notes.

4

GILEAD SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

See accompanying notes.

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GILEAD SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. The financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of Gilead Sciences, Inc. ("Gilead", the "Company" or "we") believes is 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, 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. The accompanying financial information should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2001 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC").

        On February 22, 2001 and on March 8, 2002, we implemented two-for-one stock splits in the form of stock dividends. All share and per share amounts for all periods presented have been restated to reflect both of these splits.

Per Share Computations

        For the three and six months ended June 30, 2002, basic net income per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted net income per common share for the periods in 2002 includes the effects of approximately 11.2 million and 11.7 million stock options and warrants for the three- and six-month periods, respectively. It does not include the effect of the $250.0 million 5% convertible notes which would convert to approximately 10.2 million shares, as their effect is antidilutive. For the three and six months ended June 30, 2001, both basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding during the period. The convertible notes, stock options and warrants were excluded from the computation of diluted loss per share in 2001, as their effect is antidilutive.

2. Cumulative Effect of Change in Accounting Principle

        Gilead adopted Statement of Financial Accounting Standards (SFAS) Nos. 133 and 138, collectively referred to as SFAS 133, Accounting for Derivative Instruments and Hedging Activities, in the first quarter of 2001. The change was accounted for as the cumulative effect of a change in accounting principle.

3. Recent Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. SFAS 141 further clarifies the criteria to

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recognize intangible assets separately from goodwill. The requirements of SFAS 141 are effective for any business combination that is completed after June 30, 2001. Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. As Gilead has not accounted for any business combinations under the purchase method of accounting, the adoption of SFAS 141 and SFAS 142 did not have a material impact on the Company's financial position or results of operations.

        In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 establishes a single accounting model for assets to be disposed of by sale whether previously held and used or newly acquired. SFAS 144 retains the presentation of discontinued operations in the income statement, but broadens the presentation to include a component of an entity. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and the interim periods within. The adoption of SFAS 144 on January 1, 2002 did not have a material impact on the Company's financial position or results of operations.

4. Inventories

        Inventories are summarized as follows (in thousands):

5. Collaborative Arrangements and Contracts

        In April 2002, Gilead and GlaxoSmithKline (GSK) entered into a licensing agreement providing GSK the rights to commercialize adefovir dipivoxil, Gilead's investigational antiviral for the treatment of chronic hepatitis B, in Asia, Latin America and certain other territories. Under the agreement, Gilead retained rights to adefovir dipivoxil in the United States, Canada, Eastern and Western Europe, Australia and New Zealand. GSK received exclusive rights to develop adefovir dipivoxil solely for the treatment of hepatitis B in all countries in all other territories, the most significant of which include China, Korea, Japan and Taiwan. Under the agreement, GSK paid Gilead an up-front licensing fee of $10 million, and Gilead is entitled to receive additional cash payments of up to $30 million upon achievement by GSK of certain regulatory, development and commercial milestones. GSK also will pay Gilead a royalty on net sales, if any, of adefovir dipivoxil in the GSK territories. GSK will have full responsibility for development and commercialization of adefovir dipivoxil in GSK's territories. The $10 million up-front fee has been recorded as deferred revenue and will be amortized into contract revenue over Gilead's remaining obligations under the agreement, up to a maximum of 14 years.

6. Litigation Settlement

        In 1997 we reached a settlement with Elan Corporation, plc (Elan, the successor company to The Liposome Company) in which both companies agreed to dismiss all legal proceedings involving AmBisome, Gilead's liposomal formulation of amphotericin B. Under the terms of the initial settlement agreement in 1997, we made an initial payment to Elan of $1.8 million and agreed to make additional royalty payments through 2006, based on AmBisome sales. In 1997, the Company recorded a $10.0 million accounting charge for the accrued litigation settlement expenses, representing the net

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present value of all future minimum payments we were required to make. In June 2002, Elan and Gilead entered into an agreement terminating the Company's remaining AmBisome payment obligations under the initial settlement agreement in exchange for a payment to Elan of $7.3 million. The excess of the $7.3 million settlement amount over the remaining accrued litigation settlement expenses balance of $6.0 million is being amortized over the remaining life of the patents.

7. Comprehensive Income (Loss)

        Following are the components of comprehensive income (loss) (in thousands):

8. 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.

        Product sales, net consisted of the following (in thousands):

        The following table summarizes total revenues from external customers and collaborative partners by geographic region. Revenues are attributed to countries based on the location of Gilead's customer or collaborative partner (in thousands).

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        For the six months ended June 30, 2002, product sales to any one customer did not exceed 10% of total revenues. Product sales to one customer accounted for approximately 12% of total revenues for the first six months of 2001. For the six months ended June 30, 2001, sales to and royalties from Fujisawa Healthcare, Inc. ("Fujisawa") were 17% of total revenue.

9. Subsequent Event

        In July 2002, the Company sold its shares of OSI Pharmaceuticals, Inc. (OSI) common stock for approximately $22.0 million. These shares were partial consideration for the sale of our oncology assets to OSI in December 2001, at which time they were recorded at a value of approximately $38.0 million. In connection with the sale of these shares, we recognized a non-operating loss of approximately $16.0 million that will be reflected in our results for the period ended September 30, 2002.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        Gilead was incorporated in Delaware on June 22, 1987. We are an independent biopharmaceutical company focused on the discovery, development and commercialization of antivirals, antibacterials and antifungals to treat life-threatening infectious diseases. We are a multinational company, with revenues from five approved products and operations in ten countries. Currently, we market Viread® for the treatment of HIV infection, AmBisome®, an antifungal agent, DaunoXome®, a drug approved for the treatment of Kaposi's sarcoma, and Vistide® for the treatment of cytomegalovirus retinitis. Hoffmann-La Roche Inc. markets Tamiflu® for the treatment of influenza, under a collaborative agreement with Gilead. We are seeking to add to our existing portfolio of products through our clinical development programs, internal discovery programs and an active product acquisition and in-licensing strategy. Our internal discovery activities include identification of new molecular targets, target screening and medicinal chemistry. In addition, we are currently developing products to treat hepatitis B virus and HIV infection. We also have expertise in liposomal drug delivery technology that we use to develop drugs that are safer, easier for patients to tolerate and more effective.

        On February 22, 2001 and on March 8, 2002, we implemented two-for-one stock splits in the form of stock dividends. All share and per share amounts for all periods presented have been restated to reflect both of these splits.

        In the quarter ended March 31, 2001, Gilead adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities, which resulted in a cumulative effect of a change in accounting principle.

Forward-Looking Statements and Risk Factors

        The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in any forward-looking statements. Some of the factors that could cause or contribute to these differences are listed below. You should also read the "Risk Factors" included in pages 31 through 41 of our Annual Report on Form 10-K for the year ended December 31, 2001 for more detailed information regarding these and other risks and uncertainties that can affect our actual financial and operating results. All forward-looking statements are based on information currently available to Gilead, and we assume no obligation to update any such forward-looking statements.

        Viread Sales.    We expect to rely on sales of Viread for a significant portion of our operating income. A number of drugs to treat HIV infection and AIDS are currently sold or are in advanced stages of clinical development, including 17 products currently sold in the U.S. Among the companies that are significant competitors in the HIV/AIDS market are GlaxoSmithKline, Bristol-Myers Squibb, Hoffmann-La Roche, Pfizer, Merck, Boehringer-Ingelheim and Abbott Laboratories. Given the broad range of competitors and depth of their resources, it is too early to determine if Viread will achieve significant market penetration, particularly for use in treatment naïve patients given that the data supporting Viread's marketing approval is in a treatment experienced patient population.

        AmBisome Sales.    We also rely on sales of AmBisome for a significant portion of our operating income. There are lower priced products that compete with AmBisome; two products that compete with AmBisome that were recently approved in the U.S. and European Union; and products being developed that could compete with AmBisome in the future. If any of these antifungal products achieve further market acceptance, or if the antifungal products in development become commercially available, revenues from sales of AmBisome would likely decrease, resulting in a reduction of operating income.

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        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; the safety, efficacy, tolerability and cost of our products; and how our products compare to competitive products.

        Regulatory Process.    The U.S. Food and Drug Administration 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 cannot be manufactured on a commercial basis in compliance with the applicable safety and quality standards. If these agencies reject or limit the commercialization of our products, our financial results would be adversely affected. The clinical trials required for regulatory approval of our products are extremely expensive, and it is difficult for us to accurately predict or control the amount or timing of these expenses from quarter to quarter. In addition, regulatory agencies could require us to conduct additional unanticipated clinical trials on our products, the cost of which could be substantial.

        Governmental Legislation and Reimbursement Programs.    Regulatory, legal and legislative issues may adversely affect pricing and sales of our products. In the U.S., there is federal legislation that lowers the price for our products that are purchased or reimbursed by federal agencies, and some states have enacted legislation that can lower the prices for our products. In addition, there are a growing number of U.S. federal and state legislative proposals that if enacted would lower the price for our products. Many countries outside the U.S. have government sponsored health care programs that set lower drug prices and patient reimbursement levels. Our sales in countries with relatively higher prices may be reduced if products can be imported into those countries from lower price markets. This is of particular concern in the European Union where we are required to permit cross border sales and could be a concern in the U.S. if legislation easing import restrictions is enacted and applied.

        Compulsory Licensing and Generic Competition.    In a number of developing countries, government officials and other groups have suggested that pharmaceutical companies should make drugs for HIV infection available at a low cost. In some cases, governmental authorities have indicated that where pharmaceutical companies do not do so, their patents might not be enforceable to prevent generic competition. Some major pharmaceutical companies have greatly reduced prices for HIV drugs in certain developing countries. If certain countries do not permit enforcement of our patents, sales of Viread in those countries could be reduced by generic competition. Alternatively, governments in those countries could require that we grant compulsory licenses to allow competitors to manufacture and sell their own versions of Viread in those countries, thereby reducing our Viread sales, or we could respond to governmental concerns by reducing prices for Viread. In all of these situations, our results of operations could be adversely affected.

        Collaborations.    We depend on collaborations for the development and commercialization of certain products and for revenue, including the collaboration with Fujisawa for sales of AmBisome in the United States and Canada, the collaboration with GlaxoSmithKline for clinical and regulatory development and commercialization of adefovir dipivoxil in Asia, Latin America and certain other territories, the collaboration with Roche for sales of Tamiflu worldwide, and the collaboration with Cubist for the clinical development of Cidecin. 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. If our collaborations fail or if we are unable to establish additional collaborations, our financial results would be adversely affected.

        Foreign Currency Fluctuations.    A majority of our product sales is denominated in foreign currencies. Increases in the value of the U.S. Dollar against these foreign currencies in the past have

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reduced, and in the future may reduce, our U.S. Dollar return on these sales and negatively impact our financial condition. Prior to January 2002, we did not hedge our exposure to the impact of fluctuating foreign exchange rates on forecasted sales. Effective January 2002, we have begun to use forward contracts to hedge a percentage of our forecasted international sales, primarily those denominated in the euro currency. We do hedge accounts receivable balances denominated in foreign currencies, which minimizes but does not eliminate our exposure to currency fluctuations between the date a sale is recorded and the date that cash is collected. Additionally, to mitigate the impact of currency rate fluctuations on our cash outflows for certain foreign currency-denominated raw materials purchases, we enter into foreign exchange forward contracts to hedge our foreign currency-denominated accounts payable.

        Uncertain Financial Results.    We expect that our financial results will continue to fluctuate from quarter to quarter and that such fluctuations may be substantial. The fluctuations can be caused by many factors that are beyond our control, including the risk factors listed above. We have never been profitable on a full-year operating basis and we may never achieve or sustain full-year operating profitability. As of June 30, 2002, our accumulated deficit was $437.9 million.

Critical Accounting Policies and Estimates

        Reference is made to "Critical Accounting Policies and Estimates" included on page 47 of our Annual Report on Form 10-K for the year ended December 31, 2001. As of the date of the filing of this Quarterly Report, the Company has not identified any critical accounting policies other than those discussed in our Annual Report for the year ended December 31, 2001 and has not otherwise concluded that any of these policies have become out of date or otherwise misleading.

Results of Operations

Revenues

        We had total revenues of $109.4 million for the quarter ended June 30, 2002 compared with $50.7 million for the quarter ended June 30, 2001. Total revenues were $187.8 million for the first half of 2002, and $108.5 million for the first half of 2001. Included in total revenues are net product sales, royalty income and contract revenue, including revenue recognized from manufacturing collaborations.

        Net product sales were $93.8 million for the three months ended June 30, 2002, compared with $41.6 million for the quarter ended June 30, 2001, representing an increase of 126%. This increase is primarily due to the significant contribution made by Viread in the current quarter to total product sales. As Viread was not approved until October 2001, minimal sales were made in the comparable period last year. Sales of AmBisome accounted for 51% of net product sales in the quarter ended June 30, 2002 compared to 94% of sales in the quarter ended June 30, 2001. Sales of AmBisome for the second quarter of 2002 increased 23% over the second quarter of 2001. Excluding the impact of foreign currencies relative to the U.S. Dollar, sales of AmBisome would have increased 17% in the second quarter of 2002 over the comparable period in 2001. Sales of Viread were $44.7 million in the second quarter of 2002, or 48% of net product sales. Of the $44.7 million, $34.5 million were U.S. sales and $10.2 million were European sales.

        In the first half of 2002, net product sales were $164.5 million, versus $86.6 million in the comparable period of 2001, an increase of 90%. Sales of AmBisome accounted for 53% of revenues from net product sales in the six months ended June 30, 2002. This compares to 93% in the six months ended June 30, 2001. Sales of AmBisome for the first six months of 2002 increased 8% over the comparable period of 2001. A significant majority of AmBisome sales is denominated in foreign currencies. Prior to January 2002, we did not hedge our exposure to the impact of fluctuating foreign exchange rates on forecasted sales. Effective January 2002, we began to use forward contracts to hedge a percentage of our forecasted international sales, primarily those denominated in the euro currency. In

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the first half of 2002, we also recognized $71.9 million in Viread sales representing 44% of net product sales. Of the $71.9 million, $56.4 million were U.S. sales and $15.5 million were European sales. We expect Viread sales to increase throughout 2002 and become a greater percentage of total revenues, although we cannot predict with any certainty what our actual Viread sales will be in 2002.

        Net royalty revenue was $6.7 million for the second quarter of 2002 compared with $6.4 million for the same period in 2001 and $12.1 million for the first half of 2002 versus $12.6 million for the comparable period in 2001. Royalties in the second quarter ended June 30, 2002 included $4.1 million from Fujisawa for sales of AmBisome in the United States. Royalties received from Fujisawa for the comparable period in 2001 were $4.2 million. For the six months ended June 30, 2002, royalties received from Fujisawa were $8.0 million compared with $7.9 million in the first half of 2001. Additionally, we received $2.4 million in the quarter ended June 30, 2002 from Roche for sales of Tamiflu worldwide. Royalties received from Roche in the quarter ended June 30, 2001 were $1.8 million. For the first half of 2002, royalties received from Roche were $3.4 million compared with $3.9 million in the first half of 2001. We record royalties from Roche in the quarter following the quarter in which the related Tamiflu sales occur.

        Total contract revenue was $8.8 million for the quarter ended June 30, 2002 versus $2.7 million for the comparable quarter in 2001. This increase is attributable to a milestone payment of $8.0 million received from Roche as a result of the June 2002 European approval for Tamiflu. Contract revenue for the second quarter of 2001 consisted primarily of $0.8 million related to marketing agreements, and recognition of $1.5 million related to work performed on behalf of Sumitomo Pharmaceuticals Co. Total contract revenue for the first half of 2002 was $11.2 million versus $9.3 million in the same period of 2001.

Costs and Expenses

        Cost of goods sold was $17.7 million, or 19% of net product sales, for the quarter ended June 30, 2002, and $10.8 million, or 26% of net product sales, for the quarter ended June 30, 2001. For the first half of 2002, cost of goods sold was $29.8 million, or 18% of net product sales, versus $21.4 million, or 25% of net product sales, for the first half of 2001. The improvement is primarily driven by product mix as Viread, a higher margin product, contributed significantly to net product sales in the second quarter and first half of 2002, whereas minimal sales of Viread were recorded in the second quarter and first six months of 2001.

        In connection with most of our European product sales, we price our products in the currency of the country into which the products are sold. A significant majority of our manufacturing costs are in U.S. Dollars. An increase in the value of these foreign currencies relative to the U.S. Dollar will positively impact gross margins since our manufacturing costs will remain approximately the same while our revenues, which are reported in U.S. Dollars, will increase. Except for the potential impact of unpredictable and uncontrollable changes in exchange rates relative to the U.S. Dollar and the mix of product sales between Viread and AmBisome, we expect that cost of goods sold as a percentage of net product sales for the full year 2002 will be approximately 20%, an improvement from the 23% amount reported for the year 2001.

        Research and development ("R&D") expenses for the second quarter of 2002 were $30.9 million, compared to $44.1 million for the second quarter of 2001, a decrease of 30%. For the first half of 2002, R&D expenses were $64.4 million versus $95.2 million for the same period last year, a decrease of 32%. The substantially lower spending for each comparable period can be attributed to the reduction in expenses associated with the Phase III clinical program for Viread, which was approved in October 2001, and the elimination of expenses associated with our oncology program as a result of the divestiture of our oncology program to OSI in December 2001. The decline for the first six months of 2002 compared to the same period last year is also attributable to the recognition of $10.6 million of a

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$13.0 million up-front license fee paid to Cubist Pharmaceuticals related to the European licensing agreement for daptomycin signed in January 2001. Based on current budgeted programs, we expect R&D expenses for the full year 2002 to be approximately $130 million to $140 million, or 20% to 30% lower than 2001, reflecting the sale of our oncology assets to OSI in December 2001 and the decreasing levels of activity associated with the U.S. and European expanded access programs for Viread.

        Selling, general and administrative ("SG&A") expenses were $41.6 million for the second quarter of 2002, compared with $29.7 million for the second quarter of 2001. For the first half of 2002, SG&A expenses were $81.4 million versus $51.6 million for the first half of 2001. The increase for each comparable period was due to our global marketing efforts and the expansion of Gilead's U.S. and European sales forces to support the commercial launch of Viread. For all of fiscal 2002, we expect SG&A expenses to be approximately $170 million to $180 million, or 35% to 45% higher than 2001 levels, primarily due to the increase in marketing activities associated with the launch of Viread in the U.S. and European Union and also our preparation for the potential commercial launch of adefovir dipivoxil for hepatitis B virus (HBV) infection.

Interest Income and Interest Expense

        We reported interest income of $4.6 million for the quarter ended June 30, 2002, compared with $6.5 million for the same period in 2001. Interest income was $10.2 million for the first half of 2002 versus $13.9 million for the first half of 2001. The decrease for each comparable period is attributable to the significant decline in interest rates over the past year, partially offset by interest income earned on the proceeds from the Company's divestiture of the oncology assets to OSI.

        Interest expense was $3.5 million for the quarter ended June 30, 2002, compared with $3.4 million for the same period in 2001. For the first half of 2002, interest expense was $6.9 million versus $7.0 million for the same period in 2001. The largest component of interest expense for each period was interest on our $250.0 million, 5% convertible subordinated notes due in December 2007.

Income Taxes

        Income tax expense was $0.6 million for the quarter ended June 30, 2002, compared to $0.3 million for the same period in 2001. For the first half of 2002, we recorded an income tax benefit of $0.3 million, compared to income tax expense of $0.8 million for the same period in 2001. The benefit recorded in the first half of 2002 arose primarily from a change in U.S. income tax law during the first quarter of 2002. This law allows net operating loss carryforward deductions to offset 100% of alternative minimum taxable income, resulting in a U.S. income tax refund receivable of $1.3 million. This refund was offset in part by provisions for income taxes payable in foreign jurisdictions. Our provision for income taxes for the three months ended June 30, 2002 and for the three and six months ended June 30, 2001 arose principally from taxes payable in foreign jurisdictions.

Liquidity and Capital Resources

        Cash, cash equivalents and marketable securities totaled $559.5 million at June 30, 2002, down from $582.9 million at December 31, 2001. Cash, including proceeds of $30.2 million from the issuances of common stock under employee plans in the six months ended June 30, 2002, was used primarily to fund operating activities.

        Our accounts receivable balance at June 30, 2002 was $101.5 million compared to a balance of $74.2 million at December 31, 2001. The $27.3 million growth in accounts receivable is due primarily to an increase in net product sales, particularly Viread. In certain countries where payments are typically slow, primarily Greece, Spain, Portugal and Italy, our accounts receivable balances are significant. In most cases, these slow payment practices reflect the pace at which governmental entities reimburse our customers. This, in turn, may increase the financial risk related to certain of our customers. Sales to

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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. At June 30, 2002, our past due accounts receivable for Greece, Spain, Portugal and Italy totaled approximately $44.1 million, of which $30.2 million was more than 120 days past due. This compares to past due receivables of approximately $28.7 million at December 31, 2001 for these same countries, of which $14.9 million was more than 120 days past due. To date, we have experienced only modest losses with respect to the collection of our accounts receivable and believe that substantially all past due accounts receivable, including those due from customers in these four countries, are collectible. We continually seek to improve our collection processes to ensure that we fully collect amounts due to us from product sales and that collections are timely.

        Other significant changes in working capital during the six months ended June 30, 2002 included an $11.3 million increase in other current assets due primarily to the recognition of an $8.0 million receivable from Roche as a result of the European approval for Tamiflu. Accounts payable declined $6.7 million, primarily due to the timing of payments to vendors and lower operating expense levels compared to the fourth quarter of 2001. Accrued clinical expenses also decreased in the six months ended June 30, 2002, primarily due to the decreasing activity associated with the clinical program for Viread. Deferred revenue increased by $13.1 million, primarily due to the receipt of a $10.0 million up-front fee from GSK as part of the licensing agreement providing GSK the rights to develop and commercialize adefovir dipivoxil (see note 5 of the Notes to Condensed Consolidated Financial Statements).

        We do not have any "special purpose" entities that are unconsolidated in our financial statements. We are also not involved in any non-exchange traded commodity contracts accounted for at fair value. We have no commercial commitments with related parties, except for employee loans. We have contractual obligations in the form of capital and operating leases, notes payable and clinical research organization contracts.

        We believe that our existing capital resources, which include all fixed income and equity securities, supplemented by net product sales and contract and royalty revenues, will be adequate to satisfy our capital needs for the foreseeable future. Our future capital requirements will depend on many factors, including:

•

the commercial performance of AmBisome and Viread,



•

regulatory approval of adefovir dipivoxil and if approved, its commercial performance,



•

the commercial performance of any of our other products in development that receive commercial approval,



•

the progress of our research and development efforts,



•

the success of our partners' research, development and commercialization efforts for the products they have partnered with us,



•

the scope and results of preclinical studies and clinical trials,



•

the cost, timing and outcome of regulatory reviews,



•

the rate of technological advances,



•

determinations as to the commercial potential of our products under development,



•

administrative expenses,



•

the status of competitive products,



•

the establishment of manufacturing capacity or third-party manufacturing arrangements,

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•

the expansion of sales and marketing capabilities,



•

our possible geographic expansion, and



•

the establishment of additional collaborative relationships with other companies.

        We 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, we cannot be assured that it will be available on favorable terms, if at all.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        As of June 30, 2002, our $250.0 million convertible subordinated notes had a fair value of $384.1 million. There have been no other significant changes in our market risk compared to the disclosures in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2001.

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PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

        The Annual Meeting of Stockholders was held on May 22, 2002 in Redwood City, California. Of the 194,785,959 shares of Gilead Common Stock entitled to vote at the meeting, 175,640,007 shares were represented at the meeting in person or by proxy, constituting a quorum. The voting results are presented below.

        The stockholders elected eight directors to serve for the ensuing year and until their successors are elected. The votes regarding the election of directors were as follows:

        The stockholders approved the amendment and restatement of the 1991 Stock Option Plan and to increase the total number of shares of common stock authorized for issuance under the plan from 47,000,000 to 53,000,000. There were 112,336,988 votes cast for the proposal, 63,042,863 votes cast against, 260,154 abstentions, and no broker non-votes.

        The stockholders approved the amendment and restatement of the 1995 Non-Employee Director's Stock Option Plan and to increase the total number of shares of common stock authorized for issuance under the plan from 2,200,000 to 2,800,000. There were 116,007,884 votes cast for the proposal, 59,357,685 votes cast against, 274,436 abstentions, and no broker non-votes.

        The stockholders approved the ratification of Ernst & Young LLP as Gilead's independent auditors for the year ending December 31, 2002. There were 172,056,797 votes cast for the proposal, 3,507,726 votes cast against, 75,484 abstentions, and no broker non-votes.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

*

Confidential treatment requested as to specific portions, which portions are omitted and filed separately with the Securities and Exchange Commission.

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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.

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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K