EFTA01199422

Morgan Stanley MORGAN STANLEY RESEARCH NORTH AMERICA M;rsr, s Cs -LS MOMDavid Friedman, M.D. I r, 21 2: I - Stock Rating Gilead Sciences Inc. Equal-weight Industry View HCV Still Near and LT Focus In-Une Key Ratios and Statistics Upside Sovaldi (4611M vs cons) drove a $0.57 Reuters: GILD.° Bloomberg: GILD US EPS beat: Sovaldi (4611M), Truvada (+$18M), Viread Biotechnology i United Stales of America (+$24M) and Complera (+$22M) drove the $685M rev Shr price. close (Jul 23. 2014) $90.34 beat vs cons. Better gross margins (89% vs MSe 86%) Mkt cap. Cuff (mm) $152.143 and a lower tax rate (14.6% with a 1 qtr 3.6% catch-up) 52-Week Range $90.74-55.96 represented the majority of the delta between our $2.14 and Gilead's reported EPS of $2.36. Mgt. also gavels' Fiscal Year ending 12/3 12/14e 12/15e 12/16e time guidance incorporating Sovaldi with revs of $21- ModelWare EPS (S) 2.05 8.16 9.19 10.17 23B (prior $11.3-11.56). This suggests 2H Sovaldi revs Prior ModelWare EPS ($) 7.58 8.42 9.64 of -43.945-5.745B, below the 1H total of $5.7558. Mgt. PiE 36.7 11.1 9.8 8.9 cited warehousing and inventory destocking ahead of Consensus EPS ($)§ 1.98 6.73 8.22 9.35 the all-oral launch as potential contributing factors. Div yld (%) 0.0 - 0.5 1.2 Unless ofienwse noted. all metrics ate based on Morgan Stanley ModelWare SoyaIdi still the centerpiece: Near and long-term framework (please see explanabon Isla in this note) Sovaldi sales continue to dominate the debate. On the § a Consensus dela is provided by Thomson Reuters Estene: a a Morgan Stanley Research estimates 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 $1B+ 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 imminent. We see continued investor focus on dividends and M&A as the cash from Sovaldi builds. We expect a muted stock reaction even as Sovaldi delivered given high expectations: We believe cons Morgan Stanley does and seeks to do business with expectations of a Sovaldi beat have been a major companies covered in Morgan Stanley Research. As driver of GILD over the last few weeks, thus the beat a result. investors should be aware that the firm may have a conflict of interest that could affect the was widely expected. With guidance not suggesting sig. objectivity of Morgan Stanley Research. Investors upside to cons, we expect GILD to not move much should consider Morgan Stanley Research as only a tomorrow. Our 2014E/2015E EPS ests move modestly single factor in making their investment decision. higher to $8.17/$9.19 ($7.58/$8.43 prior) on tax-rate, For analyst certification and other important gross margin and share count changes to our model. disclosures. refer to the Disclosure Section, i located at the end of this report. EFTA01199422 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 Investment Thesis Exhrlal 1 S 160 We are EW Gilead as we believe some of the risks around HCV have been 140 overlooked suggesting risk to out-year estimates. This is balanced by the 120 potential for a solid hemionc franchise in 100 idelalisib and time to switch HIV patients away from therapies that go generic. 60 • HCV (Sovaldi): HCV demand is off to a 60 strong start with sales likely of at least $10B in the first year. That said, we 40 don't have confidence that peak 20 revenues will continue after all the patients in care are treated (-2017E). 0 We highlight risks on multiple fronts JS-12 Jan-13 Jul-13 Jan-14 Jul 14 Jan-15 Jul-1S including pricing. competition and high • FiriooTanpi(Jul-15) 1.1abmiceiSiod.Poitomionoo • CocroniSiockPeco consensus expectations. Source: Morgan Slarty Research estimates. Thomson Reuleis Price We derive our PT from a discounted cash flow analysis that uses a WACC of 10•% and • HIV: Gilead has done a good job of Target a 2% terminal growth rate. The main drivers are the HIV franchise and Sovaldi. switching naïve patients to the new $81 STRs (Stribild and Complera), but The number of treated HCV patients do not decline post 2017E TruvadaiAtripla still hold -60% of the Bull DCF Case and competition is less robust; Gilead transitions more than market right now. which means a half of HIV sales to new regimens We assume: significant number still need to be $145 1) -35B in 2020E antiviral sales. of which 6168 is from HCV. switched. This is a potential source of 2) The number of naive US HCV patients treated is stable at -2001vyr. LT risk. However. there is still time and 3) HCV pricing is not impacted by competition, and we've yet to get all the TAF data. 4) CompleraiEvipleraiStribild/TAF take -60% patient share of HIV Base DCF US treated HCV patients decline modestly post 2017E, around • Oncology (Idelalisib): We believe Case half of HIV sales are transltioned to new regimens. We assume: idelalisib can be a $1-2B US asset. 1) -208 in 2020E antiviral sales. of which -$62 is from HCV. $81 2) The number of naive US HCV patients treated declines to That said. duration of therapy is -115Wyr. currently unclear (the major driver of 3) HCV pricing is modestly impacted by competition (-15%). and sales) given the liver function issues. If 4) ComplerarEvipleraiStribild/TAF take -35% patient share of HIV LFTs cause short duration. there could Bear DCF Rapid peak and then erosion of the HCV market, HIV cliffs: be downside to sales. However. we Case 1) -9B in 2020E antiviral sales. of which -$500M is from HCV. note expectations are modest. 2) The number of naive US HCV patients treated declines to $34 baseline. 3) HCV pricing/share is aggressively impacted by competitors (- Risks to our price target 70%). 1) A longer peak to HCV sales. 2) A 4) ComplerarEviplera/Stribild/TAF take -20% patient share of HIV 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 EFTA01199423 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Exhibit 2 Gilead 2014 Variance MSe 2014E 2014A Consensus MSe % Actual % Y/Y Difference 2014E• Difference Product Sales (WW): Atripla $923 •2% $871 •7% -6% $875 ($4) 0% Truvada $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% Sovaidi $3.625 NM $3,481 NM •4% $2.870 $611 21% Other $30 NM $24 •13% •19% Total Antiviral Products $6.197 168% $6012 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 $6.073 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 Profit $5,778 174% $5,812 176% 1% R&D $575 18% $542 11% •6% SG&A $535 42% $.569 51% 6% Operating Income $4,668 276% $4,701 278% 1% Interest Expense. Net ($76) NM ($102) NM 34% Other Income (Expense). Net ($20) NM ($4) NM •82% Pretax Income $4,572 293% $4,595 295% 1% Taxes $963 192% $671 104% •30% Tax rate 2f% •26% 15% •48% •31% Net loss from noncontrolling 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% $2.20 382% 12% Diluted Shares Outstanding 1678 •1% 1663 NM Gross Margin 86% 13% 89% 17% 3% 85% R&D (% of Sales) 9% •51% 8% 43% .3% SG&A (% of Sales) 8% •41% 9% •36% 9% Operating Margin 70% 55% 72% 60% 3% Seine: Company Data Morgan Vanley Research 3 EFTA01199424 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Exhibit 3 Gilead Income Statement 200* 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E aline lecenie StMenient 1014A 20144 3014E 4014E Prodoci Sa/as 1459 7.360 8,102 9.396 10.804 4.871 64 13 5.798 2.622 24.613 27.797 29.280 26.783 25.286 22.933 22.660 Rotco ln urt ~lab« MOOS 542 559 283 301 393 128 122 71 43 365 377 390 403 418 433 448 Total 7.011 7949 0.396 9.703 11932 0.943 5535 52367 7.714 25.178 26.174 29.670 27.166 20.703 23.364 23.109 5.520 6.257 24.5.28 2ij ia COOS 1,530 1.793 2.046 2.401 2.708 611 723 964 1,233 3.532 4.879 4,909 4547 4,544 4.434 4.491 Goes ProOlt 5481 1157 1393 7.302 13.493 4.353 5.812 4.903 6.482 21.646 23.495 24,781 22519 21.159 18932 18/318 RED 831 839 1.119 1.095 1.948 555 542 600 650 2.350 2.515 2.691 2925 2.896 2.968 3.042 CO. GuktlinCe 52.3.2.48 5044 820 913 1.091 1.226 1.557 500 569 2.703 2.973 3.121 3.090 3.059 3.029 92.3.2946 Open/Inca Income 3.830 0.405 0.126 0.580 4,988 3,330 4.701 693 5.161 16.946 111278 19.098 16,57 16.173 12904 12547 Memel ogate -70 -109 -182 iy 307 -76 -102 -102 .82 353 -400 .343 -343 -332 Otrior income (emensa. nol 42 60 67 -37 .9 -20 -4 67 30 123 239 325 371 376 356 Pfau bxonle 3,803 4,357 4911 4.189 4.673 3,224 4.595 3.587 5.136 16.614 18,000 18.954 16,591 15.202 12.938 12571 Tate 950 1.154 987 1.123 1.240 751 671 635 883 3.020 2.732 2.308 1548 1,651 1.705 1.782 Tar Aare 25% 26% 25% 27% 27% 23% r5% 18% 17% 032% 15% 12% 11% /2% 13% 14% Net mote» (rroni2m0) 2053 3203 3.024 3.066 3.433 2.483 15.248 16.645 14~ 13.350 11233 10289 Kaloss1/cm noncorisoleno moral 12 15 5 5 5 -18 0 0 0 0 Net loam. to Giles 1941n-OPAP1 2163 5214 3918 1004 3.451 2.468 3.930 2.957 4255 13.611 15293 16.443 14.6136 13250 11239 10.789 Acon-044P PS Etal OPlien10 5153 5184 5143 5146 52.05 $1.45 52.36 51.78 52.56 51.17 $14.19 51918 3922 5896 15205 121.30 149004flus :42 1.94 6.73 8.22 935 Ian Non gaap EPS(axl. coons) 51.46 51.76 5194 51.73 51.94 51.44 $232 51.74 $253 18.01 58.99 59.94 8905 5845 57.68 5747 GAAP 0 1S (rcl. °Word) 51.01 51.66 51.77 5144 51.82 $1.32 5220 51.60 saes 57.97 58.98 59.94 5005 58.54 57.68 57.86 8890 Shares • GAAP 1509 1.712 1.515 1.515 1.529 1.537 1.533 1.532 1.531 1.526 1523 1.499 1.443 1.365 1276 1.190 mum Sham. GAAP 1568 1.747 1.550 1.583 1.686 1.680 1.684 1.663 1.682 1.687 1.664 1.638 1578 1.491 1,397 1303 mum Sheen non414.4P LBW 1.743 1.576 1.580 1.685 1.679 1.663 1.642 1.911 1.644 1.683 1.637 1.576 1.490 1396 1300 COGS (meal man») 24% 24% 25% 25% 13% 11% 24% 26% 25% 25% 25% 25% 25% 25% 25% Gross Margin Gold 09/11M) 76% 77% 76% 75% 76% 88% 89% 84% 84% 86% 83% 83% 63% 82% 81% 81% CO. Oul0InCe 85.885, 3364 (as 4 %a 85841 12% 11% 13% 13% 14% 10% 9% 14% 15% 14% 14% 14% 14% 14% 14% 14% R80 (es 4 % Ot MONO 12% 11% 13% 15% 17% 11% 6% 18% 18% 17% 17% 17% 17% 17% 17% 17% Cparanng adorn 55% 55% 49% 47% 45% 67% 72% 63% 67% 67% 65% 64% 61% 59% 55% 54% á611G4 margin 58% 59% 53% 50% 48% 49% 73% 45% 68% 69% 66% 66% 63% 61% 55% 57% Nei /Sawn 41% 40% 36% 32% 31% 50% 60% 50% 55% 54% 54% 56% 54% 52% 48% 47% Growth Malyals ltlen-GAAPI Nel product 898,3 27% 14% 10% 16% 15% 104% 141% 114% 152% 133% 12% 5% .9% 45% •1% Tad maw* 31% 13% 5% 16% 15% 97% 136% 111% 147% 12518 12% 5% -8% -5% .1% COGS 37% 17% 14% 17% 13% 0% 9% 46% 59% 30% 32% 5% .5% 1% Ran 27% 1% 33% 34% 30% 21% 11% 23% 27% 21% 7% 7% 5% 2% 2% 2% 5064 14% 11% 20% 12% 27% 50% 51% 62% 42% 51% 15% 10% 5% -1% -1% -1% 00941189 mtvON 058113 3% 1% -11% -4% -6% 50% 80% 39% 53% 51% -4% -1% 4% -3% 4% -2% EMMA marqn 3% 2% -10% .5% .5% 43% 53% 34% 47% 45% .4% •l% .5% 3% .5% .1% Sane: Company Gala- Morgan Stanley Research EFTA01199425 Morgan Stanley M0RGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. EPhitA 4 Gilead Product Revenues (1 of 2) Product Revenue 20094 2010A 2011A 2012A 20134 2014E 2015E 2016E 2017E 2018E 2018E 2020E 1014 2014 3014E 4014E woe 2,382 2927 3,225 3.574 3,648 780 871 917 1.009 3,577 3,572 3,559 3405 3,331 2.741 2,534 US (2021 Expiator') 1.646 1.909 2.022 2253 2.356 490 sea 610 678 2.356 2.447 2.507 2505 2.503 2.500 2.497 EU (2018 Expkarn:nl 678 910 1.043 1.103 1,062 237 234 237 270 978 869 782 717 573 177 20 ROW 59 106 160 219 231 53 56 71 61 243 256 269 283 255 64 16 Runde 2,490 21650 2,875 3.181 3,136 760 807 803 799 3,169 3,140 3,125 3.124 2,779 2.139 1,892 US (2021 Expired:ell 1.178 1.309 1.385 1813 1.570 368 400 430 448 1.645 1.679 1.711 1.742 1.771 1.797 1.822 EU (2018 ExpOixonl 1.170 1.171 1.257 1316 1296 323 338 300 278 1.240 1.163 1,101 1.054 844 259 ea ROW 142 170 232 253 270 69 69 73 73 284 296 313 326 164 82 41 EtNi Plowed WM 732 849 969 211 261 249 294 1.014 1.064 1,113 1.166 822 241 29 US (2018 Explremn. Teva cetWemen0 290 320 388 428 81 117 115 121 433 432 430 425 304 81 8 EU (2018 Expiration) 273 293 336 354 84 88 93 117 382 408 430 454 318 100 15 ROW 105 119 125 177 46 57 41 56 199 224 253 286 200 60 6 oodll CompleradEvIpbra 342 809 261 299 310 362 1.212 1.689 2.292 2.604 2.101 20418 2.943 US (2023 Explre0:01 280 503 130 154 195 237 717 1.043 1.453 1.566 1.673 1.788 1.910 EU (2022 Experaecni 53 268 109 132 MO 97 438 569 749 834 914 910 912 ROW 9 39 it 13 15 19 58 75 91 104 115 120 120 Stribid 68 639 216 270 289 316 1.080 1.911 2.787 3.346 3863 4.132 4,418 US (2029 Expealen) 58 510 187 229 223 206 646 1.330 1.820 2.111 2346 2596 2.862 EU (2027 Expiraton) 24 24 31 51 102 208 534 698 1.154 1.416 1,430 1.448 ROW 0 5 5 9 15 7 36 53 69 80 92 105 111 TAF 474 998 1,372 1,800 1,995 US (20222029 Expiration) 446 834 1.072 1.326 1.407 EU (202112027 Expiration) 23 129 248 404 510 ROW 5 35 53 68 78 SovNdl 139 2.274 3,481 2,765 4,374 12,894 14.073 13,649 10.045 8,471 7219 7,016 US (2029 Expiation. 2030 for FCC) 136 2 098 3.032 2.100 3.590 10.619 9,212 7.394 5,247 4.645 4.041 3.933 EU (2028 Expiration. 2029 for FCC) 3 164 401 600 680 1.845 3.559 4.240 2.750 2.078 1519 1.302 ROW 0 3 49 65 104 231 1.302 2.015 2.047 1.750 1.659 1.782 Other AMIvIrgl 300 228 173 138 109 18 24 25 55 123 152 164 193 237 266 301 CoblcIsnoTybora (2027 Expiration) 10 15 25 100 125 150 165 180 195 TOW ArelVela Product* 5,839 6537 7,050 6.142 9,340 4,506 6012 5.369 7214 23,104 25,706 26,813 24.032 22,359 19,736 19,328 Soiree. Company Da Morgan Stanley Research EFTA01199426 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 EFTA01199427 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 EFTA01199428 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 `833_ -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 EFTA01199429 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. 9 EFTA01199430 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. UnPt.AS STAGI C. Morgan Stanley ModelWare is a proprietary analytic framework that helps clients NI ModelWare 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 C.T.V.M. S.A. and/or Morgan Stanley Mexico. Casa de Bolsa. 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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, Uftragenyx 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, Uftragenyx 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. securitiesrelated 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 Bioscienoes 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. 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Certain disclosures listed above are also for compliance with applicable regulations in non•US jurisdictions. 10 EFTA01199431 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. STOCK RATINGS Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). 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 analyst's 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. Coverage Universe Investment Banking Clients (SC) % of Yr of % of Rating Stock Rating Category Count 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 • S&P 500: Latin America - relevant MSCI country index or MSCI Latin America Index: Europe • MSCI Europe: Japan - TOPIX: Asia - relevant MSCI 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 EFTA01199432 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Gilead Sciences Inc. Gilead Sciences Inc. (GILD.0) - As of 7/23/14 in USD Industry : Biotechnology 120 • 0/1 110 FeR sorb? slita--- •E/I 100 90 1 80 75 i . . 70 60 50 36 6 441 4. 714 I" — r-:•7 ". " 40 32.5 O1 iq $7/$1 0741 07/01 20 1 202 203 2014 Stock Rating History* 7/1/11 t 11R/I7 s NA/1; 2/2/12 s 0/11 6/1/13 1 181/17 3/26/14 s CQ Pr co Target History( 11/21/11 I IM/ 2.4/12 32.5) 10/4/12 s 36.61 12/18/12 t 43.6; 1/3/13 t 447 2/5/13 i 46; 4/22/13 I 631 5/9/13 I NA) 3/26/14 1767 718/14 181 Source( Morgan Stanley Research Me Format: 101/00/YY Price Target No Price Target Assigned (NA) Stock Pr ice (Not Covered by Current Analyst) — Stock Price <Covered by Current Analyst i Stock and Industry Ratings (abbreviations Wee)appear • Steak Rating/Mdustry %kw Stock Ratings: Overweight(0/ Equal-weight(E) Underweight Net-Rated (MR' No Rating Available (NA) Industry View( Attractive (A) In-line (1) Captious (C) No Rating (MR' Effective January 13, 2014, the stocks covered by Norman Stanley Asia Pacific will be rated relative to the analyst's industry (or industry team's) coverage. 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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 EFTA01199434 Morgan Stanley MORGAN STANLEY RESEARCH The Americas Europe Japan Asia/Pacific 1585 Broadway 20 Bank Street. Canary Wharf 1-9-7 Otemachi. Chiyodaau 1 Austin Road West New York. NY 10036-8293 London E14 4AD Tokyo 100-8104 Kowloon United States United Kingdom Japan Hong Kong Tel: +1 (1) 212 761 4000 Tel: +44 (0) 20 7 425 8000 Tel: +81 (0) 3 6836 5000 Tel: +852 2848 5200 Pharmacyclics Inc. (PCYC.0) E (03.262014) $103.92 Regeneron Pharmaceuticals Inc. E (01262014) $310.27 (REGN.0) Industry Coverage:Biotechnology Stock Ratings are sutiect to change. Phase see latest research for each company. ' Historical prices are not spit aclyslecl. Company (Ticker) Rating (as ot)Price• (07/23/2014) David Friedman. M.D. AMAG Pharmaceuticals. Inc. E(11/21/2011) $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 (C(i/06/2014) $19.6 (AUXL.0) Chimetix Inc (CMRX.0) 0 (05/06/2013) $22.87 Cubist Pharmaceuticals Inc. 0 (11/13/2013) $62.58 (CBST.0) GW Pharmaceuticals PLC 0 (04/22/2014) $86.68 (GWPH.0) ldenix Pharmaceuticals. Inc. E(031182011) $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(08/112013) $1.59 (U(RX.0) NPS Pharmaceuticals (NPSP.0) +• $29.33 Neuroaine 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 (06117/20 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 (GEVA.0) 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 (C6/11)20 3) $4.39 Matthew Harrison Amgen Inc. (AMGN.0) 0 (03/26/20 4) $122.01 Bingen Ides Inc. (BIIB.0) 0 (03126/20 4) $337.6 Celgene Corp (CELG.0) E (03/26/20 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) 2014 Morgan Stanley EFTA01199435