Gilead Sciences Q2 2022 Earnings Call Transcript

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Provided by Quartr
August 1, 2022

Key Takeaways

  • Gilead delivered $6.1 billion in Q2 revenue excluding Veklury, up 7% year-over-year and 11% on an underlying basis after adjusting for HIV LOEs and FX headwinds.
  • Biktarvy sales grew 28% year-over-year to $2.6 billion with U.S. market share rising from 40% to 44%, reinforcing its position as the leading and fastest-growing HIV treatment.
  • Oncology revenue topped $500 million for the first time, led by Trodelvy’s 79% year-over-year growth and record cell therapy sales of $368 million driven by Yescarta’s second-line approval in LBCL.
  • Veklury (remdesivir) revenue fell to $445 million as COVID-19 hospitalizations declined globally, though full-year guidance was raised to $2.5 billion assuming no surge in hospital admissions.
  • Gilead raised full-year product sales guidance to $24.5–25.0 billion (excluding Veklury) and non-GAAP EPS to $6.35–6.75, reflecting strong HIV and oncology performance.
AI Generated. May Contain Errors.
Earnings Conference Call
Gilead Sciences Q2 2022
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to Gilead Sciences' Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent background noises. After today's remarks, there will be a question and answer session. Please be advised that today's call is being recorded.

Operator

I would now like to hand the conference over to Jackie Ross, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the Q2 of 2022. The press release, slides and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day our Chief Commercial Officer, Joanna Mercier Our Chief Medical Officer, Mehrdad Parsi and our Chief Financial Officer, Andrew Dickinson. After that, we'll open up the call to Q and A, where the team will be joined by Christy Shaw, the Chief Executive Officer of Kite.

Speaker 1

Before we get started, let me remind you that we will be making forward looking statements, including those related to the impact of the COVID-nineteen pandemic on Gilead's business, financial condition and results of operations, Plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections and use of capital and 2022 financial guidance, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward looking statements. Non GAAP financial measures will be used to help you understand The GAAP to non GAAP reconciliations are provided in the earnings press release, in our supplementary data sheet as well as on the Gilead website. Now I'll turn the call over to Dan.

Speaker 2

Thanks, Jackie, and good afternoon, everybody. We really appreciate you joining today. We look forward to sharing our 2nd quarter results, which highlighted quarter of strong commercial and clinical execution. This was a very strong quarter for our business, delivering revenue US6.1 billion dollars Excluding VACLEARY, total product sales grew 7% year over year. If we look at the underlying business and also exclude the impact of the HIV LOEs and the currency headwinds in the 2nd quarter, growth was actually 11%.

Speaker 2

Our HIV portfolio continues to deliver and this quarter was no exception with higher demand for both treatment and prep. Biktarvy sales grew by 28% year over year and we expect to see continued market growth for treatment and prevention with the ongoing market recovery. This was a record quarter for our oncology business. Revenues topped $500,000,000 for the first time with a strong contribution from Trodelvi and a standout performance by our cell therapies. Yescarta was approved by the FDA for second line relapsed or refractory large B cell lymphoma in April.

Speaker 2

This increased awareness and drove demand not only for Yescarta second line patients, but also for those in later lines of treatment. Yescarta is a potentially curative therapy and KITE has uniquely and effectively scaled manufacturing to meet the needs of patients who get benefit. Turning to our clinical progress, our NDA submission has been accepted by the FDA for Lenacapavir for heavily treatment experienced people living with HIV, and we are now expecting the decision in late December. If approved, Lenacapavir will be the 1st approved casted inhibitor and the 1st therapy with a 6 month dosing schedule for HIV treatment. Moving to TRODELBI, we are in discussions with the FDA regarding a potential regulatory pathway for late stage trauma receptor positive HER2 negative patients and we will update you as things progress.

Speaker 2

We have also begun screening patients And Ascent 3 and Ascent 4 evaluating Trodelvi in the first line metastatic triple negative breast cancer patients. We dosed the 1st patient in our new Phase 2 study evaluating TRODELV in non small cell lung cancer, EVOKE-two. And earlier this month, we dosed the 1st patient in a new TRIDENTLLI combination arm in our ongoing migrolumab triple negative breast cancer study. Also for migronimab, we are targeting an interim analysis no later than early 2023 for ENHANCE, our Phase 3 study in first line high risk MDS. Additionally, we dosed the first patient for ENHANCE 3, a Moving to Slide 5, later this year we expect to initiate an additional Five studies for TRIDELVY in a mix of monotherapy and combination studies.

Speaker 2

We also plan to start enrolling patients in 3 cell therapy trials and 2 dolmenilumab combination trials. The extent of existing and planned studies really highlights the scale of our ambitious oncology program. I want to take this opportunity to thank the teams across Gilead and Kite for a terrific quarter of commercial execution and for the continued momentum in our clinical programs to continue to lay the critical groundwork for Gilead's future success. With that, I'll invite Joanna to share an update on

Speaker 1

Thanks, Dan, and good afternoon, everyone.

Speaker 3

Turning to Slide 7, we had a very strong second quarter with total product Sales excluding VACQUARY is $5,700,000,000 up 7% year over year driven by HIV, cell therapy and TREDALVI and offset in part by HCV. Sequentially, total product sales excluding Vicklery were up 14%, driven by the seasonal pricing and inventory dynamics we see coming out of the Q1 of every year, primarily in our HIV business, as well as higher demand across our total portfolio. On Slide 8, HIV sales were up 7% year over year to 4 point as well as higher demand for both treatment and PrEP. Excluding the impact of the loss of exclusivity of Truvada and Atripla, HIV sales increased 11%. Quarter over quarter, HIV sales were up 14% due to demand and channel mix leading to higher average realized price as well as the favorable seasonal inventory dynamics that we typically see in the Q2 relative to the first.

Speaker 3

Year over year, the HIV treatment market grew over 4% in the U. S. And was largely flat in Europe, but sequentially grew over 2% in the U. S. And 1% in Europe.

Speaker 3

We're encouraged to see the market recovering and on a year on year basis continue to expect annual treatment market growth in the 2% to 3% range. Descovy sales in the 2nd quarter were $460,000,000 up 6% year over year and 23% sequentially. We're pleased to see continued prep market growth with broader awareness and market volumes that are well above pre pandemic levels. For the quarter, the overall market growth was up 25% year over year and 5% sequentially, highlighting both robust recovery and growing adoption of PrEP. Despite generic and other market participants, Descovy Sharon Prep is holding in the mid-forty percent range.

Speaker 3

As awareness continues to grow and the overall market expands, we expect Descovy to continue to play an important role in PrEP and really look forward to adding lenacapavir as a potential long alternative for those seeking preventative care as early as 2025. On to Slide 9, Biktarvy grew 28% year over year to $2,600,000,000 primarily driven by strong demand and channel mix. Biktarvy's market share in the U. S. Grew from 40% in Q2 of last year to 44% in the Q2 of 2022 and continues by a wide margin to be the leading treatment for HIV as well as the fastest growing.

Speaker 3

In fact, Biktarvy's differentiated clinical profile was once again reinforced this past weekend at the International AIDS Conference in Montreal. At 5 years, Biktarvy had 0 cases of treatment failure due to resistance as well as sustained efficacy and a demonstrated safety profile in people living with HIV. Notably, this 5 year trial duration demonstrating 0 cases of resistance is unprecedented for an HIV regimen. Share also increased sequentially, up 1% from the Q1 of 2022, contributing to 19% growth in Biktarvy revenue quarter over quarter, in addition to the channel mix and the seasonal inventory dynamics we referenced earlier. Moving to Slide 10.

Speaker 3

HCB sales in the quarter were down 18% year over year due to channel mix leading to lower average realized price and fewer patient starts, partially offset by higher volume in Eastern Europe. Sequentially, HCV was up 12%, driven by the timing of a large order in addition to higher patient starts. Overall in HCV, we maintain steady market share of 50% to 60% both in the U. S. As well as Europe.

Speaker 3

For HBV and HDV on Slide 11, sales were roughly flat quarter over quarter and year over year, driven by unfavorable adjustments associated with the recent volume based and offset by higher year over year demand and volume growth in all other regions. VACLEARY revenues in the 2nd quarter were $445,000,000 as shown on Slide 12. As expected, Sales declined both year over year and quarter over quarter as hospitalization rates declined in most geographies. Additionally, U. S.

Speaker 3

Revenue reflected inventory drawdown in the second quarter. While COVID-nineteen is still prevalent, the most recent subvariants have been less severe and contributed to fewer hospitalized patients. Although roughly 60% of hospitalized COVID-nineteen patients that are being treated in the U. S. Are receiving VEGLIRI.

Speaker 3

We continue to be committed to supporting patients with COVID-nineteen globally. Last month, we signed our 2nd joint procurement agreement with the European Commission that enables participating countries to purchase VACLARY for a period of up to 18 months. Additionally, the European Medicines Agency Committee for Medicinal Products for Human Use or CHMP adopted a positive opinion recommending Vectleri receive full marketing authorization for the treatment of appropriate patients with COVID-nineteen. This builds on our prior conditional authorization and we look forward to the final decision by the European Commission later this year. We're proud of our track record of meeting global demand for VACQUARY since the fall of 2020 and we'll maintain our readiness to supply VACQUARY where it's needed and have increased our full year guidance to reflect anticipated patient need in the second half.

Speaker 3

Turning to oncology and beginning with Tadalvi on Slide 13. Sales of $159,000,000 grew 79% year over year and 9% quarter over quarter. Sequentially, Chudobi grew 41% outside of the U. S. With particularly strong growth in Germany and France due to increased awareness and adoption.

Speaker 3

Sequential 7% volume growth in the U. S. Was offset by unfavorable pricing dynamics. We expect to see continued growth in the second half driven by the impact of our expanded sales force in the U. S.

Speaker 3

As well as reimbursement approvals in the EU. We're committed to broadening access for Xtandi and continue to work with regulators and payers around the world. We're pleased with the recent decisions by both MCCN in the U. S. And NICE in the U.

Speaker 3

K. Recognizing the significant clinical benefit of Tradelvia in patients with metastatic triple negative breast cancer based on the Phase 3 Accentra. These decisions add to the building support for Tadalupe's use following positive health technology assessment in a number of other countries. TDOVI is the first ADC to demonstrate In fact, The NCCN guidelines elevated Tridelby to a Category 1 recommendation for second line and later metastatic TNBC, its highest recommendation available. Additionally, while TRIDELVIA is not approved by the FDA for use in HR positive HER2 negative setting, we're pleased that the NCCN has issued a Category 2A recommendation for Tridelby's use for these patients with advanced disease.

Speaker 3

Turning to Slide 14, I'm pleased to share some incredibly strong results on behalf of Christy and Nikkai team. Sales therapy sales for the Q2 were CAD368 1,000,000 68% year over year and 34% sequentially, driven by a very strong U. S. Second line launch for Yescarta in relapsed or refractory LBCL, which exceeded our expectations and continued strong growth in 3rd line Tasiast Garda. As a reminder, strong data and an NCCN recommendation, which predated the 2nd line approval, helped drive our impressive early uptake, especially in large volume authorized treatment centers with a high familiarity with CAR T therapies.

Speaker 3

Additionally, gift card of second line LBCL is already available in 2 other large markets in France through the early access program and in Germany through a reimbursement decision ahead of approval. The decision on Yescarta second line LBCL approval in Europe is expected later this fall. 3rd line plus LBCL deliveries also increased sequentially and year over year, reflecting growing overall awareness and confidence in the use of Yescarta. This follows the presentation of 5 year ZUMA-one data at last year's American Society of Hematology meeting and more recently our second line approval in the U. S.

Speaker 3

For the quarter overall, Escarta sales of $295,000,000 were up 66% year over year and 40% sequentially. Of note, YUSTEDA deliveries increased 67% year over year and 39% sequentially, demonstrating the effectiveness of KITE's manufacturing expansion strategy and our ability to meet demand for our cell therapies. We're proud of our reputation for consistent and reliable deliveries that further differentiate KITE cell therapies and was a continued source of strength in Q2. While we saw very strong demand in the first half of twenty twenty two, We expect this growth to normalize in Q3 as second line usage expands beyond the early adopters and more towards community referrals. Turning to Cardus.

Speaker 3

Sales for the quarter were $73,000,000 up 78% year over year and 16% sequentially, Driven by continued demand and expansion into new geographies for relapsedrefractory mantle cell lymphoma as well as uptake in adult acute lymphoblastic leukemia in the U. S. Christie is available for Q and A later on the call. In summary, this was a really strong quarter for the entire Gilead and Kite commercial organization. And so with that, I'll hand the call over to Murde for an update on our pipeline.

Speaker 4

Thank you, Joanna. From a clinical perspective, we made solid progress in the Q2, including a wealth Update spanning our oncology and virology portfolios. Starting with HIV on Slide 16, we're very pleased to share that our NDA For linacapavir for heavily treatment experienced people living with HIV was accepted last week and we now have a PDUFA date set for the end of December. Outside the U. S, we received a positive CHMP opinion for this indication based on data from the Phase twothree CAPELLA trial.

Speaker 4

Week 26 data from this trial were published in the New England Journal of Medicine in May with updated 1 year data presented at the conference on retroviruses and opportunistic earlier this year. In this very difficult to treat population, 83% to 86% of those treated with lenacapabir achieved virologic suppression at 1 year, sustaining the rates achieved at week 26. We continue to expect a decision from the European Commission later this year. Looking to TRUDELVI on Slide 17, we shared new data at ASCO that increases our confidence in TRUDELVI's potential applicability across a broad range of tumor types. These positive data from the Phase 3 Ascent study reinforced Tridelby's survival and health related quality of life benefit over treatment of physicians' choice in patients with metastatic triple negative breast cancer.

Speaker 4

We also highlighted positive PFS and quality of life data from our Phase 3 TROPICS-two study, Demonstrating a statistically significant and clinically meaningful 34% reduction in the risk of disease progression or death in late line endocrine resistant patients with HR positive HER2 negative metastatic breast cancer, who had received a median of 3 prior lines of treatment in the metastatic setting after having failed hormone therapy. This study also demonstrated a positive trend in overall survival at the first interim analysis. The TROPICS-two data coupled with the NCCN recommendations support TRUDELEVI's potential as a treatment option for late line HR positive HER2 negative patients. As Dan mentioned, our discussions with the FDA are ongoing on the potential regulatory path and we'll update you when we can. In the meantime, TROPICS O2 continues with patients being followed for subsequent planned OS analyses.

Speaker 4

Separately, we continue to expand our TRODELVY clinical program. We began screening for patients in ASCENT-three, evaluating TRODELVY in PD L1 positive metastatic TNBC. Moving to TRODELV in bladder cancer, the ongoing Phase III TROPICS-four study is our confirmatory This study follows an encouraging data the encouraging data from TROPHY U01 supporting accelerated approval of TRIDELVIA in the U. S. For patients with MUC.

Speaker 4

Pending results from our first line expansion cohorts in the Phase 2 TROPE U01 study, we plan to open 2 Phase 3 studies in frontline NUC. In our TRUDEBI lung program, we initiated the Phase 2 EVOQ-two non small cell lung cancer study in the 2nd quarter evaluating the combination of TRUDEBI with Merck's KEYTRUDA in patients without actionable genomic mutations. Looking forward to the second half of the year, We expect to begin enrolling patients for the Phase 3 EVOCO-three or KEYNOTE-forty six study in first line non small cell lung cancer with PD L1 expression levels greater than equal to 50% in collaboration with our partners at Merck. Additionally, Later this year, we expect to initiate several other TRIDELVY combinations, including evaluating TRIDELVY and castrate resistant prostate cancer. Moving to migrolimab on Slide 18, we're pleased that both divisions of the FDA have now lifted the partial clinical hold on migrolimab.

Speaker 4

All migrolab programs have resumed enrolling patients without FDA requiring any additional protocol changes. Our confidence in the Grolle Map's potential efficacy and safety profile is unchanged. At ASCO, we shared NDS and AML data From our Phase 1b study, where MIMORELA Lab continues to demonstrate high and durable response rates and high risk MDS with encouraging complete response rate of 33% compared with the historical rates of azacitidine alone. We also observed promising efficacy in patients with TP53 mutant AML with an ORR of 49% and a CR of 33%. Notably, our Phase 3 study in frontline HR MDS, ENHANCE, is enrolling nicely and we expect the interim analysis no later than early 2023.

Speaker 4

Moving to cell therapy on Slide 19. On behalf of Christy and the KITE team, it's gratifying to see that more patients are benefiting from our cell therapies given the growing body of clinical evidence. Building on the ZUMA-seven data, we presented real world data at ASCO that demonstrated consistent outcomes for survival and safety regardless of race and ethnicity. And in sub analysis of ZUMA-seven, patients over 65, Yescarta demonstrated more than 8 times greater Median event free survival and a clinically meaningful improvement in quality of life. These data further established safety profile of Yescarta for patients with relapsed or refractory LVCL and support ongoing exploration of Yescarta in more settings.

Speaker 4

We expect to enroll our 1st patient for ZUMA-twenty four, a Phase 2 study to evaluate YesGuard and second line LBCL in an outpatient setting as well as ZULUMA-twenty 3, a Phase 3 study to evaluate Yescarta in first line high risk LBCL patients in the second half of this year. Additionally, we expect 1st patient in and a new Phase 3 trial evaluating the use of Yescarta in second line HR follicular lymphoma patients, ZUMA 22 later this year. Now to Slide 20. As Dan mentioned, we made steady progress in the first half of the year and continue to focus on clinical execution. The key clinical milestones in the second half include An update on our regulatory discussions for TRIDELVY for late line HR positive HER2 negative patients in the U.

Speaker 4

S. A number of potential regulatory decisions, including for linacabavir, Yescarta and Tecartis, At least 6 more trial initiations spanning TRUDELVI, cell therapy and domanilumab as well as several data updates with our partner, Arcus, including Phase 2 data from ARK7. Later this year, we also expect to have interim Phase 2 data for Atruma from the ARK6 study as well as ARC8's Phase 2 data for quemium. We're encouraged with the early Phase 1 data for GS-five thousand two hundred and forty five, our investigational novel oral nucleoside in development for the treatment of COVID-nineteen. We're discussing these early data with regulatory agencies and are planning to move into the clinic.

Speaker 4

We're also pleased to see our earlier stage pipeline with our partners such as Tizona and Pioneer continue to advance nicely. For example, Tizona's HLAG program is currently enrolling its dose expansion cohorts and Tizona expects to share interim data mid-twenty 23. With our robust internal pipeline and external partners, we're confident our portfolio across virology, oncology and inflammation will deliver many life changing treatments to help those patients in need. With that, I hand the call over to Andy.

Speaker 5

Thank you, Murdad, and good afternoon, everyone. Before I discuss our Q2 results and starting on Slide 22, I would like to remind everyone that following the SEC guidance earlier this year, Similar to our peers, acquired in process R and D expenses or IPR and D, including upfront payments for business development transactions are now included in our non GAAP financial measures and reported under acquired IPR and D. As a reminder, The $300,000,000 payment associated with the DragonFly collaboration announced in May is included in our Q2 results, but was not reflected in our prior 2022 full year guidance. Additionally, we have shifted prior period milestone and opt in payments from R and D to acquired IPR and D. We believe this presentation better reflects the total costs incurred to acquire IPR and D projects.

Speaker 5

The most notable example is the $625,000,000 opt in payment we made to ARCUS that we reported in the Q4 of last year. There are a few other smaller payments that have been moved and this slide highlights the changes that you will now see reflected in our 2021 P and L. I'll further note that this change impacts our 2022 R and D guidance because our R and D guidance is given relative to our 2021 results. I'll touch on that again later in this call. Moving to our Q2 results starting on Slide 23.

Speaker 5

This was a very strong quarter with a notable contribution from both our HIV and our oncology businesses. As expected, VACLURE sales were substantially lower sequentially and year over year, reflecting the lower COVID hospitalization rates in the quarter. Total product sales, excluding VECLARI, were up 7% year over year. Foreign currency impacted 2nd quarter sales excluding Vectlery by approximately $65,000,000 net of hedges. If we exclude this impact as well as the impact of the HIV LOEs, total underlying sales growth year over year was 11% in the quarter.

Speaker 5

For the first half, total product sales growth excluding VECLURE was 5%. Also excluding FX And the impact of the HIV LOEs underlying growth for the first half was 8%. Back to our reported results on Slide 24. Joanna took you through our revenue results and the drivers there. Non GAAP product gross margin was 85.6% for the 2nd quarter, down 80 basis points year over year, primarily due to the Biktarvy related royalty following the settlement in the Q1 of this year.

Speaker 5

Non GAAP R and D, excluding acquired IP R and D expenses such as milestones and upfront payments, was $1,100,000,000 up 6% year over year, primarily due to increased investment in development and timing of clinical trial activities, primarily for our oncology business. Acquired IPR and D for the quarter was $330,000,000 including 300,000,000 related to the Dragonfly collaboration. Non GAAP SG and A was $1,300,000,000 up 13% year over year, Primarily due to increased promotional and marketing activities, including for Tradelby as well as higher corporate expenses, including IT Investments and Grants. Non GAAP operating margin was 43%, reflecting higher operating expenses and the upfront Dragonfly payment. Excluding the Dragonfly payment, non GAAP operating margin was 47.5% for the quarter.

Speaker 5

Moving to tax, our non GAAP effective tax rate in the 2nd quarter was 19.3%. Our non GAAP diluted earnings per Share was $1.58 in the Q2 of 2022 compared to $1.81 for the same period last year, reflecting the Dragonfly payments, which represented $0.18 on a post tax per share basis as well as the Biktarvy related royalty. Overall, we had a strong first half of the year as shown on Slide 25 with growth across HIV, cell therapy and tridelvi offset in part by HCV. Of note, currency headwinds impacted the first half total product sales by approximately $180,000,000 net hedges compared with the first half of twenty twenty one. Moving to Slide 26, we are Increasing our full year sales guidance to reflect our year end our year to date results and our expectations for the second half, including our expectations for FX.

Speaker 5

In addition to the impact in the first half, we expect continued FX headwinds in the second half, impacting total product sales by approximately 200,000,000 in the rest of the year compared to our initial February guidance. For revenues, we now expect total product sales of 24.5 to $25,000,000,000 compared to our previous range of $23,800,000,000 to $24,300,000,000 This reflects the strong performance year to date, Notably very strong growth in cell therapy and HIV and it also incorporates our expectations for the broader macro environment. In HIV, we expect modest sequential growth in the Q3, keeping in mind the strength we experienced in the Q2. And in cell therapy, we expect flat to modestly higher revenue in the Q3 compared to Q2. Following the launch The orders we experienced in the Q2, we expect demand to stabilize.

Speaker 5

Moving to Vectlurry and with the first half revenue of almost $2,000,000,000 We're increasing our expectations to approximately $2,500,000,000 for the year. Following inventory drawdown in the second quarter, we expect sales to increase in the United States and to continue to track hospitalization rates. Note that our VEGLARI guidance assumes no significant increase in hospitalization rates from Q2 levels. Excluding VACQUELRI, we expect our total product sales to be $22,000,000,000 to $22,500,000,000 representing growth of 3% to 5% year over year and compared to our prior range of $21,800,000,000 to $22,300,000,000 As for the rest of the non GAAP P and L, there is no change to our product gross margin guidance range of 85% to 86%. R and D, as described earlier, will no longer include BD related payments such as milestones and opt in fees.

Speaker 5

These will be reported as acquired IP R and D along with upfront payments. With this change, we have moved $762,000,000 of full year 2021 expense from R and D to acquired IP R and D. As a result of this change, we now expect full year R and D expense to increase by a mid single digit percentage compared to the new 2021 baseline of $4,500,000,000 Our expectations for full year R and D expense remain largely from the start of the year and this guidance revision reflects only the recasting of acquired IP R and D items, including ARCUS previously reported in R and D in 2021. Moving to acquired IP R and D, we are not issuing guidance For the full year and similar to what we did with the Dragonfly deal this quarter, we'll update our EPS guidance quarterly as needed to reflect any relevant activity during the quarter. What we have included here is the year to date acquired IPR and D amounts.

Speaker 5

For SG and A, with our continued investment across our commercial organization and expectations for higher costs as a result of inflation, we now expect SG and A expenses to grow by a low single digit percentage compared to 2021. Altogether, we expect operating income to be $11,000,000,000 to $11,600,000,000 for the full year compared to $10,700,000,000 to 11 $5,000,000,000 previously. Similarly, we now expect our non GAAP diluted earnings per share to range between $6.35 to $6.75 up from $6.20 to $6.70 previously. On a GAAP basis, we expect our diluted earnings per share to range between $2.90 $3.30 compared to $3.3.50 previously, primarily reflecting net unrealized losses from strategic equity investments. As a reminder, this revised EPS guidance reflects the $300,000,000 upfront payment associated with the DragonFly collaboration we announced in May, which was not included in our previous guidance as well as our FX expectations and operating expenses for the second half.

Speaker 5

The guidance shared today does not include additional upfront payments related to normal course of business partnerships or licensing deals that we might announce in the 3rd or 4th quarters. As discussed previously, we will continue to update our guidance as needed to reflect the impact of any new business development transactions closed in the prior quarter. Finally, on Slide 27, you can see there is no change to our capital allocation priorities. In the quarter, we returned almost $1,000,000,000 to shareholders, including $920,000,000 in dividend payments. And just after the close of the quarter, we repaid $1,000,000,000 of debt, Fulfilling our commitment to repay $1,500,000,000 of debt this year.

Speaker 5

I'm pleased to share that as of July 1, we have returned to the same debt level we were at prior to the Immunomedics acquisition. With that, I'll invite the operator to open the Q and A.

Operator

Our first question comes from the line of Brian Abrahams with RBC Capital. Brian, your line is now open.

Speaker 6

Hi there. Good afternoon and thanks for taking my question and congratulations on the quarter. I recognize that the discussions around TRIDELV and HR positive HER2 negative population are ongoing. But I'm just wondering broadly speaking, if you can talk about The key things that you'll be focusing on with regards to the data and if there are certain subpopulations you might expect to gear towards from either a labeling or commercial perspective. Thanks.

Speaker 4

Hey, Brian. Hi, this is Mehrdad. I guess I'll start with that. For us right now, as we go forward with the study, I think we'll continue our focus on, of course, The OS evolution of the trial. And I think as we See how those data evolve over time, we will use that in our discussions with regulators as we go forward.

Speaker 4

In terms of additional subpopulations, of course, we'll keep an eye on a number of things in terms of Whether it's line of therapy or those sorts of subpopulations or duration of prior therapy, which were all part of the original Analysis, those were it's consistent with what we've already shown at ASCO in the data that we've

Operator

Thank you. Our next question comes from Geoff Meacham with Bank of America. Geoff, Your line is now open.

Speaker 6

Great. Afternoon, guys. Thanks so much for the question. Joanna or Kristi, the cell therapy segment, which you guys called out had a huge quarter. I'm just curious how much of the demand do you think It is sustainable.

Speaker 6

I mean, was it mostly driven by the new second line label or did the total end market expand meaningfully? I guess I'm trying to figure out whether We reached a tipping point overall for reimbursement access in cell therapy. Thank you.

Speaker 2

Thanks, Jeff. Christy, over to you, please.

Speaker 7

Yes. Thanks, Jeff, for the question. I'll start with the second piece, reimbursement. Our It's really good. We have 98% access and that's Medicaid, Medicare, commercial, even with the second line launch and less than 1 quarter we already have We already had 94% paid for across those 3 groups any of those 3 groups.

Speaker 7

So, reimbursement time, in terms of the uptake, your First point of your question, the uptake that we've seen since launch is first primarily due to second line. We've seen the patients that are going for stem cell Plants are the ones that are getting referred instead of that transplant to second line Yescarta. So that is our initial goal. So what we expect is we've had this 68% year over year growth, 34% quarter over quarter. But we do believe that this is a bolus and we expect the second half of the year going forward That we expect that growth to normalize the historical rates as that growth becomes more dependent on the referrals from the community.

Speaker 7

So we expect it to be So, a really good growth, but we do see believe that this is a bolus in the second line of the patients that exist in the ATCs and that for the rest of the year, just to reiterate that that growth will return to more historic growth rates.

Speaker 1

Amber, we're ready for our next question.

Operator

Thank you. Our next question comes from Tyler Van Buren with Cowen. Tyler, your line is now open.

Speaker 2

Great, thanks. Good afternoon. Can you guys please provide your latest thoughts regarding the potential impact that drug pricing reform could have on Gilead's business And perhaps Biktarvy in particular given the significant concentration of HIV sales to the product and its longer patent life. Yes. Thanks, Tyler.

Speaker 2

I mean, I'll start. This is Dan. I mean, I think it's important for everybody on the call to note We as a company and I think as an industry are very focused on the fundamental issue in the U. S, which is reducing patient out of pocket costs. And there are lots of different ways to do that.

Speaker 2

Unfortunately, the current legislation falls very short of making an impact upon patients And in particular, the negotiation part of the proposal is really, I think a real dangerous precedent in terms of potentially reducing forward innovation. I think in terms of how as you know, Tyler, the bill is still very much in discussion right now and It's very difficult to determine the full impact. What I would say is it's several years away, 1st of all, from the first impact. And of course, in the Part D area of the reform, that could have some impact on our business, but also help patient out of pocket costs. I think when one starts to think about the negotiation aspect of the bill, it's still I think too premature to think about exactly how that could And it is later in the decade in terms of its impact.

Speaker 2

So let's take it one step at a time, I think, to first See what happens with the current legislation, the discussions going on in Washington, rest assured that we are actively involved in supporting What we think are patient oriented benefits here and adjustments to the program. And then once and we'll see where that goes over the coming weeks months. We'll be able to give you even more clarity on how things might impact our business. But overall, I would just emphasize The strength of our portfolio is strong. I mean we have tremendous new innovations coming out of the pipeline.

Speaker 2

We have Continued growth in our HIV business and beyond. And I think the innovation cycle at Gilead is very sound.

Operator

Our next question comes from Olivia Breyer with Cantor Fitzgerald. Olivia, your line is now open.

Speaker 7

Hey, good afternoon guys. Thanks for the question. Are you guys seeing any impact from monkeypox on the HIV business? Is that

Operator

a headwind you're factoring into guidance at this point for second half of the year?

Speaker 3

Sure, Olivia. Hi, it's Joanna. Let me take that one Speaking with a lot of our specialists across the U. S. But also in Europe, they have seen obviously the rising number of monkeypox And there is a correlation with both our HIV treatment business, but also with prevention because The general percentage, the higher percentage of folks that are experiencing monkeypox are actually men having sex with men.

Speaker 3

And so obviously That's the overlap. So on the contrary, we're not seeing an impact to our HIV business. We're actually seeing more screening and diagnosis that are coming in, in light of that and because of that close association. So I do think and the same people are treating. The prevention piece is actually a really important piece of the puzzle to try Prevent moving forward with monkeypox and getting the vaccines in.

Speaker 3

So definitely more on the positive front of our HIV business and however we can support that, That's what we're trying to do right

Operator

now. Amber, ready for our next question. Our next question comes from Umer Raffat with Evercore. Umer, your line is now open.

Speaker 8

Hi, guys. Thanks for taking my question. I had a question

Speaker 9

and a

Speaker 8

clarification. First, maybe the question, I think, Mehrdad, you hinted You are or you will be discussing early, oral remdesivir data with FDA. I'm curious, if you saw any viral load benefit as well as whether The EC90 how much EC90 tracks above the C trough? And then clarification was on TIGIT ARC 7 Because the slides on last quarter implied we're expecting PFS data, Phase 2 PFS data in second half, but today's slides only say Phase 2 data, so maybe if you could clarify if there's still a chance PFS could be part of the data update? Thank you.

Speaker 4

Hi, Amr. Yes, thanks for the questions. So as far as the oral new program for COVID-nineteen goes, the Phase 1 study is in healthy volunteers. So we don't expect to see anything other than safety and PK in that study. And all I can say is I think things have gone very well with that trial so far both from a tolerability and an exposure standpoint.

Speaker 4

So We're very happy with where we are and now we'll move into the proof of concept And clinical development stage. So no viral load data to share. And then in terms of the ARK7 data, I don't think I guess I would suggest not over reading. We are working with Arcus and we will As the data rollout, we'll be sharing data ARCUS and we will be sharing data from the ARC7 study later on this year and The data that we will have, we're not really detailing what those data are going to look like right now. But be assured that we'll

Operator

Our next question comes from Matthew Harrison with Morgan Stanley. Matthew, your line is now open.

Speaker 6

Great. Good afternoon. Thanks for taking the question.

Speaker 10

I was just hoping you could talk

Speaker 6

a little about TRIDENTIFIEDSOLFI demand in the U. S. Sort of sequentially. Growth has slowed pretty significantly over the last couple of quarters here. Is that mostly a reflection that you've penetrated most of the Triple negative market and you need label expansion to see that growth or are there other factors there from a sequential growth standpoint?

Speaker 6

Thanks.

Speaker 3

Thanks, Matthew. It's Joanna. Let me try to give you a little bit more context. So as you saw from a global standpoint, we had really strong growth across The Board, a lot of that growth as you're referring to comes from some of the market launches in Europe, mainly France and Germany, where there's been a bit of a bolus, but also Real learnings as to making sure that we increase awareness for TRUDELVY early on. And so from a U.

Speaker 3

S. Standpoint, we actually did see Strong demand growth quarter over quarter, we started about 7%. Unfortunately, it got impacted by unfavorable one time pricing dynamics. And so that's where you see the net revenues are only up 1%. No concerns on our end because we do see the momentum actually continuing from a share standpoint and we definitely haven't maximized our opportunity in Trodelbi, let me tell you.

Speaker 3

I think that With the incredible overall survival data and the only overall survival data that's shown in this patient population, there's a real opportunity for us to educate and increase the awareness. That's That's something that we've been tracking really closely is that awareness piece. We got a little slowed down through the COVID era just because offices and cancer centers were quite shut down. But having said that, that's picked up really quite nicely over the last 3 to 4 months and we've expanded our footprint. As you may recall, We closed or tripled our footprint, as of April, May timeframe.

Speaker 3

Now obviously, as you know, when you do that, You shouldn't expect results, I would love it, but you shouldn't expect results within the 1st month. It usually takes about 6 months or so to start seeing those through and we should see those come through in the fall, as well as additional countries getting reimbursement as you've seen from some of the HTA decisions that have come through and launching in Europe as well. So looking forward to that, But definitely more opportunity ahead and definitely on track to make sure we capture that opportunity.

Speaker 1

And we're ready for our next question.

Operator

Our next question comes from David Risinger of SVB Securities. David, your line is now open.

Speaker 11

Thanks very much and congrats on the results and thanks for taking my questions. So we are obviously in the unfortunate Situation in which the government may be working against small molecule innovation in particular, but Innovation more broadly. And in light of the possibility that legislation could Could you comment on the percentage of Biktarvy net revenue that currently comes from Medicare Part D, Just so we have a sense for the potential exposure to Biktarvy drug price controls in 2027. Thank you.

Speaker 5

Thanks, David. Do you want to start with that? Sure.

Speaker 3

Yes. Let me start with that. So thanks David for your question. I think we touched on a little bit about some of the potential impact. Having said that, From a split government to I guess commercial business, it's around depending on the different pieces, You're looking at around 40%, 50% versus about a 30% commercial.

Speaker 3

So what I'm including in that is more your Medicaid, Medicare kind of business and that's what's kind of playing out for your 3 as well as your 340B. So I think it's really I don't think you should look at it more Just looking at it as a percentage of the business, I think it's going to be really interesting to see how all this plays out and when it plays out because nothing is really going to impact for quite some time. I would also suggest that we look at the incredible diversity of our portfolio that we're growing year on year And also the geographical diversity as well, which I think will really help mitigate some of these pressures as we go forward. But just from A government business, you are looking probably close to 50% of our total business is in the government setting.

Speaker 2

Great. Thanks, Randall.

Speaker 1

Amber, our next question?

Operator

Our next question comes from Salveen Richter with Goldman Sachs. Salveen, your line is now open.

Speaker 7

Good afternoon. Thanks for taking my question. On HIV, could you just comment on what's keeping the Screening and diagnosis below pre pandemic levels and whether you'd expect a full recovery by year end? And separately, could you give us a quick update on where you stand with

Speaker 1

Can you repeat the last part of that question?

Speaker 7

Where you stand with the long acting programs when we might see Long

Speaker 3

acting, sorry. Yes, thanks. You cut out a little bit. Apologies. So let me hit the first part of that question and then I'll throw it over to Murdad for the long acting.

Speaker 3

So from an HIV screening standpoint, We're about 8% below pre pandemic levels. So very much in line with kind of where we were pre-twenty 19. From a diagnosis standpoint, what you're seeing is that 30% or so below pre pandemic, but that's kind of normal. What we've seen in the past even prior to COVID-nineteen, we're seeing a decline of the diagnosis rate about 10% year over year. And so if you think about 3 years, that's about your 30%.

Speaker 3

So not a huge surprise there and good news, right, as you're thinking about how this HIV market is, its evolution. What I would like to focus you on now is the fact that from a treatment and prep standpoint, We are above pre pandemic levels from a market growth standpoint. And so we feel very confident that the market has recovered. And actually in prep, it's more than recovered. It's actually higher than it's ever been before.

Speaker 3

So it's actually an expansion of the market. So I think we're in much better shape and it's taken a little bit more time for treatment, but I think as of Q2, I can honestly say that, it is really in a very good place, which is great news for patients.

Speaker 4

And from a lung acting standpoint, I'll Just to reiterate, with the PDUFA date at the end of the year for lenacabavir in highly treatment experienced, I think that will be the first approval, Knock wood for lennacavivir and I think that gets us started. After that, remember then we have multiple Efforts ongoing. On the prep side, we have the purpose studies that are underway. Those are longer term Because they're prevention studies, so they'll take a little bit longer to read out. We're looking at Few years there, a couple of years at least for those studies.

Speaker 4

And then on the treatment side,

Speaker 5

we are we have

Speaker 4

a number of That's on goal there, both, oral long acting as well as subcutaneous long acting. And there, we are we have our own efforts. And you may have noticed we have a number of partner molecules that are coming through our pipeline that could be partnered with Lenacapavir for a full Treatment regimen that would include Lenacapavir. And we continue to work with Merck on the potential for Lenacapavir combinations with Zlatrevir. So a lot of different options and a lot of work that's ongoing.

Speaker 4

And as those Progress farther along, we'll keep you updated.

Speaker 1

Amber, may we have our next question please?

Operator

Our next question comes from Michael Yee with Jefferies. Michael, your line is now open.

Speaker 10

Hey, thanks. Good afternoon. One question, but two parts. On TRIDELVY, Maybe Andy or Murdad, you could remind us, have you actually met with FDA on the potential filing or what's the holdup there and Al Shun is soon to hear back at this and I think you've already taken a write down if it was not to be filed. So that would be A different scenario there, but I don't need to be any further write downs if that was the case.

Speaker 10

And then maybe just comment on lung cancer opportunity. I think in your slide Say there would be Phase 3 data in lung cancer next year and I note that you should read out next year as well. So just want to understand that and your confidence level in lung cancer. Thank you.

Speaker 4

Thanks, Michael. Thanks for the questions. So on TRODELV, yes, I think Nothing has changed from what we said earlier in that we are excited about the data that we generate in 602 and are having ongoing discussions with the agency. And I think if things continue to go well, we will Discuss with them the potential for filing. We're cautiously optimistic that that should be able to continue to go forward and we'll We'll be able to update you in due course.

Speaker 4

In terms of lung, the Primary focus for us in lung is actually the initiation of our Phase III trials in lung, whether it's the combination trials I referenced earlier with Merck or some of the other combinations that we're doing. We will have some Additional data in line that will be coming that will be generated over time. But I think the focus Should be on those Phase 3 studies that we'll be reading out. And then maybe Andy, do you want to address the Write down?

Speaker 5

Sure. Yes, I'd be happy. Hi, Michael. Thanks for the question. If you recall, we took a conservative approach To the write down that we took earlier this year, as we look at the potential path forward, we will continue to monitor on a quarterly basis As we have historically and as we should, the progress on the program, both in lung cancer and In hormone receptor positive, HER2 negative breast cancer, both of which we have carrying value on the balance sheet in IPR and D as you know.

Speaker 5

So we'll continue to monitor it over time And at each major event, whether it's regulatory discussions or filings or potential approvals, we'll look at that value. Again, we

Speaker 9

remain confident in the program overall, like where the

Speaker 5

program is going, and we'll update And then the program overall, like where the program is going and we'll update you as soon as we can on our discussions with the FDA and other regulatory agencies. Thank you.

Speaker 1

Amber, we're ready for our next question.

Operator

Our next question comes from Steve Seedhouse with Raymond James. Steve, your line is now open.

Speaker 2

Great. Thanks for taking the question. I had another one on Yescarta, just given the strong second line launch. I was wondering how you view the market size or opportunity In second line versus some of the potential upcoming opportunities, AZUMA 23 or 24 populations and outpatients high risk first line And if those could be similar legs up and just how you're thinking about the sort of peak overall opportunity here for Yescarta. Great, Steve.

Speaker 2

Thanks. Christy, over to you, please.

Speaker 7

Thank you for the question, Steve. It's really great news for patients right now. Not only is part of being used, but more importantly, we're seeing the class grow. So the use of cell therapy overall is growing, which means instead of just 2 out of Patients receiving cell therapy more are and that was really the impetus for that was really the second line approval in April. Also all of the data that you saw at with our Zumoft 5 year data Zumoft 5 year data of overall survival, Zumoft 7 second line, NCCN guidelines.

Speaker 7

Yescarta is being the only Category 1 NCCN product approved for second line. So We do see that this momentum is starting to happen where it is the only curative potential that physicians have in this Graves' disease state for patients. As we look to the future, we're very optimistic that we're trying to get this closer to patients in the outpatient setting, which we are doing through clinical trials and also Some of our authorized treatment centers have already published their data on utilization of Yescarta in the outpatient setting, I. E. Vanderbilt.

Speaker 7

And as we look at the frontline setting, we're in negotiations right now with the regulatory authorities on exactly how do we define high risk for that trial. So I do think we're finally starting to realize the potential of this period of therapy for patients, and I think that this will continue. I will say though that this bolus is, I'll reiterate what I said before, this is a bolus we believe with the 2nd line launch of this pent up Demand in the HCCs, the patients were in the authorized treatment centers, going to central transplant. So the heavy lifting is over. We have a lot of work To do to educate physicians in the community to ensure that they're referring patients to treatment centers at a timely Fashion, so we do have work to do in education and that's included in the community and also as we launch in multiple countries across the globe.

Speaker 7

So we do see a steady growth continuing for the next quarters and years to come.

Speaker 1

Thanks, Christy. We're ready for our next question.

Speaker 2

Yes.

Operator

Our next question comes from Carter Gould with Barclays. Carter, your line is now open.

Speaker 9

Great. Good afternoon. Thanks for taking the questions. I guess, one question, one clarification. First on sort of the CAR T business, can you just talk about the phasing of the supply ramp on the manufacturing side and to the extent that might help out this year, should we think about that really just sort of weighted to your end?

Speaker 9

And guess in answering that, if you could also address sort of the EU manufacturing side, we don't hear much on that. And then on the clarification piece, Joanna, I appreciate the comments on sort of the 50% government for Biktarvy. But could you spell out, I guess, Medicare Medicaid there has been getting a lot of incoming on that. Thank you.

Speaker 2

Great. Kristine, do you want to start and then we'll move to the Sure.

Speaker 7

Happy to. So one of the things we're probably particularly proud of is Our ability to supply patients both consistently, reliably and to the high quality standards. And that started with El Segundo in California, but to your point in the EU, Amsterdam is now supplying all of Europe for Yescarta, and they're starting to do Tecartis as well. And so, we expect all of the manufacturing for European patients to move to the Amsterdam site by the end of this year. In addition, we just opened the Maryland site, which is the first time we'll actually have automation.

Speaker 7

1 of our 1 of Two modules of automation is up and running in Maryland. And that Maryland site has allowed us to actually increase Our number of slots for patients by 50%. So we feel very confident that we not only can provide patients for what we have today, but what we have In the future and for the future ramp up that we have plenty of capacity to supply and continue to ensure that we have the high quality standards. The last piece I'll say on supply is, we made a decision about 2.5 years ago to bring in viral vector at Oceanside, California. So We're not at the whim of ups and downs, if you will, of viral vector supply.

Speaker 7

So we have both internal and external

Speaker 3

So just to clarify and thanks for allowing me the opportunity Carter and maybe give a little bit more insight to David's question. I gave you full numbers on government, But obviously not all of those numbers get impacted by this reform or what we think might be the reform that we're talking about. And so from a Medicaid standpoint, it's less than 20% of our Total business. And so that's really what we should focus on as we think about potential for impact. And again, that impact doesn't happen anytime soon.

Speaker 3

It's really later in this decade. Dan, did you want to add?

Speaker 9

Yes, Brad.

Speaker 2

I'll just add. Thanks, Carter. I know there's a lot of moving Mark, so I just want to kind of reinforce a couple of things. As you know, there are 3 different aspects of the bill. I mean, one is, of course, the Part D reform.

Speaker 2

And here, the major difference from what occurs today is instead of 10% in the catastrophic phase, it goes to 20% in the catastrophic phase. And this is potentially In the second half of the decade, I think something from our perspective that as we look at our business is quite manageable. The second thing is in place in rebate, which I think we would have a low to 0 exposure to. And then the third one is negotiation. I just want to be clear on negotiation.

Speaker 2

There's a lot of moving parts here. And to Joanna's point, it does not affect the entirety of the government business. Much of the government business is already Contracted and under negotiation. And so I really think, and I'm sure you'll find this with most companies, That is extraordinarily difficult to measure that impact. It also comes much later in the decade.

Speaker 2

And

Speaker 10

there's quite

Speaker 2

a bit of ambiguity about Which products and how and when and there will be a lot of discussion should this legislation be passed About the details associated with that. So again, as much as I believe this is not the right thing to do for the industry, I also believe that we've got a very robust underlying business here and that these impacts are not short term at this stage. So Yes. And just to be clear on that 20% figure that's

Speaker 3

Medicaid, Medicaid. Medicaid Medicare.

Speaker 2

Right.

Speaker 1

Thank you. I know we've gone over by a couple of minutes, but we'll take one last question, Amber, please.

Operator

Our last question comes from Mohit Bansal with Wells Fargo. Mohit, your line is now open.

Speaker 12

Great. Thank you very much for taking my question. So maybe Joanne, if you can talk a little bit about SCOVY trends in prep market. So I know last couple of years you took a little bit of price decline just to maintain market share. So where do you stand on the Pricing is stabilized at this point and where does the market share of Descovy versus Truvada in this market stand at this point?

Speaker 12

Thank you.

Speaker 3

Sure. So let me take that one, Mohit. So basically from a market share standpoint, we basically we lost Maybe a point or so over the last year, but we're at about 44% market share for Descovy in prep, which I think is pretty incredible if you think about the generic competition that The balance of that market share right now is pretty much all Truvada, Truvada generics. There's about Less than 1% if you think of Apretude, as you think about new entrants in the marketplace. So it's really a mix of Descovy for prep as well as Truvada Generitization.

Speaker 3

From a pricing standpoint, what you were referring to, It has stabilized, although the rebates are definitely higher than what we were doing in the past just because there's choice now. And we are really trying to ensure that Descovy is a choice for physicians, when people at risk need something. And so we want to make sure that that's an option for them and making sure that we have the best On the marketplace with, if you think about the bone and renal safety profile that Descovy can offer. So that's really why we've been playing in that field And that's why it comes it's put a little bit of more pressure on the commercial fund specifically on the rebate fund. And so I think that's stabilizing, but every year is a new year as we enter negotiations.

Speaker 3

So more to come as we go into 2023. But for 2022, we're in good shape. And we're also leveraging the incredible market growth for prevention that's been playing out. So all of things are very positive things for Descovy and prevention as well as for people at risk.

Speaker 2

Great. So thanks so much for joining today, Dan. I just want to thank you again. I just want to reinforce What a strong quarter this was and thank the team for really significant momentum, I would say, in our business. You saw our Q1, our Q2, We're committed to delivering quarter after quarter on this on both the commercial execution and the pipeline side and really excited about where we stand right now and where we're heading.

Speaker 1

Relations, if you have any follow-up questions on the quarter. We appreciate your continued interest in Gilead and look forward to updating you on our progress throughout the year. Thank you.

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