Gilead Sciences Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2023

There are 19 speakers on the call.

Operator

Afternoon. Thank you for attending today's 4th Quarter and Full Year 2022 Gilead Sciences Earnings Conference Call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Jackie Ross.

Operator

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 Q4 and full year 2022. The press release, slides and supplementary data are available on the Investors section of our website atgilead.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, Murdad Parsi and our Chief Financial Officer, Andrew Dickinson. After that, we'll open the call to Q and A, where the team will be joined by Kristy 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 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 the use of capital and 2023 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 company's underlying business performance. 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.

Speaker 1

Now I'll turn the call over to Dan.

Speaker 2

Thank you, Jackie, and good afternoon, everyone. We had the opportunity to connect with many of you a few weeks ago in San Francisco, and I'm excited to be able to reconnect now to share our strong 4th quarter and full year results for 2022 in addition to our guidance for 2023. These show the tangible impact of our business transformation, notably the growth trajectory for our HIV portfolio and our fast growing oncology business. The team will take you through our quarterly results in detail, but I'm very pleased to highlight on Slide 4, the strongest full year growth in our base business since 2015 when growth was driven by the peak of HCV sales. Full year 2022 sales of Biktarvy grew 20% year over year to $10,400,000,000 exceeding $10,000,000,000 for the first time.

Speaker 2

Excluding the Clari, our base business in 2022 grew 8% year over year and I'm pleased to share that our initial 2023 guidance points to base business growth between 4% 6%. Andy will share our revenue guidance in detail, but I do want to take this opportunity to recognize the Gilead team for the progress we made in returning to growth. Thanks to their commitment to improving the health of people and communities around the world, Gilead is now poised to extend its reach to more patients and more challenging diseases and conditions than ever before. Beyond our financial results, our clinical progress in 2022 reinforces how far we've come. At the end of the year, Sunlenka received its first approval in the U.

Speaker 2

S. For heavily treatment experienced adults with multi drug resistant HIV infection. This follows the European approval in the Q3. Selineka is the first 6 monthly subcutaneous medicine to be approved And we believe it represents the most exciting innovation in HIV therapeutics in recent years with significant potential across prevention and treatment. We look forward to partnering with the HIV community to increase awareness of ZENLANCA and to advancing our portfolio of long acting options.

Speaker 2

We are anticipating another potential approval any day now with the upcoming PDUFA date for Trodelvi in pretreated HR positive HER2 negative metastatic breast cancer. We also expect to hear from European regulators later this year. In the meantime, Trodelbi's commercial momentum is building with full year 2022 sales growth of 79%. In cell therapy, we continue to reinforce our leadership And to execute on plans to broaden availability with Yescarta most recently approved in Japan for second line relapsed to refractory large B cell lymphoma. Mehrdad will talk you through our pipeline updates and key milestones in a few moments.

Speaker 2

For now, I'll simply note significant expansion in our clinical programs, which have more than doubled in the last 4 years. We continue to add further programs, including our new preclinical candidates to partner with Lenacapavir for our long acting HIV treatment programs, the new Phase 3 Oaktree study for our novel oral Before I hand over to Joanna, I want to briefly review the clinical goals we shared with you a year ago. The Gilead and KITE teams have done a terrific job in both delivering as planned and acting with agility in response to changing circumstances. We had an impressive year of disciplined and determined execution in 2022 and fully expect to further strengthen our track record of execution in 2023 and beyond. With that, I'll hand over to Joanna for a review of our Q4 and full year commercial performance.

Speaker 2

Joanna?

Speaker 3

Thanks, Dan, and good afternoon, everyone. Before discussing our commercial results, I want to acknowledge our Gilead team for delivering another outstanding quarter and closing out a very successful year. 2022 was an exceptional year for Gilead with our virology well positioned to continue its leadership for years to come and significant progress in executing our oncology strategy and bringing new medicines to improve the lives of more patients all around the world. Starting on Slide 7, we had a very strong quarter, delivering a total product sales excluding VACQUARY of $6,300,000,000 up 9% year over year or 12% excluding the impact of FX and the loss of exclusivity of Truvada and Atripla with solid growth in each of our core franchises and growth across all geographies, once again led by HIV and Oncology. Quarter over quarter, sales grew 5% driven by HIV, Trodelvi and cell therapy, partially offset by HCD.

Speaker 3

For the full year, Total product sales excluding DEPLEREAT were $23,100,000,000 up 8% year over year or 11% excluding the impact of FX and the TRUVARA triple LOE driven by HIV and oncology. As expected, Full year VACQUELRI sales were down meaningfully in 2022 compared to 2021. That said, VACQUELRI's performance has been more sustainable than we previously expected, and it's clear that it continues to play an essential role for hospitalized patients treated for COVID-nineteen. In 2022, Vectlury delivered $3,900,000,000 including $1,000,000,000 in the 4th quarter. Overall, Full year total product sales of $27,000,000,000 was flat compared to 2021 as growth in our base business was offset by the decline in Vectlery sales.

Speaker 3

On Slide 8, HIV sales for the Q4 were $4,800,000,000 up 5 percent year over year, driven by higher demand as well as favorable pricing dynamics. This was offset in part by a smaller than usual inventory build in the 4th quarter, reflecting our early efforts on seasonal inventory management. Sequentially, HIV sales in the 4th quarter were up 6%, primarily driven by favorable pricing and inventory dynamics as well as higher demand. For the full year, HIV sales of $17,200,000,000 were up 5% year over year due to higher demand primarily related continued strength of Biktarvy in addition to channel mix leading to higher average realized price. This was partially offset by inventory dynamics and FX.

Speaker 3

Overall, the HIV treatment market in the 4th quarter grew 1.5% year over year in the U. S. And over 2% in Europe. On an annual basis, the market has grown in line with our expectations of 2% to 3%. Moving to Provention.

Speaker 3

The U. S. Prep market grew 18% year over year and 3% sequentially in the Q4 of 2022, reflecting growing awareness. Descovy sales for the Q4 were $537,000,000 up 13% year over year and 7% sequentially. Notably, despite generics and other entrants, demand for Descovy for PrEP continues to increase, up more than 20% for the full year, in addition to maintaining a stable market share of over 40%.

Speaker 3

With these trends and the TAP IP settlement last year, Discovery's position in the growing PrEP market has only strengthened. Overall, this provides a strong foundation as we look to the potential launch of Lenacapavir for PrEP as a true long acting every 6 months regimen in the middle part of the decade. Moving to the target on Slide 9. Sales for the quarter were $2,900,000,000 up 15% year over year, primarily driven by higher demand as well as favorable pricing dynamics, offset in part by lower channel inventory. Quarter over quarter, sales were up 6%, similarly driven by higher demand as well as favorable pricing and inventory dynamics.

Speaker 3

In every quarter since our launch, we've seen Biktarvy continue to gain market share and the 4th quarter was no exception, getting more than 3 percentage points in share year over year. This continued momentum is a testament to the Tardis differentiated clinical profile, reinforced by the long term 5 year data we presented last year. Notably in U. S, Europe and other major markets, Biktarvy remains the number one regimen for new starts in addition to its number one position in treatment switches across most of the major markets, including the U. S.

Speaker 3

At the end of 2022, there were almost 1,000,000 people managing their HIV with Biktarvy worldwide. Taken altogether, this has led Biktarvy for the first time to achieve full year sales of over $10,000,000,000 in 2022. Looking ahead, we're confident Biktarvy will remain the leading medicine for the treatment of HIV in the U. S, Europe and other major markets for years to come. Now looking ahead for the Q1 of 2023 for HIV, a few points I just wanted to call out.

Speaker 3

First, with respect to pricing dynamics, as we enter the New Year, We expect a typical Q1 reset in patient co pays and deductibles. As always, these will have an unfavorable impact on average realized price in the Q1. 2nd, a reminder that we've historically seen inventory buildup in Q4 that has led to notable drawdowns by wholesalers in Q1. While we've implemented new processes to better manage inventory dynamics from the Q4 into the Q1, we continue to in inventory drawdown to occur in Q1, albeit at more modest levels compared to prior year. So with this in mind, We expect HIV sales for the Q1 to decline by low teens sequentially from the Q4.

Speaker 3

This compares to the 18% sequential decline we reported in the first for the full year 2023, I'd like to remind you that some of our HIV performance in 2022 was driven by shift in channel mix that had a favorable impact on average realized price, contributing in part to the 5% year over year revenue growth we reported in 2022. We expect channel mix in 2023 to be relatively similar to last year and therefore do not expect HIV growth to benefit from changes in average realized price like we saw in 2022. As a result, We continue to expect HIV to grow in 2023, albeit at a modestly lower growth rate than 2022. As we think about the future of the HIV market, Gilead is well positioned to provide many people living with HIV and those at risk of HIV with multiple options for care. To that end, we're excited about the recent approval for Sunlenka in the U.

Speaker 3

S. And Europe for heavily treatment experienced adults with multidrug resistant HIV infection. This first indication represents only 1% to 2% of people living with HIV, but it's a huge unmet medical need. These individuals have cycled through multiple antiretroviral regimens and until now have had very few, if any, effective options left available. Sunlenka is now approved in the U.

Speaker 3

S, U. K. And European markets and we're working as quickly as possible with regulators and reimbursement bodies to make Sanlanka available in many more countries. We believe this first launch of Sanlanka represents a key milestone for Gilead and looking forward in the treatment and potential prevention of HIV. With Sunlenka, a true long acting regimen is a reality.

Speaker 3

As awareness and similarity of Sunlenka's every 6 months subcutaneous administration grow among healthcare providers, community groups and people living with and at risk of HIV, We believe Selenka is well positioned for the future. Turning to ACV on Slide 10. Sales for the Q4 were $439,000,000 up 12% year over year, reflecting timing of Department of Corrections or DOC purchases and favorable pricing dynamics in the U. S. Quarter over quarter, HCD sales were down 16%, primarily due to resolution of a rebate claim in Europe in Q3 of 2022 that did not repeat as well as other pricing dynamics in the U.

Speaker 3

S. Offset in part by timing of DOC purchases. Going forward, we continue to expect new starts to decline, but are encouraged that our market share remains over 50% in both U. S. And Europe.

Speaker 3

Sales of HPV and HTV for the Q4 were $255,000,000 as shown on Slide 11. Sales were down 4% year over year and down 3% sequentially, primarily due to lower ventilator demand and pricing dynamics outside of the U. S. Moving to Vectleri on Slide 12. Sales for the Q4 were $1,000,000,000 with a full year totaling $3,900,000,000 It's clear that as the pandemic has evolved, Vyclari's role in the treatment of COVID-nineteen has remained unchanged as a key part of the standard of care for hospitalized patients.

Speaker 3

In fact, Vyclari is still the only antiviral approved in this setting and in the U. S, Vyclari continues to be used in over 50% of hospitalized patients who are being treated for COVID-nineteen. We're excited to continue to work on our oral COVID-nineteen nucleoside, which Murdad will discuss shortly. Moving to oncology and beginning with Xadelbi on Slide 13. Sales of $195,000,000 in the 4th quarter grew 65% year over year and 8% sequentially.

Speaker 3

For the full year, Tridelby sales were $680,000,000 up 79% year over year. As we continue to broaden access to Trudelby around the world, we're encouraged by the growing demand in existing markets. Chadelby is now reimbursed across the major European markets. And in the U. S, demand was up 13% quarter over quarter, Our growth rate almost doubled from the prior quarter, reflecting the solid contribution of our expanded field force and growing awareness.

Speaker 3

We're also excited by the expected decision from the FDA later this month, which could expand to Xadelbi's potentially clinically meaningful benefit into the pretreated HR positive HER2 negative metastatic breast cancer setting. We estimate this represents at least 6,000 addressable patients in the U. S. And our U. S.

Speaker 3

Field force has just wrapped up its launch meeting and is energized for the upcoming approval. The opportunity for Tradelby to benefit patients with pretreated HR positive HER2 negative metastatic disease is supported by the recent NCCN Category 1 preferred recommendation for Tradelby based on the TROPICS-two data. Additionally, the European Medicines Agency recently validated our marketing authorization application for Trudelphi in HR positive or to negative and we look forward to a decision later this year. Now on to Slide 14 and on behalf of Christy and the Kite team. Cell therapy sales in the Q4 were 419,000,000 up 75% year over year and 5% sequentially.

Speaker 3

Full year cell therapy sales were $1,500,000,000 up 68% year over year. The growth in the Q4 and full year were driven by continued uptake of Yescarta in large B cell lymphoma, notably in the U. S. Growing physician familiarity with Yescarta Data and Kite's industry leading manufacturing continue to be key growth drivers. Yescarta sales was $337,000,000 up 85% compared to the Q4 of 2021 6% sequentially.

Speaker 3

We're pleased to see not only strong momentum in second line LBCL in the U. S, but also continued uptake in third line LBCL in both the U. S. And across European markets. Tecartis sales were $82,000,000 in the 4th quarter, up 2% quarter over quarter with growing volume demand in both mantle cell lymphoma and adult acute lymphoblastic leukemia.

Speaker 3

Year over year, tikartis sales were up 44%. We're pleased to see the building momentum of CAR T cell therapy as a treatment class with curative potential and yet start intacartis as the leading cell therapies of choice globally. More patients are getting access due to Kite's industry leading reliable manufacturing capabilities and the team's expanding footprint of authorized treatment centers around the world. And just last week, U. K.

Speaker 3

National Institute For Health and Care Excellence, or NICE, recommended Yifsguarda for lutein use in third line large B cell lymphoma. This makes GISTADA the 1st CAR T available for commissioning in England. Approvals and reimbursement into additional indications that are currently available in the U. S. Other markets is expected to continue over the next year.

Speaker 3

Yescarta was recently approved for second line LBCL in Japan, which has the potential to be the 2nd largest cell therapy market outside of the U. S. And we look forward to the transfer of the marketing authorization to Gilead and KITE later this year. In the interim, although still early days, we'll continue to work with our partner Daiji Sankyo to make gift card available to approximately 7,000 patients in the second line plus setting. Kite will begin manufacturing supply for the Japanese market through our El Segundo, California facility.

Speaker 3

And with that, I'll hand the call over to Murdat for an update on our pipeline. Murdat?

Speaker 4

Thanks, Joanna. I'm pleased to be starting 2023 all the momentum of 2022 behind us. With the positive data readouts for Trudelvi and dongvanilumab and the recent approvals for lenacaprevir, the team is really excited to progress our programs in 2023 beyond. Starting with virology on Slide 16, and as I just mentioned, lenacapavir received its 1st U. S.

Speaker 4

FDA approval for people living with multidrug resistant HIV in combination with other antiretrovirals. Marketed as Sunlenka, lenacabavir is the 1st and only twice yearly subcutaneous HIV treatment, bringing a much needed option for people living with multidrug resistant HIV that until now had limited alternatives. Combined with the approval from the European Commission, the FDA approval is an important validation while we continue to progress our other linacapavir based treatment and prevention programs. For HIV treatment, we currently have 10 partner agents for lenacabivir in various stages of development, including 2 new integrase inhibitors or instis in the pre IND space. We expect to share data this year from the Phase 1b proof of concept study for Lenacapavir and 2 broadly neutralizing antibodies or BNAV directed at HIV.

Speaker 4

And in prep, our clinical development of lenacaprevir as a monotherapy for HIV prevention continues to progress with 2 trials underway and 2 additional trials expected to achieve FPI in the second half of twenty twenty three. Moving to Slide 17, we continue to progress our novel oral nucleoside for COVID-nineteen GS-five thousand two hundred and forty five. Treatments such as Gilead ficulare and vaccinations have improved the outlook for patients with COVID-nineteen, but there's still a significant need for effective and convenient oral treatment options. We've been working with the FDA and other global regulators to launch a clinical development program that could enable global filings. We've initiated a Phase 3 BIRCH trial in high risk patients defined as unvaccinated patients with 1 or more risk factors or vaccinated patients with 2 or more risk factors.

Speaker 4

The Phase 3 OAKTREE trial we'll evaluate standard risk patients, which includes people aged 12 and older with no CDC defined risk factors. We expect this trial to enroll its first patients in the U. S. In the Q1 and we'll share progress when we can, which depends in part on the prevalence of COVID-nineteen in your study sites. Moving to oncology on Slide 18 and starting with PREDELBI.

Speaker 4

We continue to build on the momentum of our TROPICS-two data and we announced the European Medicine Agency's validation of our marketing authorization application for pretreated HR positive HER2 negative metastatic breast cancer in early January. As Joanna noted, We expect a regulatory decision of our SBLA in the U. S. Later this month and a decision in Europe in the latter part of the year. TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] TRIDENTIFIED COMPANY REPRESENTATIVE:] and we expect that these regulatory approvals will be an important step forward in bringing this potentially practice changing therapy to certain HR positive HER2 negative metastatic breast cancer patients.

Speaker 4

Moreover, recently presented data demonstrated Firdelvy's PFS and OS benefit was consistent across a range of tumor TROPE-two expression levels. This late breaking post hoc analysis presented at the San Antonio Breast Cancer Symposium was consistent with Trudaldi's data in metastatic triple negative breast cancer, where baseline TRO2 expression was not associated with treatment response. Moving on to Slide 19, we were pleased to share data from the 4th interim analysis of the ARK7 trial with our partner Arcus in December as presented at the ASCO plenary session. ARK7 is a randomized Phase 2 proof of concept study that enrolled 150 patients, the largest dataset in anti TIGIT studies released to date with more than 100 patients across the 2 DOM containing arms. We are pleased to see both DAW containing arms demonstrate clinically meaningful differentiation compared to ZYN monotherapy across all efficacy measures evaluated, clearly establishing that the addition of dombanilumab improved the clinical responses to anti PD-one therapy in this population.

Speaker 4

We're also encouraged by the consistency of the safety data in the DOM containing treatment arms, which showed no unexpected safety signals. This is an ongoing trial and we look forward to sharing updated data at ASCO 2023. While these efficacy and safety data will mature over time, this 4th interim analysis fully supports our joint Dongxin clinical development program and the importance of interrupting the TIGIT pathway. Based on the totality of the data seen to date, we're very confident that DAMA with an Fc silent design has the potential to be differentiated compared to other anti TIGIT molecules in this space. The ongoing Phase 3 trials of DAMA added to anti PD-one treatments in non small cell lung cancer will provide the opportunity to confirm this activity.

Speaker 4

We're moving very quickly with our partners in both proof of concept studies as well as late stage trials, including the 4 ongoing Phase III trials. Moving to Megrolumab, our anti CD47 therapeutic. On Slide 20, we have 3 ongoing pivotal trials and 6 proof of concept studies across 6 solid tumor indications. As we shared last month, the independent data monitoring committee met to review data from the 1st interim analysis from the ENHANCE study in first line high risk MDS. I'm pleased to share that there were no new safety signals and the study continues unchanged.

Speaker 4

As a reminder, based on previous discussions with the FDA, we are now pursuing mature OS data for filing. The study is powered for the final OS analysis and Gilead remains blinded to the data to preserve study integrity. We will update you again in the second half of twenty twenty three after the second interim analysis, noting that these interim analyses are event driven, so timing is provisional. Moving on to Slide 21, On behalf of Christy and the KITE team, I'm pleased to share details of another strong quarter of clinical progress in our cell therapy programs. At ASH, KITE had more than 25 data presentations, further demonstrating the transformative impact of cell therapies, including 3 year follow-up data from ZUMA-five showing that 52% of patients with indolent lymphomas treated with Yescarta continued to respond.

Speaker 4

Following the compelling ZUMA-twelve data on Yescarta in frontline LVCL shared at ASH in 2021, we expect to achieve FPI in our Phase 3 ZUMA-twenty three trial in frontline high risk LBCL in the first half of the year. We are also progressing our Phase 2 ZUMA-twenty four outpatient study in second line LBCL and look forward to sharing interim safety data in the first half of this year. While there is still so much we can explore with the ESGARTA and TECARTIS, We are also building out the pipeline to ensure that KITE will extend its leadership into new indications and next generation cell therapy technologies. In December, we announced the strategic collaboration with Arcellx for the late stage clinical product candidate CAR T DDBCMA, which is currently being evaluated for the treatment of multiple myeloma. If approved, Together with our industry leading manufacturing capabilities, we believe we can reliably and consistently deliver much needed therapy to patients.

Speaker 4

Additionally, we announced the pending acquisition of Community Therapeutics, which adds an armored CAR T platform and rapid manufacturing technology to Kite. The Ocellus transaction closed earlier this week and community is expected to close later this quarter. Both highlight KITE's continued leadership in cell therapy and our commitment to building a robust and exciting pipeline in cell therapies. Wrapping up on Slide 22, we are sharing the key pipeline milestones that we expect in 2023, which as you can see spans FPI, data readouts, updates and regulatory approvals across oncology and virology. This highlights the progress that Gilead has made on its transformation journey with 59 clinical programs that are well diversified across indications and stage.

Speaker 4

As the clinical pipeline has grown, our focus on execution has intensified and we look forward to updating you on our programs as we progress through 2023. With that, I'll hand the call over to Andy. Andy?

Speaker 5

Thank you, Berdad, and good afternoon, everyone. Gilead closed out the year with a strong Q4, driven by Biktarvy, Vekluri and oncology. For the full year, our sales excluding VECLARI grew 8%, which is by far the strongest full year growth rate Gilead has reported since HCV sales in 2015. Of note and excluding the impact of the Atripl and Truvada LOEs, HIV grew 8% year over year, driven by continued strong performance of Biktarvy, which grew 20% from 2021 to $10,400,000,000 Biktarvy continues to demonstrate strong potential for further growth in 2023 beyond. Oncology full year revenues exceeded $2,000,000,000 for the first time and grew 71% from 2021.

Speaker 5

Moving to our quarterly results starting on Slide 24. The 4th quarter demonstrated another strong performance across our business. Total product sales excluding Vectlory grew 9% year over year despite an approximately $130,000,000 headwind from FX. If we exclude FX, in addition to the impact of HIV LOEs, total underlying sales growth for the Q4 was 12% compared with the prior year. Moving to Slide 25.

Speaker 5

Vectlory was down as expected year over year, although it grew 8% on a sequential basis from the Q3, highlighting that Vectlery will continue to play an important role even as COVID-nineteen progresses into its endemic Non GAAP product gross margin was 86.8%, up more than 16 percentage points from last year, primarily due to a $1,250,000,000 charge related to a legal settlement recorded in COGS in the Q4 of 2021. Non GAAP R and D expenses for the Q4 2022 were $1,500,000,000 compared to $1,300,000,000 in the same period in 2021. Higher R and D expenses were driven by timing of clinical investments, mainly in oncology, in addition to the impact of inflation on expenses. 4th quarter acquired IPR and D was $158,000,000 primarily reflecting the MacroGenics collaboration and the license amendment with Jounce and lower than prior year due to the $625,000,000 charge related to the exercise of opt in rights for Arcus assets in the Q4 of 2021. Non GAAP SG and A was $2,000,000,000 up 23% year over year, primarily reflecting a charge of $406,000,000 associated with the termination of the Trodelvi collaboration with Everest Medicines.

Speaker 5

This $406,000,000 charge includes the $280,000,000 that we agreed to pay Everest to acquire the development and commercial rights to Tradelvia in China and other Asian territories in addition to some other termination related expenses. Excluding this Everest impact, SG and A was down 2% year over year. 4th quarter non GAAP operating margin was 37%, down sequentially due to the factors referenced earlier, including the $406,000,000 Everest charge and up year over year. Excluding the Everest charge, non GAAP operating margin was 42%. Non GAAP effective tax rate in the 4th quarter was 16.8%, lower than the prior year driven by discrete tax charges recorded in the Q4 of 2021.

Speaker 5

Overall, our non GAAP diluted earnings per share was $1.67 in

Speaker 4

the 4th quarter compared to

Speaker 5

$0.69 in the Q4 of 2021. Of note, the Everest contract termination impacted non GAAP diluted EPS by $0.25 a share. This was not reflected in the guidance we shared back in October. Moving to the full year on Slide 26. Total product sales were $27,000,000,000 Excluding VAKLURE, total product sales were $23,100,000,000 up 8% compared to 2021, primarily driven by Biktarvy and oncology.

Speaker 5

Excluding around $380,000,000 of FX headwinds and the $350,000,000 impact of the Truvada and Atripla LOEs, total product sales excluding VECLARI were up 11% as compared to 2021. I touched on the main P and L impacts in the overview, but we'll highlight on Slide 27 that our non GAAP Effective tax rate for 2022 was 19.3 percent and non GAAP diluted EPS was $7.26 per share compared to $7.18 per share reported in 2021. I'll move now to guidance on Slide 28. We recognize that the macro environment continues to be uncertain. Our initial 2023 guidance assumes an overall stable macro environment and relatively stable FX at current rates.

Speaker 5

While inflation is expected to moderate, our 2023 guidance reflects a full year of higher expenses experienced in 2022 associated with inflation. With that in mind, we expect Total product sales in the range of $26,000,000 to $26,500,000,000 For total product sales excluding VEGLIRI, we expect sales in the range $24,000,000 to $24,500,000,000 representing growth of 4% to 6% for our base business year over year. And we expect Vectlory sales of approximately $2,000,000,000 As always, Vectlory sales will continue to track hospitalization rates and will remain highly variable depending on the frequency and severity of surges. Notably, we have seen a decline in hospitalization rates in recent weeks and we'll continue to monitor the landscape carefully. As a result and similar to last year, we will update you on our Vectlery expectations on a quarterly basis.

Speaker 5

Moving to the rest of the P and L. We expect our non GAAP product gross margin to be approximately 86%, just slightly below our 2022 results and primarily reflecting the growing contribution from oncology. For non GAAP operating expenses, we expect R and D to increase by a high single digit percentage compared to 2022 levels, reflecting our ongoing investment in strategic areas of growth and an increase in activity from later stage trials. As a reminder, we had 8 Phase 3 trials start in 2022 and we expect to have 23 active Phase 3 trials by the end of 2023. Looking ahead, we expect R and D growth to moderate, although we will step up investments as needed to support promising programs based on clinical data.

Speaker 5

Acquired IPR and D includes previously announced payments for Arcellx community and milestone payments for existing collaborations. Consistent with our approach in 2022, we will continue to share expected acquired IPR and D expenses as we announce additional transactions. Finally, we expect SG and A to decrease by a low single digit percentage compared to 2022. However, If we normalize the 2022 SG and A expense for these items, we expect full year 2023 SG and A expense to increase by a mid single digit percentage on a basis of approximately $5,100,000,000 in 20 22. Altogether, we expect our non GAAP operating income for 20 to be $11,000,000,000 to $11,600,000,000 Our non GAAP effective tax rate is expected to be approximately 20% again this year.

Speaker 5

And finally, we expect our non GAAP diluted EPS to be between $6.60 and $7 for the full year and GAAP diluted EPS to be between $5.30 $5.70 per share. Moving to capital allocation on Slide 29. Our priorities have not changed. In 2022, we returned over $5,000,000,000 to shareholders. This included dividend payments and $1,400,000,000

Speaker 6

in share

Speaker 5

repurchases. 4th quarter share repurchases were approximately $800,000,000 For 2023, we have announced today a 2.7% increase in our quarterly cash dividend to $0.75 per share and remain committed to growing our dividend over time in line with earnings growth. You can also expect to see continued judicious investments in our business both internally and externally through select partnerships and business development transactions. Finally, we will continue to use share repurchases to offset equity dilution as well as additional repurchases on an opportunistic basis. With that, I'll invite the operator to open the call up for questions.

Operator

To 1 question today and then reenter the queue for any follow-up. As a reminder, if you are using a speakerphone, Please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Tyler Van Buren with Cowen. Please proceed.

Speaker 7

Hey guys, thanks very much for the question. It's great to see yet another impressive quarter performance from the core business. At the midpoint, guidance assumes 5% year over year growth for product sales excluding VEGLIRI yet non GAAP EPS guidance assumes a decline of 6%. So Should we expect roughly flat earnings for the next 2 to 3 years as you continue to invest aggressively in the pipeline to set up earnings growth for the second half of the decade? Or is that too conservative?

Speaker 7

And what levers do you have to increase earnings in the near to midterm?

Speaker 5

Hey, Tyler, it's Andy. Thanks for the question. We appreciate it. Look, what we said and obviously we don't provide longer term guidance, but I'll reiterate As you highlighted, the base business is performing very well. We had another good year with Vectlory, but we expect, as you heard in our prepared comments, that The COVID-nineteen market will continue to be dynamic.

Speaker 5

And again, this year, you saw if you look at our EPS, The growth of the base business offset the decline in Vectlery despite the increase in expenses. Going forward, again, a lot of our shareholders, as you know, focus on Non GAAP EPS excluding Vectlery based on their assumptions, we expect using kind of that metric for our EPS to grow and for that growth to accelerate over the longer run as our products continue to deliver with additional commercial approvals, Expanded indications, new products entering the market, etcetera. So, again, I think what you're highlighting is the difficulty of looking through the impact Vivek Lurie, when we look at the base business, we have a lot of confidence in terms of the health of the business and the growth it's going to deliver over time, both on the top line and the bottom line.

Speaker 1

Hannah, may we have our next question please?

Operator

The next question comes from the line of Geoff Meacham with Bank of America. Please proceed.

Speaker 8

Afternoon, guys. Thanks so much for the question. I will keep it just to 1. When you look at linacaprevir in the U. S, just help us with maybe the expected kind of loss dynamics following the recent approval and Just with consideration of the hurdles with regard to payer excess, obviously you guys have a long But wondering if the environment is different today versus sort of pre pandemic.

Speaker 8

Thank you.

Speaker 9

Thanks, Jeff, for your question. It's Joanna. I think that we're super excited with SunLinker approval. Do remember though, it's really for a very specific patient population for the heavily treatment experienced multi drug resistant population. And so that's about 1% to 2% of people living without HIV.

Speaker 9

That's about 5,000 patients or so in the U. S. So just to give you a little bit of a perspective on it. The that one piece of the puzzle. So far, so

Speaker 3

we just launched, so it's still early days

Speaker 9

and we're excited about it. And I think physicians' response has been very I think they really see the innovation of having something every 6 months coming in, and also the promise of what it can mean in future with prevention indication as well as treatment combination. So more to come on that one. I think it's an incredible opportunity for us to gain awareness for SONELINCA, How to use it, the reimbursement systems. And as to your point about pre COVID to COVID, I think that actually we've really normalized the market.

Speaker 9

I think we're back on track when it comes to HIV, both screening, diagnosis, etcetera, and treatment. So we do believe that that's probably not, in play as we go forward in 2023. But again, Small revenue, huge unmet medical need and an incredible opportunity for patients to have something to ensure that they don't proceed to for, like AIDS disease versus just staying HIV positive.

Speaker 1

Hannah, may we have our next question, please?

Operator

Thank you. The next question is from Michael Yee at Jefferies. Please proceed.

Speaker 6

Hey, thanks for the question. Maybe a question for Murdad. On TROPE-two, the competitor AstraZeneca Daiichi continues to be quite bullish and actually has a Phase 3 lung cancer study readout and Street is quite bullish on Trope 2. Can you explain your thoughts around your differentiation? Appreciating your study reach out I think in 2024 And what we should appreciate as to how you will compete there or differentiate and maybe its safety, but maybe walk me through that and help us understand

Speaker 4

You're absolutely right. We do think that there are a couple of things that we think about when we think about differentiation. The first is that We've now been on the market and have several approvals under our belt with TRIDELTI. And I think that is An important factor for us having now been on the market in important indications. To your point with lung, we will be somewhat behind where our competition is.

Speaker 4

We do think that, we the data will have to evolve for us and for them. And, I think, So far, we have been fortunate to not see ILD in our development program so far. And so we are going to continue advancing our program forward aggressively. We've had a lot of success so far. And I think our plan is to keep going ahead with a differentiated clinical development program so we can get into the broadest population as possible.

Operator

Thank you. The next question is from Do Kim with Piper Sandler. Please proceed.

Speaker 10

Hi, thanks for taking my question and congrats on the quarter. Keeping it on TRUDELVY, Merdad, I was hoping if you could provide a little more detail on A set 7 in pre chemo HR positive HER2 negative breast cancer that you're initiating Later this year. Just what that study design would look like and how did you come

Speaker 11

to conclude that this was the next best

Speaker 10

study for this population?

Speaker 4

Yes. Hi, thanks. That was a great that's an excellent question. And I think We haven't really talked about the design yet. In large part, we are working through both with investigators and regulators on what the best approach is going to be in that patient population.

Speaker 4

We do think that there's an important Need in a large population there. And we want to make sure that we navigate that pathway carefully. So I think as we develop that program, as that protocol gets developed, we'll be able to share more detail over time.

Speaker 1

Hi, Namibia. We have our next question please.

Operator

Thank you. The next question comes from Collyn Bristow with UBS. Please proceed.

Speaker 11

Sorry, can you guys hear me?

Speaker 2

Yes.

Speaker 12

Yes. Super. Good afternoon And congrats on all the progress. Maybe one on TIGIT and dombananumab. What is it that gives you the confidence the Fc pilot construct is the right approach when I think at least the animal data suggests This may not be preferred.

Speaker 12

And then as you think about the upcoming study, ARK7, could you talk about the frequency of Scan here because this has come up as a point of at least discussion with regards to the comparative trials and the frequency of scans. Thank you.

Speaker 4

Sure. This is Murdad again. Excellent question. Thank you for that. We In terms of our confidence, I think to your point, look, I think there was a lot of debate a couple of years ago.

Speaker 4

We shared in that debate with what the preclinical data was showing. And as you know, the data, there were conflicting preclinical data, including, some data that suggested maybe Netsyside may not work. But which is why we ran the studies the way we did and very importantly why we ran ARC7. The objective there was really to establish whether an Fc silent now would demonstrate a benefit relative to an Fc active molecule. Part of the hypothesis there is what happens in the periphery and whether depleting Effector cells with a TIGIT could actually be harmful with an Fc competent molecule relative to an Fc null molecule.

Speaker 4

And Our confidence really comes from our ARC7 data. I think the ARC7 data really answer that question. We clearly show benefit when added on to PD-one, the PFS data exceed our bar for moving forward. And so we really think that we've answered that question in the clinic as to whether the FC null matters.

Operator

The next question is from Chris Schott with JPMorgan. Please proceed.

Speaker 13

Great. Thanks so much. Just a question on the COVID business. I know it's volatile and I know this at the same time the street Doesn't seem to model much of a tail for Veklury or GS-five thousand two hundred and forty five at all in numbers beyond this year. Well, we've got Pfizer's and others, they're talking about more sustainable COVID businesses, I guess, off of 2023 level.

Speaker 13

So I just mentioned your thoughts of just how you're Thinking about the business longer term and is this a meaningful franchise for you over time or are you really thinking of this continuing to fade down beyond this year? Thank you.

Speaker 9

Sure, Chris. It's Joanna. Yes, so definitely we've changed

Speaker 3

a little bit. Our position on

Speaker 9

this one has evolved from 2020 to where we are today, obviously. I think we do truly believe that, the Vectleri business is much more sustainable than we've ever seen before, let alone as we think about kind of where we're going with COVID-nineteen, The oral that Murdock can speak to. The one piece that we've seen is and it's Maybe a little bit different than some of the oils that you're referring to is one is, Vicor has been part of a commercial model since October of 2020. So we haven't had such big inventory loads at the government level like some others have had. So really What you see probably 85% to 90% of revenues in 2022 are truly reflecting the demand for Vectlary in 20 And so therefore coming into 2023, we feel very strongly that VICLORI because it's still the only Antiviral indicated at the hospital level at this point in time because of the fact that in many countries around the world, It is the treatment of choice when they decide to treat hospitalized patients.

Speaker 9

I think there's really, an incredible continuing opportunity for us to ensure that Vectlery is accessible to all these patients. And so that's why we think the model is quite sustainable moving forward. I would also just add that our label had broadened over the last year and some. We have a very strong body of evidence, including mortality, As well as we have guidelines endorsement with the NIH as well as

Speaker 3

the WHO. So all of those people all of

Speaker 9

those pieces together actually make for a strong Strong victory position 23, but actually and beyond. And maybe I'll just pass it over to Murdad to talk a little bit to how we're thinking about COVID-nineteen as a whole

Speaker 4

Yes, just two seconds. I think you're right to point out the uncertainties that we all have and that we've seen with outpatient COVID And we have a lot of confidence in the mechanism of 5,245 given what our expertise in the molecule itself and how well behaved it is. And we are going to push forward and do our best with both the high risk and a standard risk study. And The uncertainties in terms of the pandemic will really determine what happens from here. So we will definitely keep you updated as to how that goes from here on out.

Operator

Thank you. The next question is from Brian Abrahams with RBC. Please proceed.

Speaker 14

Hey, good afternoon and congrats on the quarter and thanks for taking my question. Maybe continuing on the COVID theme on 5,245, the Oaktree study. Can you talk a little bit more about the assumptions you've made in powering the primary endpoint here for the standard risk patients? And then help us understand how Oaktree and Birch might fit together to support U. S.

Speaker 14

And ex U. S. Approvals across the 2 populations you're studying?

Speaker 4

Thanks. Sure. Very briefly, To your point, one is in the high risk population, right? So I think that's important. Those are people who have risk factors, whether or not they've been vaccinated and then the standard risk, which is people without risk factors.

Speaker 4

And those are very different populations. The endpoints are different in terms of what we're looking for and the high risk we're going to be looking for the ability to prevent things like hospitalization And the standard risk, it would be looking for things like symptom improvement. And I think again, I'll just reiterate that I think the uncertainties in terms of those factors And importantly, the underlying event rates is real. And so we've made A number of assumptions around what that background rate will be and we've built into the trials, checkpoints to make sure That our assumptions are correct and we have the ability to modify our program based on what the underlying event rates are. So that sort of helps mitigate the risks and the uncertainties.

Speaker 4

So we've gone in fairly eyes open to that.

Operator

Thank you. The next question is from Mohit Bansal with Wells Fargo. Please proceed.

Speaker 11

Great. Thanks for taking my question and congrats on the progress. Maybe if you could comment on your overall market Share in HIV space and how it has been progressing. What I want to understand is that, is there a scenario where your entire business growth could be better than the market growth as you gain share at this point? Thank you.

Speaker 9

Sure. Hi, Mohit, it's Joanna. I think as we look at HIV as a whole, we're looking at about a 5% year on year growth. And of course, that's mostly driven by demand, namely the TAVI. And so it's probably important to talk about the share there.

Speaker 9

So our total Gilead Share is still in the low 70s and we've been quite stable at that level. We saw a little bit of the dip when we got the Truvada And that's the only decline that we've seen there and really held steady. Where you see nice growth, of course, is Biktarvy. Our year on year growth for Biktarvy is 20% in 50 year post launch. And I think that's the piece of the puzzle that's really driving the overall HIV business in addition to what's going on in prep with Descovy.

Speaker 9

To your point about the market growth, we've seen market growth around 2% to 3% year on year both in the U. S. As well as in Europe and we assume that we're kind of assuming that for some years to come. And I do think there's still enormous opportunity for continued growth in that market. And one of the main reasons why is There's still an opportunity for increasing treatment rates, so from diagnosis to treatment, but also further penetration in underserved patient populations.

Speaker 9

And so at this point in time with United Nations goal at a 95%, 95%, 95% for testing, treatment and virology Suppression, we're only about 70%, 75%. So if we were to get to those goals, you're looking at over 350,000 more patients into the system. So I think you're absolutely right. I think there's a great opportunity for us to continue to grow Biktarvy and our HIV business at Gilead.

Operator

Thank you. The next question is from Umer Raffat at Evercore. Please proceed.

Speaker 15

Hi, guys. I have a question on the model today. I feel like consensus models have a lot of operating leverage in the long term estimates for Gilead and don't consensus doesn't carry more than low single digit OpEx Growth across SG and A and R and D. So with SG and A growing mid single digits this year after the one timers and R and D growing high single digits, I guess Should we assume that given all the collaborations and recent acquisitions that you really do need to be growing R and D meaningfully from current levels? I'm just trying to understand where the OpEx is heading longer term.

Speaker 5

Hey, Omer, it's Andy. Thanks for the question. Maybe a couple of things. First, I'd highlight that as you'd expect, We are mindful of expenses and don't expect R and D or SG and A to grow indefinitely. That said, we're going to continue to invest Thoughtfully in the pipeline and you're already seeing I'd highlight the tangible benefits of doing that.

Speaker 5

So that's a really important point. We started on the R and D side. As you know, we started 8 Phase III trials this year. We're going to, as you heard, start at least another 5 in 2023. So We are in an investment cycle.

Speaker 5

Over the longer run, and maybe one other thing before I kind of talk about the long run picture to your question. Again, when you benchmark us relative to competitors, as you know, historically, for both SG and A and R and D, we underspent. And that's partly why we didn't have the pipeline that would drive the top quartile sustainable growth that we aspire to and we think we're on track to achieve today. So We're going to continue to invest as you've heard, and especially in these late Phase III trials that have started, we'll continue to do BD Not at the same pace or level that we have over the last 4 or 5 years as we've rebuilt the pipeline, but our percent our R and D as a percent of revenue this Past year was below industry averages, I think, right around 19%. Same thing is true for SG and A as a percent of revenue.

Speaker 5

And even our guide suggests, I think, Reasonable spend levels relative to comps. In the longer run, to your point, so we think about things over a longer cycle, We will not we do not expect to grow R and D or SG and A above the rate of earnings growth. And there is a lot of leverage in the model We expect over the long run. So, we're getting to the point where you're starting to see that play through, especially at the top line. And then over the coming years, we expect that you'll really see that play through on the bottom line as well.

Speaker 5

So, thanks for the question.

Operator

Thank you. The next question is from Olivia Breyer with Cantor Fitzgerald. Please proceed.

Speaker 16

Hey, good afternoon, guys. Thank you for the question. What's the latest thinking with respect to the regulatory path forward for migrolumab? I guess the question really is could we see survival data from that ENHANCE interim later this year that's actually mature enough to file on? And is there anything beyond OS benefit that FDA has pointed to for a complete submission package?

Speaker 16

Thank you.

Speaker 4

Hi, Olivia. This is Mirdad. Yes, I think maybe it's good to step back and Just clarify in the sense our how we're approaching interim analysis for our studies. So The pivotal macro study is powered for events at the final analysis. And of course, We run interim analyses, I think, as is norm for the industry to evaluate things like safety, but also we spend a little bit of alpha in case there is a dramatic improvement in the primary endpoint and offer ourselves the opportunity to start early to benefit patients.

Speaker 4

So the OS data continue to mature. The next interim this year, dependent on events, of course, is not the final analysis. So It really depends on how big the magnitude of improvement is in OS, whether that leads to a stop in the study or non blinding in the study. Our expectation is that we go to the final OS analysis. Of course, we always hope for an upside surprise at one of the earlier interim analyses.

Speaker 4

And then in terms of approval, I think we really need to have OS. We initially had hoped that we could get, For example, an accelerated approval with CR rates alone, we think we need to do both now to have both complete response rate, but are primarily be driven not primarily be driven, but importantly have OS data as well in order to support a file.

Operator

Thank you. The next question is from Simon Baker with Redburn. Please proceed.

Speaker 17

Thank you for taking my question. On the NICE recommendation, Clearly, that's good from a U. K. Perspective, but it's the case that NICE recommendations are closely followed by a much larger range of countries. So I just wondered If this does indeed have a spillover benefit beyond the U.

Speaker 17

K. For Yescarta, how important is this approval in the U. K.

Speaker 18

Hey there, Simon. It's Christie. Thank you for the question. So we think it's very important because first of all, it's the number of patients is still very similar at 450, But the process by which patients get approved obviously should be much smoother and really giving access to, let this recommendation really helps patients get access, much more quickly. And so to your point, we do think, as you see this approval that this hopefully will have an influence on other countries.

Speaker 18

Just like we saw with reimbursement As we look at the reimbursement of Yescarta in over 20 countries, it was 1 at a time. And as certain countries starting to approve. We saw the other countries also do the same. So based on the second line, ZUMA-seven trial as well, that will be our next step too Just to continue to provide the data that giving a patient the one time treatment can really help the healthcare system and improve patient outcomes. So yes, we're very hopeful that it could have some influence.

Operator

Thank you. The next question is from Robyn Karnauskas with Truist. Please proceed.

Speaker 1

Good afternoon and thanks for taking our question. This is Nicole on for Robin. Are you seeing any safety signals in ASCENT for end of book 3 with Trudelphine pembro. Like are the safety profiles comparable to both populations? And if so, would this hamper uptake in the first line?

Speaker 4

Hi, Nicole. This is Murdad. We haven't really disclosed Anything on the safety, those studies have really just gotten underway. So I don't think we have anything to share yet. We'll of course Following that to see if anything emerges.

Speaker 4

Your question is exactly the one that we Want to make sure we address as we move forward, but I don't we don't have enough data at this point to make a comment one way or the other.

Operator

Thank you. Our last question will be from Evan Seigerman with BMO. Please proceed.

Speaker 14

Hi, guys. Thanks for taking my question. One for Christy. You're annualized

Speaker 8

Well above $1,000,000,000 for cell therapy products.

Speaker 14

Can you talk about the recent work you've done to expand manufacturing and how you could think that could support further growth this year and beyond? Thank you.

Speaker 18

Sure. So that was our focus and has been our focus is really on the supply side And being able to ensure that we have the capacity to provide for patients, I think that's what you're seeing is our industry leading manufacturing piece. And if you look at TCF-three here in California, adding the new sites, TCFL-four in Amsterdam and then TCFL-five in Maryland, we're really able to leverage that footprint to Grow not only in the assets that we have today, but in future pipeline, especially as we look at the partnership we have now with Arcelexa multiple myeloma. So we're very confident about our ability to supply and the capacity that we've built today and for tomorrow. And really the next focus for us is we've had some really good gains on our margin improvements.

Speaker 18

But as we look at our operational our optimization of our manufacturing footprint is yes, we need to continue to ensure the capacity, which we feel like we've really done. And now we're able to put a big focus too on piece, which we've made progress on, but we have several levers there to pull as well. So I hope you're hearing from me a big confidence in our ability to deliver for patients from a capacity standpoint.

Operator

Thank you. That concludes today's question and answer session. I will now turn the call over to the management team for any closing remarks.

Speaker 2

Great. This is Dan. I just want to do a couple of things here. First of all, thank you all for joining and your ongoing interest and questions for Gilead. As usual, if we didn't get to all your questions, please reach out to Investor Relations.

Speaker 2

As you know, we're very happy to answer those on an ongoing basis. And let me just close by emphasizing that Gilead is in a very different place than it was a few years ago. Thanks to the work the team has done to transform the company. We're going into 2023 in a very strong position with our current medicines performing well and tremendous growth potential in our neurotherapies as well as those in development. So what you can expect to see next is quarter on quarter execution And even faster progress and greater impact in the future.

Speaker 2

Thank you very much for your time today and we look forward to speaking to you again soon.

Operator

That concludes today's Q4 and full year 2022 Gilead Sciences Earnings Conference Call. Thank you for your

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Earnings Conference Call
Gilead Sciences Q4 2022
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