Gilead Sciences Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2021

Key Takeaways

  • Q2 total product sales rose 21% year over year to $6.2 billion, led by Veklury's $829 million in revenue and robust Biktarvy growth.
  • Biktarvy achieved $2 billion in quarterly revenue, up 24% year over year, gaining share in both the U.S. and EU5 despite pandemic-related HIV treatment and PrEP headwinds.
  • The U.S. HIV treatment market is still recovering from COVID-19 disruptions, with lower screening and diagnosis rates reducing active patients, though prescription volumes improved 2% sequentially in Q2.
  • Gilead advanced its oncology and virology pipelines with ZUMA-7 data showing a 60% improvement in event-free survival for Yescarta in second-line LBCL, a BLA submission for HapluDex (HDV), and an NDA filed for lenacapavir’s long-acting regimen.
  • 2021 full-year guidance was updated to reflect $24.4 billion to $25 billion in product sales, including raised Veklury forecasts, while ex-Veklury guidance was tightened due to ongoing pandemic impacts.
AI Generated. May Contain Errors.
Earnings Conference Call
Gilead Sciences Q2 2021
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Gilead Sciences Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Jackie Ross, VP, Investor Relations. Please go ahead.

Speaker 1

Thank you, Joelle, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the Q2 of 2021. 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 Dickenson. 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, financial projections and the use of capital and 2021 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 statement. 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

I will now turn the call over to Dan.

Speaker 2

Thank you, Jackie, and good afternoon, everyone. Thanks for taking the time to join us here today. We're pleased to provide you with an update on 2nd quarter where we delivered solid financial performance and significant progress in our increasingly diverse pipeline. 2021 is an important year for our pipeline and we're very encouraged by the milestones we've achieved for therapies that are potentially transformative for Gilead and for patients. All of this reinforces our confidence in our strategic direction.

Speaker 2

I want to take this opportunity to thank our global community of Gilead and employees who consistently go above and beyond to drive progress with resilience and dedication. Different parts of the world are riding the ebb and flow of COVID-nineteen cases at various times. And while the vaccines give us hope and optimism, We are still very much living with the pandemic. Remdesivir continues to play an important role in fighting the virus and has now been used to treat an estimated 7,000,000 hospitalized patients worldwide. Turning to the main highlights of the quarter On Slide 4, the Q2 was a solid quarter overall.

Speaker 2

Vectlory sales of $829,000,000 were once again higher than Offsetting the lingering impact of the pandemic, particularly on HIV treatment. In light of this pandemic impact, Biktarvy's performance is quite encouraging. Revenue for the quarter was US2 $1,000,000,000 up 24% or $390,000,000 from the same quarter last year. This more than offset the $322,000,000 headwind associated with the impact of the Truvada and Atripla LOEs. Much of that headwind is now, of course, behind us.

Speaker 2

Overall, our share of the HIV treatment market held steady quarter over quarter and our PrEP share remained steady even with generic entries. These dynamics give us confidence that the underlying demand for our HIV products remains strong and positions us well for growth as the overall HIV market recovery gains momentum. Moving to our clinical pipeline, 2021 is a Catalyst every year for Gilead and we've delivered all of our key first half pipeline commitments. Among other milestones, we shared top line data from the highly anticipated ZUMA-seven trial, where Yescarta improved event free survival for second line large B cell lymphoma or LBCL patients by 60% compared to the standard of care. This is truly a landmark trial, the 1st and largest reported Phase 3 trial readout that demonstrates the efficacy and safety of cell therapy, We shared positive Phase 3 data from MIR-three zero one, which will help support our anticipated BLA filing for hapludex for HDV in the U.

Speaker 2

S. Later this year. And we submitted our NDA for use of Lenacapavir in the heavily treatment experienced population with multidrug resistance. This filing was based on data from the Phase twothree CAPELLA study presented earlier this month. We also shared strong lenacapavir data from the Phase 2 CALIBRATE study in HIV treatment, which will be used to inform Our partner, Arcus, provided an interim update from ARC7 that Supports the continuation of both ARK7 and ARK10 trials for their antithetic candidate, dumvanelemab.

Speaker 2

Lastly, on Slide 4, we're beginning to see the positive impact of our strategy, which we introduced early last year. The business is diversifying across indications and therapies. In particular, we are seeing cell therapy and Trodelbi contribute to growth and expect they will be key growth drivers for Gilead. While we build out the oncology business, we remain focused and committed on ensuring the long term competitive positioning of our virology portfolio. Next, on Slide 5, we highlighted our pipeline execution so far this year, I'd like to thank all those who helped us to deliver on this ambitious agenda, including our employees, the people who participated in the studies, our partners and the study investigators.

Speaker 2

As we look ahead to the rest of the year, our target milestones include A progression free survival or PFS readout in our event driven Phase 3 TROPICS II study evaluating Trodelvi in hormone receptor HER2 negative metastatic breast cancer. A Phase 1b readout for magrolimab and myelodysplastic syndrome or MDS. Depending on the data, timing and results, this could result in a BLA submission for accelerated approval and initiation of the potential Phase 3 lenacapavir and aselatravir long acting oral combination. As you know, this is in collaboration with Merck and the development and formulation work remains on track. We look forward to updating you next quarter about the additional milestone progress.

Speaker 2

We understand the continued strong and consistent pipeline execution is critical to the extending the virology business and expanding further into oncology. We believe our current and pipeline therapies can address significant unmet medical needs. We are very encouraged by the progress Gilead and Kite are making. We are well on our way in our journey to expand and diversify in the new therapeutic areas and we are already seeing the evolution of both our pipeline and commercial portfolio. With that, I'll hand over to Joanna, who will share an update on our commercial performance

Speaker 3

Thanks, Dan, and good afternoon, everyone. Starting on Slide 7, total product sales of $6,200,000,000 were up 21% year over year, primarily reflecting Viclary, which was not a contributor to revenue in the Q2 of 2020. On Slide 8, Veklury's 2nd quarter revenues of $829,000,000 declined sequentially, reflecting the impact of higher vaccination rates and lower infection While hospitalizations trended lower in the Q2, VACLURE remained The therapy of choice in 3 out of 5 patients hospitalized with COVID-nineteen. We estimate that since the launch in May 2020, roughly 7,000,000 patients globally have been treated with remdesivir. It's truly remarkable and encouraging to see how remdesivir continues to play such a key role in fighting this global pandemic.

Speaker 3

Excluding VEGLARI, total product sales of $5,300,000,000 were up 5% year over year. We saw growth in cell therapy and HCV in addition to new revenue contributions from Tidelvi and more modestly, hecludex for HTV. Additionally, other product revenues of $291,000,000 grew 20% year over year, driven by increased demand for AmboZone outside of the U. S. To treat mucormycosis, which has seen a rise in incidence in patients hospitalized with COVID-nineteen.

Speaker 3

Sequentially, we saw 9% growth for total product sales, excluding Veklari, primarily driven by growth in Biktarvy. Moving to Slide 9, HIV product sales were $3,900,000,000 up 8% sequentially and down 2% year over year. Compared to the Q2 of 2020, total HIV revenue reflected strong Biktarvy growth that more than offset the $322,000,000 lower revenue from Truvada and Atripla following their loss of exclusivity. Compared to last quarter, HIV grew $288,000,000 reflecting customary seasonal inventory dynamics and growing demand for treatment. Biktarvy revenue of $2,000,000,000 was up 24% year over year and 9% sequentially with quarter over quarter growth primarily driven by increased demand.

Speaker 3

VICAREBI remains the number one prescribed therapy in the U. S. Across naive, Switch and continuing patients and remains number 1 in naive across all EU5 countries. Approximately 70% of switches from both Gilead and non Gilead Results in incremental revenue. Overall, and despite the ongoing impact of the pandemic, Biktarvy continues to gain market share with 1% share growth versus last quarter in both the U.

Speaker 3

S. As well as the EU 5. Descovy revenues of $435,000,000 grew 21% sequentially due to modest improvement in As we highlighted in prior quarters, we've been working with payers to ensure patients continue to have access to Descovy in light of entry of generic alternatives for Truvada. We're really pleased to see the strong sequential growth in Descovy and we continue to maintain mid-forty percent share despite generic impacts. Year over year, Descovy grew 4%, largely due to higher demand for PrEP.

Speaker 3

And overall, PrEP demand is showing signs of recovery and is expected to continue to improve as pandemic restrictions phase out. Earlier this month, federal FAQs for the U. S. Preventative Services Task Force were released. It provided greater clarity as to the importance of PrEP in ending the epidemic and we're really encouraged by this recent development.

Speaker 3

We hope it will help to minimize the barriers of PrEP use going forward. Before I transition to other products, just wanted to take a moment to share some perspective on the HIV treatment market given the longer than expected pandemic impact. In regions outside of the U. S. Such as Europe, we're beginning to see signs of recovery in the dynamic market with 2nd quarter trends generally in line with our expectations.

Speaker 3

In the U. S, however, the pace of the pandemic recovery was slower than we expected in this last quarter. And while we're seeing signs of recovery in PrEP And some sequential growth in the treatment market, it's clear that it will take several quarters for treatment to return to pre pandemic levels. In treatment, there are really 2 pandemic related headwinds that we observed. 1st, lower HIV screening and diagnosis resulting in lower treatment initiation.

Speaker 3

And second, due to the limited support services available during the pandemic, we've seen a higher number of patients discontinue their HIV treatments. Taken together, these two factors have reduced the number of Active patients on HIV therapy entering 2021, thereby reducing the overall volume of new and refill prescriptions we would expect to see in 2021. We did however see growth resume from this lower base in the 2nd quarter. After prior quarter over quarter declines, 2nd quarter U. S.

Speaker 3

HIV treatment prescriptions grew 2%, and we expect the market to grow at historical rates once screening and diagnosis rates return to pre pandemic levels. To continue our efforts to advance progress against the HIV epidemic, we are partnering with healthcare professionals, Advocacy Group and policymakers to raise awareness of the unique challenges COVID-nineteen poses to HIV screening, diagnosis and adherence. Our goal is to help healthcare providers ensure that patients continue to be diagnosed and treated. Given the strength of the demand fundamentals for Biktarvy, Descovy for PrEP and other Gilead HIV products, we remain confident in our competitive positioning now that many communities are easing social distancing requirements. In the meantime, we continue to see strength in underlying treatment demand with no material changes in the competitive landscape, with our total Gilead treatment market share holding steady at 75% in the U.

Speaker 3

S. And just under 50% in Europe despite competition and the entry of new generics. Next on Slide 10, HCV product sales in the 2nd quarter were $549,000,000 up 23% compared to last year,

Speaker 4

The patient starts remain well below

Speaker 3

pre pandemic levels. The growth reflects a modest sequential recovery in HCV patient starts in the U. S. In Q2 2021, in addition to an artificially low Q2 of 2020 that was impacted by unfavorable government rebate adjustments. We'll be watching for further signs of recovery in the Q3.

Speaker 3

Both U. S. And EU Gilead market shares remain steady at around 60% 50%, respectively. Moving to Slide 11. HBV and HDD product Sales were $237,000,000 up 8% year over year with improving patient starts on Vamiliti, particularly in ex U.

Speaker 3

S. Markets. In its 1st full quarter as part of Gilead, Hepscludex contributed $7,000,000 and is currently available in France, Germany and Austria. We're excited to be working with the various reimbursement authorities to increase patient access and expect to secure full reimbursement in the major European markets in 2022. Moving to Jadelby on Slide 12.

Speaker 3

Product sales in the 2nd quarter were $89,000,000 up 24% quarter over quarter, driven by demand for the 2 new indications approved in April, namely second line plus metastatic triple negative breast cancer and urothelial cancer. We continue to be encouraged by the positive feedback from physicians on the Phase 3 Ascent data, which demonstrated 1 year medium overall survival benefit for second line metastatic TNBC patients treated with TRADOVI. To build on this growing interest, we're increasing community awareness, especially of the expanded indication to second line in TNBC. And we expect to see growing demand as breast cancer screening ramps back up to pre pandemic levels. IQVIA data suggest that breast cancer screening volumes were about 20% lower in the U.

Speaker 3

S. In 2020 compared to 2019. This suggests as Medias 41,500 breast cancer patients have not been diagnosed during the pandemic. On behalf of Christy and the Kite team, I'm pleased to share a cell therapy commercial update on Slide 13. Total cell therapy product sales totaled $219,000,000 in the 2nd quarter, representing 39% growth year over year, driven by both Yescarta and Tecartis.

Speaker 3

Yescarta growth was driven by strong demand in Europe as well as successful follicular lymphoma launch in the U. S. Increased competition, particularly in third line LBCL, continues to raise the profile of cell therapy and is positive to KITE overall. We remain confident in Yescarta's competitive profile and positioning and are particularly proud of Kite's industry leading manufacturing turnaround time and reliability. Our results also reflected strong momentum from the TECARTIS mantle cell lymphoma launch, highlighting the unmet medical need for MCL patients.

Speaker 3

We continue to add new indications and geographies for our cell therapy products. For example, the Fosun Kite joint venture recently received approval in China for Yescarta as the 1st cell therapy to treat 3rd line LBCL. And we're excited to see the top line data for ZUMA-seven getting us a Even as we prepare for discussions with regulatory agencies later this year, Commercial and manufacturing preparations are ramping up to ensure sufficient capacity and support for second line LBCL demand in both the U. S. And in Europe.

Speaker 3

Christy is here with the team to take your questions on cell therapy later in the call. But for now, I'll hand it over to Murdad to walk us through the pipeline updates.

Speaker 5

Thank you, Joanna. As Dan mentioned, it's been a gratifying year so far delivering on all our key pipeline commitments, supporting Gilead's ambitions to I'll spend our time today on the highlights of the quarter and point you to the appendix of the earnings presentation for a more complete view of our pipeline activities. First in HIV, as you can see on Slide 15, programs for our investigational lenacapavir agent continue to progress. At the recent International AIDS Society meeting, we shared data from the Phase 2, 3 Capella study that evaluated heavily treatment experienced individuals We've already developed resistance to multiple antiretroviral drugs. Capella demonstrated lenacapavir's potency in this difficult to treat population.

Speaker 5

Despite significant prior resistance, antiviral activity was observed starting at day 15. By week 26, 81% of individuals had viral suppression when Lenacapavir was combined with an optimized background regimen. Based on these data, we filed a new drug application. If approved, this would become the 1st 6 month long acting subcutaneous injection regimen available and deliver a welcome new option for people living with HIV We've developed multidrug resistance to other antiretrovirals. Also at IAS, we presented strong interim results from the Phase 2 CALIBRATE study, evaluating Lenacapavir in a treatment naive population.

Speaker 5

In CALIBRATE, participants received Lenacapavir either as a subcutaneous injection or as a daily oral pill in combination with Descovy. At week 28, 94% of subjects achieved HIV RNA loads of less than 50 copies per ml. These findings will be used to help inform our broader efforts establishing Lenacapavir as a foundational agent for our long acting franchise. Late last month, we screened the 1st patient for the Phase 3, PROPHISE 2 trial studying Lenacapavir for HIV prevention in cisgender Men, transgender women, transgender men and gender non binary people who have sex with men and are at risk of HIV infection. We expect to initiate Phase 3 purpose 1 study of Lenacapavir for HIV prevention in adolescent girls and young women later this year.

Speaker 5

Finally, we're actively working on the co formulation for the long acting investigational oral and injectable combination of lenacapavir and And expect to initiate the oral Phase 2 trial by the end of the year. Moving on to HDV on Slide 16. Last month at the International Liver Congress, we presented data from the miR-three zero one and miR-two zero four programs. MARE-three zero one is a Phase 3 registrational study evaluating vileveratide as monotherapy for the treatment of HBV. Interim results demonstrated that belivratide was well tolerated in both cirrhotic and non cirrhotic patients with compensated chronic HCV infection.

Speaker 5

At week 24, the leveratide treatment was associated with significantly greater HDV RNA declines and improvements in biochemical measures of disease activity compared to no treatment. Moreover, there were no treatment related serious adverse events leading to discontinuation. These results continue to support the effectiveness of the 2 milligram dose, which has received conditional approval from the EMA and will form the basis of the BLA filing plan for later this year in the U. S. As part of our HDB cure efforts, We also presented interim data from the miR-two zero four Phase 2b study, investigating finite regimens of dulubrotide both as monotherapy and in combination with pegy interferon alpha.

Speaker 5

Both monotherapy and combination treatments of vilevratide were found to be generally well tolerated and more effective than PEG interferon alone through 24 weeks of therapy. The primary endpoint analysis occurs at 24 weeks after completion of therapy and includes biologic and biochemical response data. We look forward to sharing those data when available. Moving to Slide 17 and on behalf of Christy and the KITE team, as you know, we shared earlier the strong positive top line data from ZUMA-seven, The landmark 359 patient Phase 3 study evaluating Yescarta in second line LBCL. The study met the primary endpoint for event free survival with a hazard ratio of 0.398, representing a 60 improvement in event free survival compared to standard of care stem cell transplant.

Speaker 5

Yescarta had a safety profile comparable to or better than what we have seen in the 3rd line setting. This is a clinically and statistically meaningful improvement in outcomes that if approved in the U. S. Could extend Yescarta's reach to a total unique population of 14,000 annually in the second and third line LBCL setting. ZUMA-seven also met the key secondary endpoint of objective response rate.

Speaker 5

As expected, data for overall survival is immature at this time, but the interim analysis suggests a favorable trend in this critical milestone. In summary, we're very excited about the potential benefit to patients demonstrated in Zumu-seven and look forward to beginning discussions with regulatory agencies later this year as we work towards potential SBLA and the MAA filings for Yescarta in second line LBCL. And separately, we're on track for the Phase 2 readout for our first line LBCL study before the end of the year. Beyond LBCL, we've completed filing Yescarta with the EMA for patients with follicular lymphoma after 3 or more lines of systemic therapy. We also have a PDUFA date of October 1 under accelerated review with the FDA for Tecartis and ALL.

Speaker 5

And of course, while our internal focus remains on autologous cell therapies, we continue our engagement in alternative approaches, Most recently partnering with Shoreline Biosciences to develop novel off the shelf allogeneic cell therapies based on natural killer targets for hematologic cancers. Slide 18 is a recap of our pipeline execution so far this year. In addition to the items we've discussed already, Our partner, Arcus, provided an early interim update of their Phase 2 ARK7 trial in late June, demonstrating clinical activity in the anti digit dolmenilumab based doublet and triplet combinations. Zembrolumab, our anti PD-one antibody saw similar levels of activity in the monotherapy arm compared to marketed anti PD-1s. Based on the interim analysis, we're pleased that ARK7 and the confirmatory Phase 3 ARK10 trial will continue to enroll as planned.

Speaker 5

We look forward to seeing how the data mature with additional patients and duration of follow-up to inform our opt in decision. Separately, our partner Galapagos also shared data readouts from their Toledo SYK2-three programs across psoriasis, ulcerative colitis and rheumatoid arthritis and the plaque psoriasis data from their TIC-two program. Both studies were early and had small samples and we look forward to additional data. We also remain focused on the following upcoming milestones. For Trodelvi, we continue to target a TROPICS II PFS readout this year.

Speaker 5

The study is an event driven Phase 3 trial in patients with hormone receptor positive HER2 negative metastatic breast cancer. Pending data, we will evaluate and determine the appropriate regulatory next steps. We estimate there are roughly 17,000 patients in the U. S. Who could benefit from TRODELV in this setting.

Speaker 5

We continue to expect the Phase 3 non small cell lung cancer for TRADELBI to initiate in the second half of this year. We plan to share an update from the TROPICS-three Basket study on lung cancer later this year We'll separately provide updates on head and neck squamous cell carcinoma and endometrial cancer as those data mature. We anticipate a Phase 1b readout from magrolumab in MDS later this year and pending data will engage with regulators as we explore potential BLA filing for accelerated approval. If approved, migrolumab will be the 1st in class macrophage checkpoint inhibitor targeting CD47 and Gilead's 1st frontline oncology indication. There's a significant unmet need for MDS with no new treatments approved in 14 years 15,000 new patients being diagnosed each year in the U.

Speaker 5

S. Alone. We continue our development efforts in AML and have Enrolled our 1st patient in the Phase 3 frontline AML Megolomab study. Before I wrap up the pipeline discussion, I wanted to share an update on remdesivir. We've decided not to move forward with an inhaled formulation of remdesivir based on the results of our initial proof of concept study suggesting suboptimal lung deposition.

Speaker 5

To address patient needs in the evolving pandemic, we are continuing our efforts on advancing multiple novel Antivirals. We expect to submit IND filings later this year or early next year for these agents. We remain committed to Finally, on Slide 19, I want to recognize the teams at Gilead and Kite. Compared to just 2 years ago, our pipeline has grown from 30 clinical stage programs over 50 today and resulted in a considerably more diverse set of assets that can be transformative not only for patients, but for Gilead. The Gilead and Kite teams have worked tirelessly to deliver on our pipeline programs during this time of dramatic growth despite the pandemic.

Speaker 5

It's a thrilling time to be part of the team with tireless dedication and commitment to helping patients. I look forward to updating you on our progress in the quarters ahead. With that, I'll hand the call over to Andy to walk us through the financial results of the quarter.

Speaker 6

Thank you, Mehrdad, and good afternoon, everyone. Moving to Slide 21, our financial results in the 2nd quarter were solid overall with total product sales up 21% year over year given the important role Vectlory continues to play in this pandemic. Excluding Vectlory, total product sales grew 5% year over year with Strong Biktarvy growth more than offsetting lower Truvada and atripla revenues. In addition to impressive growth in cell therapy and of course The new revenue contribution associated with Tridelvi, which was not part of our portfolio in the Q2 of last year. Moving down the P and L, non GAAP Product gross margin was 86.4 percent in the 2nd quarter, 2 10 basis points higher year over year and primarily associated with a lower royalty expense.

Speaker 6

Non GAAP R and D was $1,100,000,000 down 9% year over year with lower remdesivir related investments as compared to the same period last year, partly offset by higher investments across our pipeline, notably TRIDELVI and mongolumab. Non GAAP SG and A expense was $1,100,000,000 down 4% year over year, primarily due to lower legal expenses, offset in part by continued commercial investment in Tridelvia Vectlory outside the United States. Moving to tax, We realized a lower effective tax rate of 19.6 percent for the quarter or down 3 20 basis points year over year due to a shift in geographic earnings mix. Overall, our non GAAP diluted earnings per share was $1.87 per Higher product sales due to Vectlurry, higher gross margin, as well as lower operating expenses and a lower effective tax rate, offset by lower interest income. Overall, we're encouraged by our first half results shown on Slide 22.

Speaker 6

Moving to Slide 23, you can see that we are updating our guidance for 2021. As always, the duration and magnitude of the COVID-nineteen pandemic continue to be Certain in the rate and degree of these pandemic impacts as well as the corresponding recovery from the pandemic may vary across our business. With that said, we now expect full year total product sales in the range of $24,400,000,000 to $25,000,000,000 compared to our previous range of $23,700,000,000 to $25,100,000,000 The new range increases the midpoint from $24,400,000,000 to 24 $7,000,000,000 and reflects our solid results year to date as well as our updated expectations for the second half of the year. With first half Vectlory revenue of $2,300,000,000 we now expect full year Vectlory revenue in the range of $2,700,000,000 to $3,100,000,000 compared to our previous $2,000,000,000 to $3,000,000,000 range. Our updated range reflects the ongoing role of Vectlery in this pandemic and assumes we'll continue to see regional outbreaks.

Speaker 6

The situation continues to be dynamic and will likely update our thinking again when we report our earnings after the Q3. Back to our guidance. We now expect total product sales excluding Vectlory for the year to be in the range of US21.7 billion dollars $21,900,000,000 compared to our previous range of $21,700,000,000 to $22,100,000,000 This tightening of the range reflects the longer than expected pandemic impact on our business, including the latest increase in COVID-nineteen cases. As Joanna discussed, the pandemic Most notably impacted our HIV treatment business, where we saw substantially fewer treatment initiations and a greater number of discontinuations than expected in 2020. It's taking longer than we expected for treated patient volume to ramp back up to more normal levels, particularly in the United States.

Speaker 6

That said, we saw encouraging signs of recovery in the HIV market in the Q2 and our guidance assumes recovery will continue through the remainder of the year. Based on market share dynamics, we remain very confident in our competitive positioning and we believe we're well positioned as the recovery continues. Looking at the rest of our P and L, we now expect non GAAP product gross margin in the range of 86% to 87%, reflecting the lower mix of HIV revenue. We now expect non GAAP R and D to decline low to mid single digit percentage compared to 2020 levels. This primarily reflects the timing of investments and we remind you that the expenses in both R and D and SG and A are back end loaded this year, increasing sequentially from Q2 into Q3 and then even more from Q3 into Q4.

Speaker 6

Our non GAAP SG and A guidance remains unchanged, a flat to low single digit percentage decline over 2020. In R and D, we'll be ramping up additional studies with migrolumab, TRIDELVI, long acting combination work with linacapavir for the treatment of HIV and other pipeline activities. And in SG and A, we will be ramping up marketing activities to support our growing portfolio of indications such as with Tridelvia and Tecartis. Finally, reflecting the updates to our revenue, gross margin and operating expense guidance, we now project non GAAP diluted EPS between 6 point $0.97 per share $7.25 per share for the year and GAAP diluted EPS between $4.70 $5.05 Additionally, our capital allocation priorities have not changed and we remain committed to our dividend. Year to date, we've paid down $1,250,000,000 in debt and we're on track to repay at least $4,000,000,000 in debt by the end of the year.

Speaker 6

With that, Owen Wright, the operator to begin the question and answer session.

Operator

Thank you. Please standby while we compile the Q and A roster. Our first question comes from Cory Kasimov with JPMorgan. Your line is open.

Speaker 4

Hi, this is Gavin on

Speaker 7

for Cory. Thanks for taking our question. Just wanted to go back to the U. S. HIV business.

Speaker 7

Can you provide additional color, particularly in the context of why this is so much different from the ex U. S. Markets? And what is the most important factor you'll be watching for to have confidence in the U. S.

Speaker 7

Market normalizing? Thank you.

Speaker 2

Yes. Thanks a lot Gavin for joining. I'm obviously going to turn that over to Joanna. I just point out that we continue to do Really well in our share and certainly Biktarvy growth and are well positioned as the market rebounds. And with that, I'll turn it over to Joanna for

Speaker 3

Thanks. Hi, Gavin. Thanks for your question. I think from a market dynamic standpoint, what we're seeing is we saw A little bit last year in Q2, most of the industry was actually slowing down pretty quickly in Q2. HIV took a little bit longer and it's kind of that Playing out in 2021 is taking a little bit longer to come back and bounce back.

Speaker 3

One of the major reasons for that has to do with your dynamic market being much smaller in this market. You have a very large pool of patients that are just continuing patients and you're really playing in the dynamic market with your naive patients coming in And your switches and your restarts really around 5% or so. And so that's why it's taking a little bit longer as we're going through this. From a different standpoint between U. S.

Speaker 3

And Europe, I think it has more to do with the fact that in Europe there's diversity across Some of the different countries as to the pandemics and the timing of kind of the recoveries or even some of the surges that happened. So it's a little bit more blended than what We've seen in the U. S. Thus far. And so I think that's just what's playing out here.

Speaker 3

Obviously, the bigger impact being in the U. S. Because that's where most of our business lies in HIV. And just to close out on that, that's from a market standpoint and it's very different than kind of the fundamentals of our HIV business. I think what we've seen with Biktarvy, we're really quite pleased with in light of the fact that not only it's grown quarter over quarter by one point, both in the U.

Speaker 3

S. As well as the EU5, but also if you think about it over the last 12 months, it's grown 6 point share over a very strong base. We're just under 40%. We're at 39 percent share at this point in time. So we're very pleased with the continued growth of Biktarvy and you can appreciate that Because it's such a larger base, that's going to get more challenging as we move forward.

Speaker 3

And that's why, I think we're excited about the market coming back a little bit. We've seen it come back in Q2. Where the market goes, obviously, our HIV business goes because we own 75% of the market. And so therefore, we're watching that very closely, but we would expect that recovery to continue, although at a slower pace than we had originally expected.

Speaker 2

That's great Joanna. Anything on the indicators? I think you've mentioned anything more on the indicators that should be looking for?

Speaker 3

Yes. So we've been looking of course at the HIV screening and the diagnosis in how that's playing out. And we're still under by about 13% to below pre COVID levels. So I think once those come back up, I think that would be something that we're watching very closely. And also the drop off rates, we talked a little bit in earlier about The adherence piece of the puzzle because you have less patient support groups around, you have Let's surround sound around those HIV patients.

Speaker 3

You have a lot of those case managers and physicians that have moved over to treat COVID-nineteen and so far impacting HIV a little bit Disproportionately. And so we're also looking at those drop offs and we've seen those drop offs come back to normal to pre COVID levels just most recently. And so that's another positive sign to that recovery of the market.

Speaker 2

And Gavin, obviously, just from a patient perspective, we have been and will continue to be dedicated to Helping patients, particularly in underserved communities, get back into the care system. I think that's something that Gilead prides itself on And that's exceptionally important as a leader in HIV medicines to make sure we are always on the side of the patients as we emerge from this pandemic. So thanks for the question Gavin.

Operator

Thank you. Our next question comes from Terence Flynn with Goldman Sachs. Your line is open.

Speaker 2

Great. Thanks so much for taking the question. Maybe a 2 part for me. First, for Joanna, just wondering if you can provide any more insight on the TRIDENTLLVI launch, Specifically, the split of sales by either setting or indication? And then for Merdad, can you remind us of the size The lung cancer cohort in TROPICS 3 and then how are you thinking about the potential risk of ILD in that population?

Speaker 2

Thank you. Thanks, Dan. Yes, go ahead, Adriana.

Speaker 3

Sure. Thanks for the question. So yes, so we're really pleased with the XERAVI sales. I had 24% growth quarter over quarter. I think it's a very strong quarter and I think that really has to do with the approval, the second line plus approval that we got in metastatic triple negative breast Early April.

Speaker 3

It's also related to the fact that because now we have the full approval, we have the opportunity to promote the incredible overall survival data that we have with the Ascent data. And so that's been a big piece of the puzzle. If you're asking me to split the sales per line of therapy, that's very challenging in light of Claims data that we have, but what I would say, if it's more about bladder cancer versus Triple negative breast cancer, I would say most of that is triple negative breast cancer, probably about a 9e:ten ratio as our bladder cancer is much Although we've done some nice inroads there already and are looking at about just under 10% share in bladder right now with Trodelbi. So we're excited about that as well. Murde?

Speaker 5

And then with TROPICS-three, it's a basket study. So the ends per arm are not Hard and fast. We'll probably be looking at data once we get to the 20, 30 range in there, But it's not predetermined, so I wouldn't want to overstate it. Regarding ILD, we are definitely Very sensitive to and watching for it as you can imagine to date we haven't had any reports of that, but we're ever vigilant.

Speaker 2

Great. Thank you both. Thanks, Terrence. We'll get to next question now, please.

Operator

Thank you. Our next Question comes from Brian Abrahams with RBC Capital Markets. Your line is open.

Speaker 8

Hey, good afternoon. Thanks for taking my question. Question regarding HIV lifecycle. Recently reported data for subqlanacapavir based combo and treatment naive HIV. I'm curious how do the learnings there with respect to the resistance profile you're observing shape how you think about the future development steps visavis potentially exploring higher doses More frequently more frequent than every 6 months injections and or combining with agents that might have higher intrinsic barrier resistance versus FTAF.

Speaker 8

And then I guess along the lines of HIV lifecycle, I'm also curious your level of confidence as to the potential of FTAF to have exclusivity beyond 2025. Thanks.

Speaker 2

Great. Why don't we have you start, Virgil, and perhaps Andy can comment a little bit on the second piece too.

Speaker 5

Yes, thanks. It's a very good question. I think, if you think about the patients in that trial, these are highly treatment experienced patients who often Develop resistance because of non compliance. And when these subjects are getting a subcu injection of lenicaprevir, Remember that these patients are going to potentially continue to go off and on their oral regimens. As we think about the future, As you know, we are for treatment, going outside the highly treatment experienced population, we're really thinking about How we're going to combine Lenacapavir with other long acting agents like aselatravir.

Speaker 5

And as we do so, I think the Concerns about patients potentially having effective monotherapy with Lenacapavir go away in some regards, right? Ensuring that patients are taking multiple agents at the same time is going to be really important for us.

Speaker 2

Thanks, Bernadette. And perhaps, Andy, you want to comment on the exclusivity question for Brian?

Speaker 6

Sure. I'd be happy to. Hi, Brian. Thanks for the question. As you know, there's litigation that's underway.

Speaker 6

There were some recent developments that a number of analysts wrote about. Our base case continues to be that there'll be generics arriving in 20252026 in the U. S. And EU, respectively. But we think we have a strong case and that they're we look forward to continuing to prosecute And we'll see where it plays out.

Speaker 6

We should have an additional update later this year. So that's really where it stands.

Speaker 2

Thanks, Annie. Can we have the next question, please?

Operator

Thank you. Our next And comes from Geoffrey Porges with SVB Leerink. Your line is open.

Speaker 4

Thank you very much for taking the question. So just a couple of parts in my question. Could you clarify a couple of your partnerships? There's been some news Galapagos, you've invested over $5,000,000,000 there. Are you going to take on any of those drugs from the Toledo portfolio that the company recently highlighted?

Speaker 4

And then related to that, your Argus partnership, does your guidance include the upfront Cost of opting in for any of those programs and what's the trigger and the window for when you can opt in to any of those 3 programs? They sort of appear on your pipeline slide, but it's not completely clear whether they're in or out. So could you clarify where you're going with those 2 partnerships?

Speaker 2

Sure, Jeff. Thank you very much for the question. And I'll start a little bit and then ask Mehrdad and Andy if he wants to add anything as well. So I think 1st and foremost, I think we believe deeply in partnerships. We have a robust internal portfolio and we also, as you know, have designed these opt ins as a way to expand our portfolio in different therapeutic areas.

Speaker 2

Starting with Galapagos, as you know, which is predominantly focused on inflammation, at this stage, We don't have any opt in milestones right now with Galapagos. We're working closely with them on their science and their discovery platform and some of their preclinical to clinical molecules to support them in their efforts. But at this stage, We don't have anything more to report other than what Galapagos has reported on the for instance, Jeff, to your question on the Toledo program. But rest assured that as those Programs evolve and mature and develop, we'll keep you informed. Perhaps, Mehrdad, if you want to say anything else in Galapagos and then bridge to Arcus?

Speaker 5

Yes. I think the stories are similar. We like to keep you apprised of what could potentially come into our And we have the opt in rights to. For Arcus, I mean, I think Dan laid out Galapagos well for Arcus. We continue to wait for data to mature.

Speaker 5

And once the data get to a level of maturity where we can really make the call, That's when we'll have our opt in. We have not included and Andy will confirm for me, but we have not included the financials of A potential opt in in our guidance at this point.

Speaker 2

Andy, you want to run it? That's correct.

Speaker 6

Yes, and I'm happy to follow-up here, Jeff. Good question. And Nothing has changed from the guidance at the beginning of the year. So our R and D spend and all of our expense guidance does not include The opt ins on any of the programs that we have options to, including the 3 programs that you mentioned at Arcus. You also asked about the opt in windows.

Speaker 6

The opt in window for the 1st digit antibody should be coming most likely at the end of this year. It could be early next year, but it's most likely at the end of We'll have enough patient data to trigger the opt in or our desire to opt in potentially early. On the other two programs, the adenosine programs at Arcus, Most likely next year. And again, there may be additional data that comes this year that if it looks really strong, we want to move as quickly as we can and we can opt in early, Jeff, on those And then on Toledo, it's relatively simple. On all of the Galapagos programs, the opt in comes after Phase 2 enabling studies.

Speaker 6

So the Toledo programs are a long ways away from A potential opt in decision.

Speaker 5

Phase 3 enabling.

Speaker 6

Yes. I'm sorry, Phase 3 enabling. Thank you.

Speaker 2

Jeff, I just kind of round out your question. I mean, there's obviously many other partnerships we have that we're working closely with At different phases, but those are the specific ones you asked about. Thank you very much for the question. Can we have the next question, please?

Operator

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

Speaker 7

Great. Afternoon, guys. Thanks for taking the question. A question for Dan or Murtad on COVID. There's a high expectation that vaccines are here for a while now that the Delta variant Has really changed the dynamic.

Speaker 7

The question is, has the strategic value of Vectlery changed for you guys as new cases have ticked up? I know you decided not to But is there a life cycle here worth investing in over the long term? Thank you.

Speaker 2

Thanks, Chip. I'll start and then Murdad will either correct me or add Important information to it. But I think, I mean, just to emphasize the importance Of Gilead's legacy in antivirals and frankly our strength in that too to us as well. Being of course the 1st company to have and the only company to have an approved antiviral for COVID is no accident. Obviously, it's decades of decades of investments in a variety of emerging viruses, including COVID, and we haven't stopped.

Speaker 2

So to your point, Jeff, I think we're all learning about this pandemic as it rolls out. And it's certainly going through different phases and we think we'll continue to go through And therefore, we are, if you like, kind of doubling down on an ability to think about antivirals outside setting where remdesivir plays such an important role. And maybe with that, I'll hand it over to Mehrdad, as a clinician how you might also see The future of the pandemic and then also our role in it.

Speaker 5

Yes, thanks. I think we have I think been pretty consistently of the mindset that The vaccines will make a tremendous impact in the Case numbers and those sorts of things. Even though I think even when we get to some sort of equilibrium, Unfortunately, they'll continue to be, we believe, infections. People will continue to get infected and some proportion of those patients will end up in the hospital. So we do believe that VICLURE in the hospitalized setting It's going to be continue to be really important for treating those patients.

Speaker 5

And as Dan alluded to, we continue to believe and are committed to Treatments making treatments available in the outpatient setting. So I wouldn't The inhaled nebulized approach didn't give us the results we were hoping for, the consistency we were looking for. But because we have other agents in our pipeline based on our virology expertise, We will be bringing those forward and really focusing on the outpatient setting there. So we continue to believe that Having a treatment available for people, whether they're vaccinated or not is going to be important for the foreseeable future.

Speaker 2

And Jeff, what I might add is that our preclinical folks continue to study remdesivir against the variety of variants, in fact, All four major variants of concern, so the Alpha from the UK, the Beta from South Africa, the Gamma from Brazil and the Delta from India, And all are fully sensitive against or Remdesivir is as sensitive against all those Which makes sense because we're not seeing any mutations in the polymerase remdesivir binding site. And so I think it's important as we think about next generation products to also think about medicines that will The effective against these ongoing variants like remdesivir, it's an important bar for us as we move forward. Thanks, Jeff, for the question.

Operator

Thank you. Our next question comes from Umer Raffat with Evercore. Your line is open.

Speaker 9

Hi, guys. Thank you for taking my question. I had 2 quick ones as well. First, have you had an interim PFS on the HR positive study of Tadalvi? And secondly, congrats on Bill Grossman's hire from Marcus.

Speaker 9

And I was wondering to what extent was the decision of Bill bring onboard driven exclusively by Bill's familiarity with Arcus programs? Thank you very much.

Speaker 2

Yes. Why don't you start, Umer to answer

Speaker 5

the call? Sure. Thanks, Umer. Great questions. Yes, we have not done the interim PFS Analysis as we've talked about that will happen certainly before the end of the year we hope and that's still what we're Tracking too, but we have not done the analysis yet.

Speaker 5

So we remain blinded to those data. And then in terms of Bill, I think I wouldn't necessarily tie it as you're suggesting to Arcus. It's certainly an advantage for us that should we opt into ARCUS programs, Bill will bring familiarity. But For us, Bill's experience and leadership and his excitement about being here and overseeing the overall portfolio were The drivers for Bill coming on board.

Speaker 2

Yes. And I would just add, Umer. I mean, look, many of us know Bill, you know him as well. Our relationship with Arcus is extremely important and continues to be. And this was an example of Bill Seeing a career opportunity and seeing an evolution for his career that made sense for him, we certainly want to make sure that Arcus continues to have the skill set that it needs to be successful.

Speaker 2

We have the skill set that we need to be successful. I think it's just a good example of how partners collaborate at times. And so, I just wanted to emphasize our relationship with Arcus Unchanged and as strong as ever.

Speaker 8

Thank you.

Operator

Thank you. Our next question comes from Michael Yee with Jefferies. Your line is open.

Speaker 10

Hey, thanks Maybe a question for Murdad on TRODELVI, a couple of parts. In the TROPICS II study, you had the smart decision to Take a look at that Enlarget, powered for PFS, etcetera. Did you have any information that could help give you confidence around the powering and any information that would help you give Often seen the overall study such as the number of events that have passed or anything like that or even knowing that it had passed a futility, if you could even comment on that. And then on the lung data that's coming up, can you just comment around your belief in the profile versus the competitor? Is it similar efficacy, better safety or how should we interpret that data when it comes later this year?

Speaker 10

Thank you.

Speaker 2

Nice to hear your voice, Michael. Over to you,

Speaker 5

Yes. Thanks, Michael. On the TROPICS-two study, we have not done a utility analysis. We are we continue to look to those data maturing and getting the number of events that we need for the PFS analysis that we have planned. We're pretty confident in our powering and in particular We expanded the sample size to make sure that we are able to hit the PFS endpoint.

Speaker 5

Of course, The relevant issue is more, the duration of PFS that we get. But from a powering standpoint, We're comfortable, and it's just a matter of seeing those data. From an ongoing event standpoint, I think we are where we Thought we would be at this point and it's really around just letting the events come in, make sure they get adjudicated. We clean the data in time to do the analysis properly. So that's where we are with that.

Speaker 5

And then In terms of the lung data on efficacy, yes, I mean, I think as I think we've said before, We're really proceeding somewhat at risk and pretty aggressively, partly based on our belief in the drug, partly because of what we've seen with other agents In lung and partly based on our early data that you're familiar with in lung that we've seen. Of course, we want to make those data more robust, while we go into the Phase 3 world. So we are Going to augment our existing data to make sure that we are mitigating our risk somewhat. But Thus far, I think what we are hoping for is efficacy that certainly is comparable to What the benchmark might be, even though I think it's too early to say what that benchmark is with the direct competitor. But we are again, I think confident about our ability to bring safety profile that hopefully will be better for patients.

Speaker 2

Excellent. Thank you, Michael. Can we have the next question, please?

Operator

Thank you. Our next question comes from Alethia Young with Cantor. Your line is open.

Speaker 11

Hey guys, thanks for taking my question. I'm just curious about, again, going back to the Arcus collaboration with Arcus7, How do you think about what the hurdle is for a triple? Do you think that it has to be more than like some of the competitors like Rochap and the Double? Thanks.

Speaker 2

Thanks, Alethia. We're going to add you.

Speaker 5

I think we have the luxury of being able to look at The singlet, a doublet and a triple here. We would be, of course, excited if the triplet differentiates from the doublet and provides better efficacy. I think that's what we'd be looking for. And so as the data mature, Looking for some signals, some reason to believe that the triplet is performing more robustly than the doublet is probably going to be our focus. We'd be very excited if that plays out and gives us, I think, a pretty unique position.

Speaker 2

Thanks, Alethia. So I think we have time for one more question and thanks everybody for your involvement. Can I have the last question please?

Operator

Thank you. And the last question comes from Ronny Gal with Bernstein. Your line is open.

Speaker 12

Hi, everybody, and thanks for A question about the projections for HIV for the next couple of years. Part 1, I guess, is you change your reimbursement policy on 340biclenecks next year. Yes. How big essentially was is that difference in terms of what it creates for you? And where will it be allowed, whether it appear on revenue or on SG and A?

Speaker 12

And the second one, you already mentioned the PrEP barriers are dropping with preventative treatment designation for PrEP. I can't figure out if this is good or bad for you from the perspective of branded drug adoption, given that they don't have to cover branded drugs.

Speaker 2

Thanks, Ronny. So over to you, Joanna.

Speaker 3

Sure. Ronny, I'm assuming you're talking about the patient assistance program changes?

Speaker 12

Correct. Yes.

Speaker 3

Okay. So I want to differentiate that. Those aren't 340B changes. That's actually a program that's really in line with our commitment to help end the HIV epidemic. To date, the program has actually provided free drug to more than 250,000 individuals.

Speaker 3

And really that's what it is. It's a free program that was always intended and will continue to provide free Gilead medication to eligible individuals to treat and prevent HIV. Unfortunately, it was not intended to be a source of funding for organizations to deliver services and that's what we're trying to reset a little bit. So the changes to our program model will protect our ability to be able to do this in the longer term and make it a sustainable program for us and more importantly for patients. So that's the patient assistance program on that front.

Speaker 3

The The question you're asking me about PrEP, we're actually quite encouraged with the FAQ that came out from the U. S. PSTF. The and here's why. In the FAQ, they provide a lot more clarity than they had in the past, right?

Speaker 3

This isn't new. The recommendation actually came out the Affordable Care Act recommendation came out 2 years ago. But what this provided was actually more details to it and clarity on the importance of PrEP in ending the epidemic and minimizing the barriers of use. And there's a couple of things in the FAQ that pop out for me. One is, it truly supports physician and patient choice and that's the piece where generics or non generics, Right.

Speaker 3

So Truvada generics or Descovy would then need to be really the physicians and the patients get to decide Together, what is the right medicine for which patient? And of course, with the bone and renal safety benefits that Descovy brings, I think this is a great in addition to the FAQs. In addition to that, there's also some guidance around timely management of the request for this by payers, so to turn it around within 24 hours, which is quite different and what's happening today. And then the last piece is $0 of out of pocket costs. So I think for patients, this is great news.

Speaker 3

And I also think For patient choice and physician choice, this is quite promising as well.

Speaker 2

Ronny, I want to make sure we covered your question. Did we understand you correctly? I assume so, Ronnie. Great. Well, thank you all very much.

Speaker 1

So thank you all for joining us today. We appreciate your continued interest in Gilead and look

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