Gilead Sciences Q1 2022 Earnings Call Transcript

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Provided by Quartr
April 28, 2022

There are 17 speakers on the call.

Operator

Thank you

Speaker 1

for standing by, and welcome to the Gilead Sciences First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After Please be advised that today's call is being recorded. I would now like to hand call over to your host for today's program, Jackie Ross, Vice President, Investor Relations. Please go ahead.

Speaker 2

Thank you, Jonathan, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the Q1 of 2022. The press today's call, please, 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, Murdock Parsey And our Chief Financial Officer, Andrew Dickinson. After that, we'll open up the call to Q and A, where the team will be joined by Christy Shaw, the Chief Executive Officer of Kite.

Speaker 2

Before we get started, let me remind you that we will be making forward looking statements, including those related to the impact of the COVID-nineteen pandemic on Gilead's business, financial condition and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections and the use of capital and 2022 financial guidance, all of which involve certain assumptions,

Operator

taking the call to questions, I would like to ask you to take a

Speaker 2

moment to discuss the financial

Operator

results and uncertainties

Speaker 2

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 document. 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 2

Now, I'll turn the call over to Dan.

Speaker 3

Thank you, Jackie, and good afternoon, everybody. We appreciate you taking the time with Gilead today. And I also want to thank those all of you who joined our virology and oncology deep dives over the last few months. These two events provided a more in-depth view of our portfolio, our strategy and the Teams behind them. We shared a much broader view of our growing clinical pipeline than we had in the past, highlighting its potential to deliver a number of new therapies to address unmet needs for patients across a diverse range of conditions.

Speaker 3

For those of you who joined, I hope you got a deeper sense of why we're confident of sustaining our leadership in virology and growing our oncology revenues, so that it becomes more than 1 third of our total revenue in 2,030. I'll turn now to our performance this quarter. I'm pleased to share that the year is off to a strong start in line with guidance as shown on Slide 4. Total product revenue was up 3% from last year to US6.5 billion dollars with cell therapy, VICLURY, TRODELVY and HIV driving HIV grew 2% year over year, primarily driven by Biktarvy, which grew 18% And reported more than 4% market share growth compared to the Q1 of 2021. This is notable given the impact of our Truvada LOE.

Speaker 3

Sequentially, HIV was down 18%, primarily as a result of 1st quarter seasonality. Our growing oncology portfolio performed well with Trodelbi revenue doubling compared to the Q1 of 2021 We recently expanded our portfolio of marketed cancer therapies following the FDA approval of Yescarta for second line relapsed and refractory LBCL. I'm also pleased to highlight the FDA approval of our new cell the Q1 of 2019, which is part of the expected 50% increase in our manufacturing capacity by the end of 2022. The new facility will support our cell therapy growth expectations over the next several years. Moving to the pipeline, we shared the Phase 3 top line readout from TROPICS-two in March, showing that the study met its primary endpoint Additionally, the first interim analysis of the key secondary endpoint of overall survival demonstrated a trend in improvement.

Speaker 3

As you know, we are exploring potential pathways for approval with regulatory authorities to bring TRINOVI to these later stage patients. The details of the study results will be shared at ASCO in June. At the oncology deep dive earlier this month, we highlighted the broad potential for Trodelvi across multiple tumor types and lines of therapy, with plans to initiate 13 more TRODELBI trials through 2023, including 4 more in 2022. Turning to Slide 5, as you know, the timing for TROPICS-two and the NDA decision for Capella are subject to change. In the case of Capella, this is due to the vial compatibility issue that we're working to resolve and we're fully confident in LENACAPOIR itself.

Speaker 3

Other than that, we are on track with the remaining targeted milestones we shared with you in January. We've added some of the newly disclosed trials from our oncology deep dive as well on this slide. Additionally, we're pleased to note that the partial clinical holds for the pivotal magrolumab meeting, including ENHANCE 3 for first line unfit AML shown in the slide have been lifted. I'm also pleased to share that despite the hold, There's no change to the timing of the first interim readout for ENHANCE for first line high risk MDS, which we expect in the first half of twenty twenty three. I just want to take a moment to thank the Gilead and Kite teams who are putting the full weight of their expertise, passion and commitment behind all of this work that you're seeing.

Speaker 3

It's thanks to our 14,000 employees across the world that we're delivering for patients with diverse conditions and diseases today and advancing a pipeline of innovative new therapies for the future. We have some bold ambitions for the coming years and we're confident of achieving them Given the level of innovation and capabilities that we have in place today. Now, I'll invite Joanna to share an update on our Q1 commercial performance. Over to you, Joanna.

Speaker 4

Thanks, Dan, and good afternoon, everyone. So turning to Slide 7, we had a solid start to the year with total product sales, excluding Vyclari, of US5 $1,000,000,000 for the quarter, up 2% year over year, driven by cell therapy, Trodelvi and HIV and offset in part by HCV pricing dynamics. Quarter over quarter, total product sales excluding VACLURE were down 14% as a result of the seasonality we typically see in the first On Slide 8, you can see that HIV sales were down 18% quarter over quarter to $3,700,000,000 consistent with our guidance, given the seasonality we customarily experience in the Q1 of every year. First, the channels build their inventories over the Q4 and then On a dollar basis, the majority of the sequential decline was associated with inventory drawdown. 2nd, we realized lower net prices in part due to increased co pay support, Part D discounts and other efforts to maintain access and affordability of our HIV medicines As patients' insurance plans reset, this is a customary Q1 dynamic that we expect to normalize throughout the rest of this year.

Speaker 4

Year over year, HIV sales were up 2%, driven by market growth for both treatment and prep, offset in part by the impact of the loss of exclusivity for The year over year impact of this LOE is expected to be minimal starting in this quarter, Q2 of this year. And excluding the LOE impact, HIV sales increased 5%. Overall, we're encouraged by the signs of recovery seen in the HIV treatment market, Despite screening and diagnosis rates still below pre pandemic levels and the continuing impact on market growth due to the Omicron surge in Q1. As a result, both the U. S.

Speaker 4

And European HIV treatment markets were down slightly on a sequential basis. On a year over year basis, the European market was roughly flat And the U. S. Market grew a little over 3%. The prep market grew 33% year over year and 3% sequentially.

Speaker 4

Notably, Descovy continues to hold approximately 45% market share and will continue to engage with payers to ensure those who benefit from PrEP We believe Gilead remains well positioned in PrEP. And as highlighted during our virology deep dive in February, We expect the market to double by 2,030, catalyzed by the launch of long acting regimens such as Lenacapavir. Descovy sales in the Q1 were $374,000,000 up 4% year over year, driven by continued PrEP market growth And partially offset by generic competition and switches to newer treatment medicines such as Biktarvy. Turning to Slide 9, Biktarvy sales of $2,200,000,000 in the first quarter were up 18% year over year, Q1, given by U. S.

Speaker 4

Market growth and notably continued share gains in both the U. S. And in Europe. Biktarvy remains the leading regimen for new starts the quarter, we will be conducting a few key initiatives in the U. S.

Speaker 4

And new starts in Europe. In fact, Biktarvy's share is up 4.5% year over year to 43% share in the U. S, the next leading promoted medicine and representing the highest share of any complete regimen for the treatment of HIV. Moving to Slide 10. In HCV, we maintained steady market share and the 22% decline year over year was primarily driven by unfavorable pricing Sequentially, HCV was up 2%, while the overall market and new patient starts continue to be impacted by the pandemic.

Speaker 4

HBV and HDD on Slide 11 were up 7% year over year due to higher demand for Vemlidy, namely in Asia. Sequentially, HBV and HDD declined 11%, driven by the same HBV seasonal inventory and pricing dynamics impacting HIV. Heplutex sales were $11,000,000 for the quarter, primarily reflecting sales in Germany and France, where full reimbursement has been established. Our discussions with regulatory bodies and other countries across Europe are ongoing. And of course, we look forward to potential approval in the U.

Speaker 4

S. In the second half of this year. VACLEARY revenues in the Q1 were $1,500,000,000 as shown on Slide 12. VACLEARY utilization tracks Hospitalization rates and therefore due to the timing of Omicron surges was lower in the U. S.

Speaker 4

After January, but higher in Europe and Asia later in the quarter. We're optimistic that there will not be another surge this year in the U. S. And overall, we will maintain our readiness to support hospitalized and non hospitalized patients. There's no change to our commitment to COVID-nineteen patients globally.

Speaker 4

And in that regard, we were very pleased to receive the World Health Organization's revised COVID-nineteen guidelines. These guidelines now conditionally recommend aclory for the treatment of patients with non severe COVID-nineteen at highest risk of hospitalization. And earlier this week, Vigleri received FDA approval for the treatment of certain pediatric patients who are at least 28 days old, highlighting our ongoing commitment to extend the reach of VICLORI where we can. Now turning to oncology. Tadalpi sales were up 103% year over year and 24% sequentially as shown on Slide 13.

Speaker 4

We're we're encouraged by adoption not just in the U. S, but notably in Germany and France and continue to work with health authorities and reimbursement bodies to extend Trudelvi's reach to patients globally. We've completed the expansion of our field force to support the U. S. And Europe and believe we are now at right the call to support physicians and make Trudelvi available across all approved indications to patients who could benefit from it.

Speaker 4

We're extremely excited by the feedback from physicians about Trudelvi's impact on patients, both those who are prescribing Trudelvi today With strong physician uptake and our expanded field footprint starting in April, we believe Trevali will benefit more than the 1 in 4 second line metastatic TNBC patients we're reaching in the U. S. Today. We look forward to sharing more updates as we progress throughout the year. Turning to Slide 14 and on behalf of Christy and the Kite team, cell therapy sales for the Q1 of 2022 were 274,000,000 up 43% year over year and 15% sequentially.

Speaker 4

For the quarter, ESGARTA sales of $211,000,000 were up 32% year over year 16% sequentially driven by continued global demand in relapsed or refractory large B cell lymphoma as well as in follicular lymphoma. This concludes our prepared remarks. This highlights the growing recognition of the durable long term survival benefit showcased at last December's American Society of Hematology meeting. For TEGARDIS, sales of $63,000,000 were up 103% year over year due to strong demand in relapsed or refractory mantle cell lymphoma. We're pleased with the strong early update for adult acute lymphoblastic leukemia in the U.

Speaker 4

S. Following approval last October, which contributed to the 11% sequential growth in TECARTIS. The strong momentum we've seen across our cell therapy portfolio continue with the approval of Yescarta in second line relapsed or refractory LBCL earlier this month, As well as FDA's approval for our new Maryland manufacturing facility announced just last week. Through capacity improvements across our existing in house CAR T manufacturing site, In addition to the new Maryland site, we expect our manufacturing capacity to increase by up to 50% and support our aspiration to serve a cumulative 25,000 plus patient by the end of 2025. 2nd line orders started coming in the day after the FDA approval and have been steady ever since.

Speaker 4

It's truly heartening to see the immediate help we can provide for patients. Given Yescarta's second line inclusion in the NCCN guidelines and robust clinical data, we expect this quarter to shift the paradigm in the standard of care for LBCL patients. Christie is here with the team and is available to take any questions on cell therapy during our Q and A. And so with that, I will hand over the call to Murad for an update on our clinical pipeline.

Speaker 5

Thank you, Joanna, and hi, everyone. 2022 is full of clinical activity here at Gilead and I hope that virology and oncology deep dives were helpful in highlighting the breadth and depth of our portfolio. By the end of 2022, we expect to have more than 90 clinical trials underway across oncology, virology and inflammation. With such a broad portfolio, our focus is firmly on innovation and execution to ensure that we fully leverage its potential. Moving to HIV on Slide 16, we shared exciting 1 year data from the Capella trials at CROI in February, reporting 83% virologic suppression in heavily treatment experienced people living with multidrug resistant HIV.

Speaker 5

Given the significant unmet need of this patient population, The lenacapavira NDA was designated prior to review by the FDA and we're planning to resubmit the NDA as soon as we've resolved the clinical hold and complete response letter. As you know, the basis of these FDA actions was the compatibility of Lenacapavir with vials in use at that time, not Lenacapavir itself. We're in ongoing dialogue with the agency to consider an alternative vial. I look forward to updating you of our progress in due course. Separately, we're on track for the HTE MAA approval in Europe in the second half of the year.

Speaker 5

At our virology deep dive in February, we shared details the 8 internal candidates that could partner with lindacapivir for treatment and highlighted the additional early development or discovery assets shown on Slide 17. In addition to our prep programs, these assets give us a high degree of confidence that Gilead will sustain its leadership in HIV through the 2020s and beyond. In the immediate term, we continue to generate very strong data for Biktarvy. At CROI, we showed biologic suppression at or above 98% in the ME analysis And 0 cases of treatment failure due to resistance to any components of the single tablet regimen in 2 5 year Phase 3 trials. Of note, this 5 year duration is unprecedented for an HIV regimen.

Speaker 5

Moving to Slide 18, VACLURE is playing an important role in the fight against COVID-nineteen hearing this, the only antiviral approved for use in both hospitalized and non hospitalized patients. Just in the past few days, The FDA approved an sNDA for VICLIRI for the treatment of pediatric patients who are at least 28 days old and either hospitalized with COVID-nineteen Q1, we will conduct a discussion of the

Operator

call for questions

Speaker 3

or with mild to moderate COVID-nineteen

Speaker 5

and considered high risk for progression to severe COVID-nineteen. In addition to VACLARI, We have an ongoing Phase 1 trial of GS-five thousand two hundred and forty five, our investigational oral COVID-nineteen nucleoside that once metabolized works in the same way as remdesivir. Results from this study could lead to a registrational trial. So even while we hope the worst of this pandemic is behind us, we will continue to work to ensure that COVID-nineteen therapies are available to as many patients as possible. Moving to oncology and specifically TRUDEBI on slide 19, we'll share more detailed data from the TROPICS-two study at ASCO in June.

Speaker 5

As a reminder, we announced that the study met its primary endpoint With statistically significant PFS versus physician's choice of chemotherapy in late line patients and that results are consistent with the TRUDELEVI arm in the Immunomedics the 1 hundred and thirty two-one Phase onetwo trial. OS showed a trend in improvement at the first interim analysis. We're now targeting a final OS analysis in 2024 depending on the timing of events. In the meantime, we're engaging with regulatory authorities to explore potential pathways given the high unmet need. As a reminder, TROPICS-two targeted a more advanced patient population than BESTINYBESTO-four.

Speaker 5

The encouraging clinical data we've seen in this more challenging patient group this conference call, we have strengthened our excitement in exploring earlier stage patients. As we shared 2 weeks ago, we're planning a pivotal study In addition to TROPICS-two, we're targeting 1st patient in or FPI for a number of new TRADELEVI trials this year. In the first half of twenty twenty two, this includes frontline studies for non small cell lung cancer and PD L1 positive and PD L1 negative metastatic TNBC. In the second half of the year, we're targeting FPI for the EVOKE-three Phase 3 trial for first line non small cell lung cancer. TROPICS-four for metastatic urothelial carcinoma is ongoing and we anticipate a readout in the 2023, 2024 timeframe.

Speaker 5

As you can see on this slide shared for the first time in our oncology deep dive earlier this month, we are in the earliest stages of evaluating how Tridelby either alone or in combination could bring new options to people with cancer. In total, we're studying more than 25 combinations including 7 Phase 3 combination studies. On behalf of my KITE colleagues and on Slide 20, I'm pleased to highlight the FDA approval of Yescarta for the second line treatment of relapsed refractory large B cell lymphoma earlier this month. The approval is based on the ZUMA-seven trial data that show that 2.5 times more patients receiving Yescarta were alive at 2 years without disease progression or need for additional cancer treatment This was the first cell therapy approved by FDA for initial treatment of refractory or relapsed LBCL and within 12 months of initial treatment. Yescarta was also added to the NCCN's B cell lymphoma treatment guidelines for these patients.

Speaker 5

Moving to migrolumab on Slide 21, we're very pleased that the FDA lifted the partial clinical holds for our MDS and AML trials And we've resumed enrollment in our 3 pivotal studies. I'll note that the remaining partial clinical holds on DLBCL in multiple myeloma Are being reviewed by different division of the FDA and we're actively working to resolve them as quickly as possible. In the meantime, the impact of these remaining partial holds is limited Since the DLBCL trial was already fully enrolled at the time of the partial clinical hold and the multiple myeloma trial had just initiated. Overall, we're excited by emegrolimab's potential to be the 1st new treatment for first line high risk MDS patients in 15 years and have completed patient enrollment for the 1st interim analysis that we expect to share in early 2023. In the meantime, we look forward to sharing data from our Phase 1b trial high risk MDS and first line TP53 AML with more patients and longer follow-up at ASCO in June.

Speaker 5

Finally, on Slide 22, noting that the timing for the potential submission of TROPICS-two and the NDA decision for Capella are subject to change, there are no updates to the targeted milestones shared with you in January. With our partner, Arcus, we're targeting a number of data readouts in the second half of the year we've added some new trials including STAR-one hundred and twenty one evaluating zembrolumab and damilumab in combination with chemotherapy for frontline non small cell lung cancer and ARC 21 to evaluate the same combination in upper GI malignancies. With that, I'll hand the call over to Andy.

Operator

Thank you, Mehrdad, and good afternoon, everyone. Before I get into the Q1 P and L review and the guidance update, I wanted to touch on the $2,700,000,000 partial in process R and D impairment related to assets acquired from Immunomedics in 2020. This conference call, this had a $1.63 per share impact on our Q1 GAAP results and on our full year GAAP EPS guidance. There is no impact to our non GAAP EPS in Q1 or to our non GAAP EPS guidance for the full year. The TROPICS-two data readout in March, we have reassessed the value of the assets acquired.

Operator

While no final decisions have been made pending discussions with regulatory authorities, As a result of the data, we have taken a $2,700,000,000 impairment to reflect the likelihood of a delayed launch of TRILDEVI for 3rd line plus HR positive HER2 negative breast cancer in the United States as well as Europe and the possibility of a reduced market share in late line patients given the emerging competitive landscape. Prior to today's update, Gilead was carrying $14,700,000,000 for the IP R and D indefinite lived intangible assets Acquired with Immunomedics. This now values these assets at $12,000,000,000 Recall that the carrying value of Delphi reflected 4 potential indications in progress at the time of the acquisition: triple negative breast cancer and hormone receptor positive HER2 negative breast cancer, bladder cancer and non small cell lung cancer. At that time, we knew that Tridelvia's potential extended beyond these indications, But for accounting purposes did not assign value for the incremental opportunities that we are exploring in prostate, endometrial and other solid tumors As well as potential combinations such as with migrolumab, vanilumab and PD-1s like pembrolizumab. As you saw at our oncology deep dive earlier this month, there are 13 TRIDELVY programs targeted for initiation through 2023, including a number of incremental opportunities.

Operator

As a result, we remain confident Tredelvy will deliver an attractive return to our shareholders over time. Moving to Slide 24, the Q1 was a strong start to the year despite the expected seasonality observed in our HIV business Total product sales were $6,500,000,000 up 3% year over year With growth in cell therapy, Veklury, Tridelvi and HIV, offset in part by lower HCV revenue. Of note, FX negatively impacted 1st quarter revenue by almost $100,000,000 net of hedges, Representing approximately 160 basis points of growth. Total product sales, excluding Vectlery, were up 2% from the Q1 of 2021 $5,000,000,000 In HIV, on a sequential basis, we were impacted as expected by the normal seasonality associated with Q1 inventory burn following a build in Q4, in addition to the typical Q1 pricing headwinds that improved throughout the rest of the year. With Q1 now behind us, we expect sequential growth in HIV throughout the rest of the year.

Operator

Non GAAP product gross margin was 87 point 4% for Q1, up 90 basis points year over year, primarily due to lower inventory reserve adjustment. Q1 non GAAP operating expenses were largely consistent with our expectation as we support the expansion of our oncology business. Non GAAP R and D was $1,200,000,000 up 10% year over year and non GAAP SG and A was $1,100,000,000 up 5% year over year, Both primarily due to higher costs associated with Trodelvi. Moving to tax. Our non GAAP effective tax rate in the Q1 was 18.4%.

Operator

Overall, our non GAAP diluted earnings per share were $2.12 in the Q1 of 2022 compared to $2.04 for the same period last year, Reflecting the higher revenue and higher gross margin offset in part by higher operating expenses. On a GAAP basis, our effective tax rate and earnings per share were impacted by the $2,700,000,000 impairment. We are excited about the strong start to the year. And as you can see on slide 25, The only revision to our outlook is to our GAAP EPS, primarily to reflect the $1.63 share impact of the impairment discussed earlier. We now expect GAAP EPS in the range of $3 to $3.50 per share from $4.70 to $5.20 On Veklury, we note the strong revenue start to the year, but also fortunately the significant drop off in U.

Operator

S. Hospitalizations during the Q1 and into the Q2 so far. With that in mind, we will monitor demand through the Q2 and evaluate our full year guidance in the middle of the year. One housekeeping item before we wrap up. Following recent guidance from the SEC, beginning in the Q1 and similar to many of our peers, Gilead will no longer exclude acquired in process R and D expenses from non GAAP financial measures.

Operator

Prior period results have been updated to reflect this new methodology and are shared in our supplementary data posted on the Investor Relations website. As a reminder, our full year guidance does not include the impact of any future upfront payments to reflect the impact of any new corporate development transactions closed in the prior quarter. Moving to slide 26, you can see there is no change for our capital allocation priorities. In the Q1, we repaid $500,000,000 in debt. Additionally, we returned $1,300,000,000 to shareholders through our dividend and repurchase of shares.

Operator

Finally, On M and A, there is no change to our philosophy here either. We are very comfortable with the breadth and the quality of the pipeline that we have built, acquired or partnered And the growth that it will enable in the coming years. With that in mind, you can expect us to continue to opportunistically access high quality assets through partnerships call or make smaller acquisitions in the normal course of business. With that, I'll invite the operator to open the Q and A.

Speaker 1

The queue as time allows. Our first question comes from the line of Michael Yee from Jefferies. Your question please.

Speaker 6

Hey, guys. Thank you. Good afternoon. Maybe I could ask about the planned or potential TRADELRI filing. You note that it's subject to change.

Speaker 6

Maybe you could just describe what you think the conversation is with FDA. Is it a combination of a modest PFS and OS Trend and is there a magnitude of OS trend that you think will be attractive and allow a green light to a filing? Maybe just talk

Speaker 7

a little bit about that and

Speaker 6

what would drive a filing? Thank you.

Speaker 3

Thanks, Michael. I'll turn it over to Bernadette in just a second, but I'd just remind folks that we will be discussing the data more at ASCO coming up There in early June, we look forward to engaging with regulatory authorities in the coming months to further discuss the data and the path forward. Call I'll see if Bernadette has anything to add on that at this stage, but

Speaker 5

Yes, Michael, I think as normal course of business, we'll always discuss The data, the totality of the data with the agency prior to a filing and have that conversation with them. As we've said, the primary endpoint was statistically significant. And so we will have that conversation with them looking at all the data and come to a conclusion based on the feedback we get.

Speaker 3

Right. And we continue to look at earlier lines of therapy and plan those trials to move up in lines of therapy given the results we saw in TROPRIX-two as well And if I'm wrong receptor positive. So thanks a

Speaker 8

lot Michael for that. We have the next question.

Speaker 1

Certainly. Our next question comes from the line of Matthew Harrison from Morgan Stanley. Your question please.

Speaker 7

Hi, this is Charlie Yang on for Matthew. So I guess my question is, is Vectory being currently being used in China and then could they actually benefit from the COVID outbreak there? And maybe if that's the case, can you talk about what's the economics look like over there? Thank you.

Speaker 3

Thanks Thanks for the question. We'll

Speaker 4

go right to Joanna. Hi, Charlie. Thanks for your question. So VACLUREI has been used now with over 11,000,000 patients worldwide, Which I think is really impressive and it's still 1 out of 2 hospitalized patients in the U. S.

Speaker 4

What we are seeing though is trends Of less severe disease and therefore less hospitalizations, but also less treatments. Specific to your question to China, We don't have approval in China at this point in time and we're continuing those discussions with health authorities in light of the fact That's what's going on in China with the pandemic, obviously. I do think the WHO guidelines being updated just most recently is also going to help those discussions, as well. So more to come on that, but not currently in play at this point in time in China.

Speaker 8

Thanks. Thanks. The next question please.

Speaker 1

Our next question comes from the line of Brian Abrahams from RBC Capital Markets. Your question please.

Speaker 7

Hey, there. Thanks so much for taking my question. Sticking with the COVID Anything that new that you're seeing that increases your level of confidence in 5,245's potential for success? And are there any ways to potentially expedite future development of that asset? Thanks.

Speaker 3

Thanks, Brian. I'll hand over to you, Murde.

Speaker 5

Yes, nothing new to report, Brian. It's a great question. We continue to move along really well in our Phase 1 study that's moving forward expeditiously and we are working with the agency to design Phase 2, 3 program and really moving as fast as possible. We've got great partnership with the agency And others are really ready to pounce. So right now, so far so good.

Speaker 8

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

Speaker 1

Our next question comes from the line of Simon Baker from Redburn. Your question please.

Speaker 9

Thank you for taking my question. On HIV, Johnny, you alluded to the market dynamics. I just wondered if you could give us a little bit more color and Update us on how diagnosis rates are now compared to the beginning of the year? And also if you are seeing any initial impact from Glaxo's launch your cabenuva? Thanks so much.

Speaker 4

Sure. So both market and cabenuva. Thanks, Simon, for your question. So let me start with the market. So if you look at the screening and diagnosis levels, they're still somewhat below pre pandemic, but they're definitely catching up.

Speaker 4

I think what we saw in the first half of twenty twenty one was a really depressed market and started picking back up in Q3 and Q4 of last year. What we saw in Q1 of this year despite the Omicron surge, that obviously impacts what we saw quarter over quarter pretty much flat In the U. S. And overall Europe as well, year on year change though, we have 3.6% growth. And I think that's the really that's the signal that we need to watch And since Gilead had close to 75% market share of the total HIV market, I think it's really it's part of our the meeting, we have the opportunity to ensure that we get screening and diagnosis up and make sure we end the said pandemic.

Speaker 4

So more to come on that, but there's a lot of activities the team is taking on To ensure that we get people back in and screened, so that we don't have full fledged cases of age, which unfortunately we've seen in the recent past and you've seen that anecdotally. On the prevention market, it's a little bit different. Prevention market bounces back a lot faster post this pandemic, and we've seen that time and time again after every single surge. So what we've seen quarter over quarter was about a 3% growth in the U. S.

Speaker 4

For prevention, so slightly modest growth, which declined a little bit, but that's the Omicron surge in January, year over year the growth was 33%. And so I think that's Really telling in the sense of how it bounces back much faster post these surges. And that's been kind of consistent year on year as we've seen On your question around Cabanueva, specific to Cabanueva, Treatment share in cabozuva is 0.6%. So no, we haven't seen an impact. What we see is new entrants coming into the market.

Speaker 4

You always see A little bit of switching going on, which is normal. I do think that there's an ask from a patient standpoint. This is the first long acting, so it is exciting. What we're also seeing is a higher than usual drop off rate with Cabanueva as well. And a lot of that share is going to be Tervi back.

Speaker 4

So I do think it's interesting to watch. And I think the more agents on the market, the better, but definitely one that at this point in time, very limited impact to the HIV market share

Speaker 1

Thank you.

Operator

Our

Speaker 1

next question comes from the line of Geoff Meacham from Bank of America. Your question please.

Speaker 10

Hey guys, afternoon and thanks for the question. I had an HIV question for Mehrdad or maybe even Dan. So you've got an increasingly broad pipeline around the And I know getting long acting right is strategically very important to Gilead. So the question is, what's been the main bottleneck so far? Is it a matter Matching up the PKPD for Lena and would you wait to go into a larger scale trial if there was a candidate that

Speaker 8

Thank you.

Speaker 3

Yes. Thanks, Jeff. Appreciate it. I'm going to turn it over to my dad in a second here. But just Remind, for those of you that didn't have the chance to look at the virology deep dive, Dave, we really did spend a lot of time on the entirety of the portfolio and the many shots on goal we have Along with lenacapavir, lenacapavir is a truly unique molecule and presents opportunities and challenges to find exactly the right partner.

Speaker 3

But We certainly have many that will be progressing to the clinic. But Mehrdad, maybe you want to give a little more meat to the context. Sure.

Speaker 5

Yes. I mean, maybe I'll start by saying on the prep side, we obviously don't need to wait for a partner And really at this point, it's about resolving the issues with the Clinical hold. Once that gets resolved, we'll be back in business with the trials and we'll move as fast as possible to get the prep studies completed and get our filing done. In treatment, You're absolutely right. And again, I think you're right.

Speaker 5

We've built the portfolio to provide us numerous options to then combine with Lenacapavir for treatment in a long acting Mode and that's a mix of oral approaches where we could have an oral lung acting molecule or a parenteral Long acting agent. And for parenteral, we're trying to go for longer than 2 months. And for oral, we are looking at Hopefully getting to weekly or thereabouts. So we have a number of candidates that are progressing to show us Essentially, you said it right, which is do they have the right properties from PKPD standpoint, for an oral agent and do they have the right properties Parenterally, including things like injection site reactions and tolerability. So it's less about The ability to inhibit HIV replication, it's more about the molecule and the formulation characteristics that allow us to get 2 long acting therapy.

Speaker 5

And I'll just say again that lanycaprevir is a very unique and special molecule that enables us to do that. Finding another molecule that has those sorts of characteristics is the challenge that we're undertaking.

Speaker 8

Thanks. Can we have the next question please?

Speaker 1

Certainly. Our next question comes from the line of Doug Kim from Piper Sandler. Your question please.

Speaker 11

Hi, thanks for taking my question. I wanted to ask about Yescarta and the launch in second line LBCL. I was hoping you could provide some first impressions of the launch and whether your sense of the demand out there is matching with your expectations.

Speaker 3

Yes. Thanks, Do. We're delighted to have Christy here with us. So we'll hear it from the source here. Yes.

Speaker 2

Thanks. How about

Speaker 8

you, Christy?

Speaker 12

Thanks. So, we're very encouraged, 1st, before the approval, the NCCN guidelines that changed, And now, put Yescarta for LBCL second line as a Category 1, which as you may know, physicians and providers use to identify standard of care. So that happened a month before approval, which is unusual in these times. And then with the approval, Right after the approval, our manufacturing site was approved in Maryland. So we really feel like, we're hitting on all cylinders in terms of really bringing this important therapy to patients.

Speaker 12

And so the second line launch was approved, on a Friday at about 3 pm and on Saturday orders started to come in. So we're already manufacturing commercial product in our site in the Maryland facility. So definitely, it's really early days, obviously, but the demand was Building up, I think when the data came out at ASH in December and we're starting to see the orders come in as soon as we got approval.

Speaker 3

Thanks, Christy, for that color.

Speaker 8

Greg, can we have the next question, please?

Speaker 1

Our next question comes from the line of Cory Kasimov from JPMorgan. Your question, please.

Speaker 13

This is Galvin on

Speaker 5

for Corey. Thanks for taking our questions. Just on Trodelvii label expansion opportunities And lung cancer, in particular, with the EVOQ-two study. It looks like there's multiple cohorts in the study. And we're just curious if, One, is there evidence of synergy with PD-one inhibitors?

Speaker 5

And do you plan on sharing any of that this year? And then 2, are you going to utilize a TRP-two biomarker in any of these cohorts? Thank you.

Speaker 3

Hey, thanks for the question. Mirdav, why don't you cover the Yes.

Speaker 5

Sure. Yes. On the biomarker side, we continue to evaluate the role of TRP2 expression in responses. And as we discussed actually For the breast cancer study in our experience so far, we are not seeing a big impact of TRO2 Certainly then what we're seeing and we do expect expression patterns to be different. So maybe there'll be a different cutoff in a different tumor type.

Speaker 5

So that remains to be seen. In terms of synergy, we are I think that's the nature of where we're going with the studies and that In order to see additive benefit, we need to conduct the larger clinical trials. We do think that coming at it At the tumors with the 2 different approaches, we'll add, I'm always careful about using the term the Synergy, I think that implies a different mechanistic approach. So I do think we expect Additivity of the 2 components and yes, we do feel that we will have Additivity that TRIDELVIEW should bring additional benefit to patients over and above what the Immuno oncology agents PD-one, PD L1 inhibitors bring to the treatment of those patients.

Speaker 3

Great. Thanks a lot, Renata. So let's

Speaker 8

have the next question, please.

Speaker 1

Our next question comes from the line of Robyn Karnauskas from Truist Securities. Your question, please.

Speaker 14

Hi, guys. Thanks for taking my question and congrats on the Yescarta data, by the way. So I just want to maybe play devil's advocate

Speaker 7

a little

Speaker 14

bit On your comments around M and A, I think some investors believe that you have all these great programs, but we're not going to see them read out. And I think you did a good job highlighting that in the Oncology Day. So for near term growth, are you thinking about would you be open to acquiring something that would provide some near term growth to GAAP U before a lot of your TRYVELTY trials and your MAGRIL trials like start reading out. How are you thinking about that as a company?

Speaker 3

Thanks, Robin. I'll start and then maybe Andy can add. But I appreciate you bringing that up. I think it's been a really purposeful strategic Approach that we've taken over the past last 3 years to build our oncology portfolio beyond cell therapy, which is obviously now has a history with us for almost 5 years. And I just remind the folks on the phone that in addition to whatever is acquired at the time of the acquisition in terms of trials and potential and capability of that size organization, naturally when a large organization acquires, particularly these pan tumor potential molecules, You begin really the process of extending the potential for that medicine alone in late lines, earlier lines and in combination I think actually Kite is a terrific example of that going back now 5 years post the acquisition.

Speaker 3

And I appreciate Robin that Congratulations on Yescarta, but to see the potential for a technology like cell therapy And the leadership that Kite took by bringing this up in the earlier lines of therapy and the number of patients, of course, then that you can impact on With a potentially curative therapy is exactly kind of the playbook that we will be we are pursuing right now with Trodelvi with megrolumab and obviously with the combination of Arcus Which albeit are a bit earlier in the process. So I think we always have to remember the timeframe and which one evaluates the success of M and A. The other thing I would just say is that, of course, we constantly are looking to complement that. I mean, the bar is much higher now for BLA than it was several years ago because the capabilities and opportunities we have and then the bandwidth that any one company can do. But you see on the bandwidth side, we're also doing a lot of collaborations with other companies, Including folks like Merck who are operationalizing, in fact, a study of ours with Trodelvy.

Speaker 3

So there's different ways I think to work on the bandwidth. But we will constantly be looking Different types of opportunities out there that complement our virology, our oncology and our early inflammation program To add those to the growth story that we are creating here at Gilead, I'll just I know Andy spends a lot of time thinking about this. I'd love Andy's additional thoughts on this call.

Operator

Thanks, Dan, and thank you, Robin, for the question. Look, I would just go back to start with fundamentally, We have a lot of confidence in where we are in our growth profile today. And I think it's fair to say that the market maybe underappreciates the the quarter, we have a very strong growth in our business, and this is just the beginning from our perspective. So there are always things that we can do to work on our growth profile. But when you look at the strength of the HIV business, What we're seeing in our oncology business, hopefully that gives you a sense of why we as a management team have so much confidence about not only where we are today, And we recognize to your question that the growth profile should get meaningfully better in the next couple of years as the portfolio matures in the way that Dan was describing.

Operator

So while we will look at things, including commercial assets, as you know, those are far and few between. Many of them are expensive, and that's not really where our focus this, we really genuinely believe we have everything that we need today to be a leading growth company in the sector and it's just going to take a little more time, but we're definitely seeing all the right signs that we are looking for is the management team. So, you should not expect that we're going to go out chasing commercial assets or large deals, the guidance is very clear. It's ordinary course partnerships, maybe smaller commercial acquisitions. Again, we'll be opportunistic, but That's not where our focus is today.

Operator

Thank you.

Speaker 3

Thanks, Angela. The last thing I'd say in addition to the molecules in the medicines, the expertise that we're bringing into Gilead Because that's really critical in any company that we've all as a leadership team worked in is really getting the right teams together At the right time to make sure we're making the right choices and decisions on the portfolios as we move forward. So that's a really big focus for us And we're really pleased with the progress we're making there. So with that,

Speaker 8

let's have the next question please, Jonathan.

Speaker 1

Certainly. It comes from the the line of Umer Raffat from Evercore. Your question please.

Speaker 15

Hi, guys. Thanks for taking my question. I just wanted to expand on a prior question on oral remdesivir. And Dan, Miradette, it feels like the pace at which this program is moving forward and the sort of the timeline to the pivotal trial start and the amount of time it will take, it feels Materially slower than how paxlovid and molnupiravir moved. So I guess my question is, what are the expedited pathways you guys are thinking about when talking to FDA, because presumably a 505(2) path is not unreasonable given the public health emergency and or Maybe even an active comparator trial versus Paxlovid established non inferiority relatively fast, given the pace at which infections are happening right now.

Speaker 15

So there's a path where this could all wrap up this summer. Is that too accelerated in your view?

Speaker 3

Yes, Umer, I'll start Now I'll hand over to Murdad. So first of all, I mean, just to reinforce this message for everybody on the phone. I mean, we are absolutely moving With tremendous focus and speed and of course we have great lessons within our organization. Remdesivir was arguably the fastest Development of an antiviral that's ever occurred from standing still Essentially to an approval in the United States. So and as you know, we've got a lot of experience from that in terms of working both corporate groups around accelerating trials With the FDA around pursuing unique regulatory path and those learnings and those lessons, I just want to say are certainly being put to use now For, 5,245.

Speaker 3

Having said that, we're of course at a very different stage of the pandemic at this stage. And therefore, both from a regulatory perspective and also our ability to Through clinical trials, particularly with a somewhat waning pandemic in the developed world, has implications on the path And with that, maybe I'll turn it over to Matt Murdad on any other details he wants to add.

Speaker 5

Yes. I mean, not much that Chad, other than I think that our Phase 1 study is moving very quickly. It's moving very nicely without any issues. I know, Umer, you've asked about the 505(2) approach in the past. As you can imagine, those are all the avenues you've mentioned are all avenues that we've thought about and explored.

Speaker 5

And so we will move with the fastest pathway available to us. And that's the nature of the discussions we're having with the agency.

Speaker 3

Thanks for the encouragement, Umer.

Speaker 8

Let's take the next question.

Speaker 1

Our next question comes from the line of Evan Seigerman from BMO Capital Markets. Your question please.

Operator

Hi guys. Thank you so much for taking the question. It might be a combo one Andy and Mehrdad, so can you walk me through some of the math behind the $2,700,000,000 write down? Maybe How some of the data you've seen inform the magnitude of the impairment? I'm just trying to square, how your assumptions may have changed from August of 2020 to now Based on data updates that we've had.

Operator

Hey, Evan, it's Andy. Thanks for the question. It's a great question. Look, it's relatively simple. And the backup, remember, this is an accounting construct that we are required to reassess the value even before we have the discussions with the regulatory authorities.

Operator

So I just want to back up and reiterate what we said when the data came out. The study was positive. This is strong data. There was a range of outcomes that we fact that when we did the deal, this was within the range of outcomes, but it wasn't at the point that we had modeled specifically because we are required to when we Put together the intangible indefinite lived asset schedule after the acquisition. So, it's a very simple model too.

Operator

So the key by the way is our valuation and we have discussions in the coming months with the FDA Could change again, of course, and we'll have to continue to look at the valuation of the assets that are still sitting on the balance sheet, which is the valuation attributed to hormone receptor positive, HER2 negative breast cancer and non small cell lung cancer over the coming years as you'd expect consistent with any business combination transaction. But it's relatively simple. It's your standard probability weighted discounted cash flow analysis where you look at the probability of approval. We are assuming, Evan, I think this is the key for you. We took a conservative approach when we are looking at this and assume that there is not a path forward Based on the PFS data and that we need to wait for overall survival, even though we're not certain that that's the case and we will know more in the coming months.

Operator

So for purposes for the accounting treatment, we had to make a call and that's the call that we made and that leads to the $2,700,000,000 The other things I would add is, We had TRODELVI related IPR and D of $14,700,000,000 at the end of 2021, a little over half that, or $8,800,000,000 of it related to hormone receptor positive HER2 negative breast cancer, the remainder was non small cell lung cancer. And again, we're already In the other indications that are approved, we're already amortizing that. Those are now finite lived assets. So now we have $6,100,000,000 relating to the cash What was expected from 3rd line plus as well as the earlier line hormone receptor positive breast cancer indication. So Hopefully, that gives you a little bit of color.

Operator

And again, I'd reiterate what we said on the call, which is when we did this originally, when we did the acquisition, we highlighted explicitly that we were going to explore other tumor types and combinations that were not part of our deal model, there was no need to build them into the deal model from bottoms up. So when you step back, More importantly, outside of the accounting construct, we continue to believe that there are many, many paths forward to create a lot of value Thank you for your patience and for our shareholders with this. So I'm happy to take it offline if it's helpful to give you more color.

Speaker 3

Yes. Thanks a lot, Andy. I mean, Evan, I think the bottom line is that, Again, we took a somewhat conservative approach in the absence of having regulatory discussions so far. We thought it was a prudent thing to do. And to Andy's point, I mean, this is an evaluation of value at the time of the transaction, which of course, several years later in terms of the indications, the combinations, It's never, as you know, reflected in the initial accounting treatment of it.

Speaker 3

So Hopefully, there's plenty of information there in our press release and more than happy to take it up with you as well. So thanks, Evan, for that.

Speaker 8

Let's have the next question, please.

Speaker 1

Our next question comes from the line of Tyler Van Buren from Cowen. Your question please.

Speaker 10

Hey there. Good afternoon and thanks for taking the question. Can you please give us your latest thoughts regarding a successful outcome for the DAMA-seven trial when we get the Phase 2 PFS data later in the year? And related to the readout the upcoming Roche results, what are you most interested in seeing other than the primary endpoint?

Speaker 3

Thanks a lot, Tyler. So, I'll take it over to Murde, please.

Speaker 5

Sure. Excuse me. Hi, Tyler. Yes, I think our Thinking has been that daminilumab as a TIGIT agent will add to the ORR. But to your point, It's not only that that we would be looking for.

Speaker 5

And what we would be hoping for In addition to the overall response rate, it's going to be the depth of the responses and the durability of responses, right? So Those are the factors that we'll be looking for. We will also be looking to see what the Roche data looks like When it comes out at ASCO to see what they've seen is sort of a benchmark, if you will. But those are the various the factors we'll be looking for, obviously tolerability is going to be in there as well and the overall profile.

Speaker 3

Thanks, Bruno. Thanks, Tyler. Let's have

Speaker 8

the next question please, Jonathan.

Speaker 1

Our next question comes from the line of Mohit Bansal from Wells Fargo, your question please.

Speaker 13

Great. Thanks for taking my question. And maybe a question for Andy regarding OpEx. So Andy, you mentioned that in 1Q, there was a $100,000,000 impact. And then since you provided the guidance, I mean, U.

Speaker 13

S. Dollar has been strong, about 7% U. S. Dollar to European euro decline. So just What I'm trying to understand is how much of the FX impact you are absorbing in this guidance which you are maintaining right now?

Speaker 13

From my math, it could be $300,000,000 plus. But if that means that this base business is really stronger than you anticipated, if you could help us understand where this trend is coming from? Thank you.

Operator

Sure. That's a great question, Mohit. I'm happy to take it. Look, it's relatively simple and that you're absolutely right. And even in April, we've seen a continued deterioration of exchange rates or strengthening of the dollar, which impacts the revenues coming from our European business.

Operator

So to be clear, the $100,000,000 impact was a year over year comparison Q1 to Q1. Joanna and I are watching the budget impact of the exchange rates very carefully. And part of the confidence Maintaining the guidance is that, yes, there are FX headwinds. There are also, for instance, related to your question, there's also change in the accounting treatment of in process R and D, which will lead to additional expenses from upfront payments that weren't previously part of how we reported non GAAP earnings, on the flip side, there are parts of our business that are outperforming. Again, think of the strength of Vectlery that we've seen so far.

Operator

So Joanna and I and the rest of the management team will look at the puts and takes of this in the middle of the year and we'll provide a more thoughtful update. But I think the key for you is recognizing the couple of things that have changed that could impact negatively our EPS our GAAP and non GAAP EPS, there are also things that will have additional strength we expect the call over the course of the year that will offset that to some extent. And so we'll give you additional color later in the year, but we're very comfortable maintaining our guidance where we are today. Hopefully that helps.

Speaker 3

Thank you very much, Andy. Let's have the next question please.

Speaker 1

Our next question comes from the line of Collin Doe from UBS. Your question please.

Speaker 16

Hey, good afternoon and thanks for squeezing me in. Just a quick one, just following on the TIGIT and adenosine I just wanted to really understand where your what is it you're most enthused about and how you're just thinking about this Strategically, is it the TIGIT and PG-one doublet that you really see the value, but there's some concern about market timing? Or Are you absolutely excited about the triplet data? Can you just help me through that? Thanks.

Speaker 8

Thanks, Colin. Renee, go ahead.

Speaker 5

Sure. Look, I think, we obviously are going to be looking at across all the data, across all the assets. Maybe the way I would say it is that we're seeing the TIGIT PD-one Combination as likely to be, sort of the benchmark or the basis for treatment, At least in lung cancer and potentially more broadly. And as such, our hope is to have A great combination there to make sure that we then have something to which we can add Other potential agents that could bring us to even better responsiveness. So whether that's adenosine or TRIDELVY or Something else in our pipeline, I think those are all options for us to consider, but we're seeing, I would say The floor is being raised is our belief and that that TIGIT PD-one combination becomes sort of the baseline that we need to aim for.

Speaker 3

Thanks. Very nice conceptual there. So out of respect for everybody's time, we'll take one last question. Jonathan, can we have the last question, please?

Speaker 1

Certainly, our final question for today comes from the line of Salveen Richter from Goldman Sachs. Your question please.

Speaker 10

Hey, thanks. This is Matt on for Salveen. Thanks for squeezing us in. Just to go back to TIGIT real quick. You and Arcus have previously noted that you'd want to see an ORR greater than 50%.

Speaker 10

But what would you like to see on PFS and most importantly OS? It seems like 30 plus months might be sufficient on OS given KEYTRUDA mono data and maybe a year plus for PFS. It would be great to hear your thoughts on this. Thank you.

Speaker 5

Well, what I would say is those milestones, I would agree with the milestones that you've got there. And it's important to remember that those milestones will take time to play out. And we are going to make our bets Without being able to look at OS for 30 months, right? We're going to have a less mature dataset from which to make that decision. So you're absolutely right that we will be looking at all of those things.

Speaker 5

The driver will be to see That again tolerability and a benefit as far as the overall response rate this is concerned and look for benefits in the depth and duration of response, that we can garner from the data set at the maturity that we will have when we look at it. And there I would just say, we'll be in a sense watch our actions because you'll be seeing The studies will be getting underway and that should give you a sense of our confidence in those assets.

Speaker 3

With that, I just want to thank everybody. I really appreciate the attention today for the couple of deep dives we've had. We look forward to chatting with you at Q and A session, we will now open the call for questions.

Speaker 2

Thank you all for joining us today. We do appreciate your continued interest

Speaker 1

Thank you,

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Earnings Conference Call
Gilead Sciences Q1 2022
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