Chief Financial Officer at Gilead Sciences
Thank you, Merdad, and good afternoon, everyone. Before I discuss our second quarter results and starting on slide 22, I would like to remind everyone that following the SEC guidance earlier this year, similar to our peers, acquired in-process R&D expenses or IP R&D, including upfront payments for business development transactions, are now included in our non-GAAP financial measures and reported under acquired IP R&D. As a reminder, the $300 million payment associated with the Dragonfly collaboration announced in May is included in our Q2 results but was not reflected in our prior 2022 full year guidance. Additionally, we have shifted prior period milestone and opt-in payments from R&D to acquired IP R&D.
We believe this presentation better reflects the total costs incurred to acquire IP R&D projects. The most notable example is the $625 million opt-in payment we made to Arcus that we reported in the fourth quarter of last year. There are a few other smaller payments that have been moved, and this slide highlights the changes that you'll now see reflected in our 2021 P&L. I'll further note that this change impacts our 2022 R&D guidance because our R&D guidance is given relative to our 2021 results. I'll touch on that again later in this call. Moving to our second quarter results, starting on slide 23. This was a very strong quarter with a notable contribution from both our HIV and our oncology businesses.
As expected, Veklury sales were substantially lower sequentially and year-over-year, reflecting the lower COVID hospitalization rates in the quarter. Total product sales, excluding Veklury, were up 7% year-over-year. Foreign currency impacted second quarter sales, excluding Veklury, by approximately $65 million net of hedges. If we exclude this impact as well as the impact of the HIV LOEs, total underlying sales growth year-over-year was 11% in the quarter. For the first half, total product sales growth excluding Veklury was 5%. Also excluding FX and the impact of the HIV LOEs, underlying growth for the first half was 8%. Back to our reported results on slide 24.
Johanna took you through our revenue results and the drivers there. Non-GAAP product gross margin was 85.6% for the second quarter, down 80 basis points year-over-year, primarily due to the Biktarvy-related royalty following the settlement in the first quarter of this year. Non-GAAP R&D excluding acquired IP R&D expenses, such as milestones and upfront payments, was $1.1 billion, up 6% year-over-year, primarily due to increased investment in development and timing of clinical trial activities, primarily for our oncology business. Acquired IP R&D for the quarter was $330 million, including $300 million related to the Dragonfly collaboration.
Non-GAAP SG&A was $1.3 billion, up 13% year-over-year, primarily due to increased promotional and marketing activities, including for Trodelvy as well as higher corporate expenses, including IT investments and grants. Non-GAAP operating margin was 43%, reflecting higher operating expenses and the upfront Dragonfly payment. Excluding the Dragonfly payment, non-GAAP operating margin was 47.5% for the quarter. Moving to tax. Our non-GAAP effective tax rate in the second quarter was 19.3%. Our non-GAAP diluted earnings per share was $1.58 in the second quarter of 2022 compared to $1.81 for the same period last year, reflecting the Dragonfly payments which represented $0.18 on a post-tax per share basis as well as the Biktarvy-related royalty.
Overall, we had a strong first half of the year, as shown on slide 25, with growth across HIV, cell therapy and Trodelvy, offset in part by HCV. Of note, currency headwinds impacted the first half total product sales by approximately $180 million net of hedges compared with the first half of 2021. Moving to slide 26. We are increasing our full year sales guidance to reflect our year-end -- or our year-to-date results and our expectations for the second half, including our expectations for FX. In addition to the impact in the first half, we expect continued FX headwinds in the second half, impacting total product sales by approximately $200 million in the rest of the year compared to our initial February guidance.
For revenues, we now expect total product sales of $24.5 billion to $25 billion compared to our previous range of $23.8 billion to $24.3 billion. This reflects the strong performance year-to-date, notably very strong growth in cell therapy and HIV, and it also incorporates our expectations for the broader macro environment. In HIV, we expect modest sequential growth in the third quarter, keeping in mind the strength we experienced in the second quarter. And in cell therapy, we expect flat to modestly higher revenue in the third quarter compared to Q2. Following the launch bolus of orders we experienced in the second quarter, we expect demand to stabilize.
Moving to Veklury. And with the first half revenue of almost $2 billion, we're increasing our expectations to approximately $2.5 billion for the year. Following inventory drawdown in the second quarter, we expect sales to increase sequentially in the United States and to continue to track hospitalization rates. Note that our Veklury guidance assumes no significant increase in hospitalization rates from Q2 levels. Excluding Veklury, we expect our total product sales to be $22 billion to $22.5 billion, representing growth of 3% to 5% year-over-year and compared to our prior range of $21.8 billion to $22.3 billion. As for the rest of the non-GAAP P&L, there is no change to our product gross margin guidance range of 85% to 86%. R&D, as described earlier, will no longer include BD-related payments such as milestones and opt-in fees.
These will be reported as acquired IP R&D along with upfront payments. With this change, we have moved $762 million of full year 2021 expense from R&D to acquired IP R&D. As a result of this change, we now expect full year R&D expense to increase by a mid-single-digit percentage compared to the new 2021 baseline of $4.5 billion. Our expectations for full year R&D expense remained largely unchanged from the start of the year, and this guidance revision reflects only the recasting of acquired IP R&D items, including Arcus, previously reported in R&D in 2021. Moving to acquired IP R&D. We are not issuing guidance for the full year and similar to what we did with the Dragonfly deal this quarter, we'll update our EPS guidance quarterly as needed to reflect any relevant activity during the quarter.
What we have included here is the year-to-date acquired IP R&D amounts. For SG&A, with our continued investment across our commercial organization and expectations for higher costs as a result of inflation, we now expect SG&A expenses to grow by a low single-digit percentage compared to 2021. Altogether, we expect operating income to be $11 billion to $11.6 billion for the full year compared to $10.7 billion to $11.5 billion previously. Similarly, we now expect our non-GAAP diluted earnings per share to range between $6.35 to $6.75, up from $6.20 to $6.70 previously. On a GAAP basis, we expect our diluted earnings per share to range between $2.90 and $3.30 compared to $3 and $3.50 previously, primarily reflecting net unrealized losses from strategic equity investments.
As a reminder, this revised EPS guidance reflects the $300 million upfront payment associated with the Dragonfly collaboration we announced in May, which was not included in our previous guidance as well as our FX expectations and operating expenses for the second half. The guidance share today does not include additional upfront payments related to normal course of business partnerships or licensing deals that we might announce in the third or fourth quarters. As discussed previously, we will continue to update our guidance as needed to reflect the impact of any new business development transactions closed in the prior quarter.
Finally, on slide 27, you can see there is no change to our capital allocation priorities. In the quarter, we returned almost $1 billion to shareholders, including $920 million in dividend payments. And just after the close of the quarter, we repaid $1 billion of debt, fulfilling our commitment to repay $1.5 billion of debt this year. I'm pleased to share that as of July 1, we have returned to the same debt level we were at prior to the Immunomedics acquisition.
With that, I'll invite the operator to open the Q&A.