Gilead Sciences Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

Key Takeaways

  • Raised full-year guidance for base business product sales to 6.5%–8% growth, adding $550 million at the midpoint to offset lower Veklury expectations.
  • Q2 product sales excluding Veklury grew 11% year-over-year to $6.3 billion, driven by HIV (+9%) and oncology (+38%), with oncology now at a ~$3 billion annual run rate.
  • Secured regulatory approvals or positive opinions for six therapies—Trodelvy, Yescarta, Tecartus, Sunlenca, Hepludex and Vakluri—underscoring portfolio diversity.
  • Veklury sales dropped 43% year-over-year to $256 million as COVID-19 hospitalizations declined, leading to a lowered full-year Veklury sales outlook of ~$1.7 billion.
  • Discontinued the Phase 3 ENHANCE trial of migrolimab in high-risk MDS due to futility, marking a setback in the oncology pipeline.
AI Generated. May Contain Errors.
Earnings Conference Call
Gilead Sciences Q2 2023
00:00 / 00:00

There are 18 speakers on the call.

Operator

Hello, everyone. Thank you for attending Gilead Sciences' 2nd Quarter 2023 Earnings Conference Call. My name is Sierra, and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Jackie Ross, VP of Investor Relations.

Operator

Please proceed.

Speaker 1

Thank you, operator, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the Q2 of 2023. The press release, slides and supplementary data are available on the Investors section of our website atgilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day Our Chief Commercial Officer, Joanna Mercier our Chief Medical Officer, Mehrdad Parsi and our Chief Financial Officer, Andrew Dickinson. After that, we'll open the call to Q and A, where the team will be joined by Cindy Paretti, the Executive Vice President of Kite.

Speaker 1

Before we get started, let me remind you that we will be making forward looking statements, including those related to Gilead's business, Financial condition and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, Financial projections and the use of capital and 2023 financial guidance, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks Can be found in the earnings press release and our latest SEC disclosure documents. All forward looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward looking statements. Non GAAP financial measures will be used to help you understand the company's Underlying business performance. The GAAP to non GAAP reconciliations are provided in the earnings press release, in our supplementary data sheet, as well as on the Gilead website.

Speaker 1

With that, I'll turn the call over to Dan.

Speaker 2

Thank you, Jackie, and good afternoon, everyone. As always, we appreciate you taking the time to catch up with Gilead in the midst of a busy earnings period. This was another very strong quarter for Gilead in their dedication to improving the health of individuals and communities worldwide. Total product sales As we look to the full year, we are increasing guidance for total product sales. We now expect even stronger growth in our base business of 6.5% to 8%, which is expected to more than offset our revised expectations for VICLARE.

Speaker 2

As a result, our guidance for base business product sales has increased $550,000,000 at the midpoint. In the Q2, HIV contributed about 2 thirds of the $615,000,000 growth In our core business, growing 9% year over year. Oncology grew 38% year over year And with product sales of $728,000,000 in the second quarter, now has an annual run rate of approximately $3,000,000,000 Moving to clinical progress, the 2nd quarter was very active on the regulatory front With approvals, positive opinions or recommendations for 6 of our therapies: TRIDENTLLVI, YESCARDA, TRICARDIS, Sunlenka, Hepludex and Vakluri. This regulatory progress highlights the strength of our increasingly diverse portfolio. It also reflects the ability of our teams to successfully navigate regulatory processes across the therapeutic areas and key geographies With speed and efficiency.

Speaker 2

In addition to this progress, we shared positive pipeline updates at ASCO, which included Overall survival data for Yescarta, the only large B cell lymphoma cell therapy to demonstrate significant overall survival benefit Versus standard of care in the 2nd line setting, promising Trodelbi data in endometrial cancer, reinforcing our belief in Trodelbi as Cornerstone asset with pan tumor potential and updated TIGIT data from the full study population of ARK7 Establishing dombanilumab's proof of concept in lung cancer. We have also shared long term data for HEPLUDEx for hepatitis delta virus, Showing improved response rates at week 96 compared to week 48. These data support new guidelines recommending Hepludex We know that some pipeline setbacks are to be expected. As we announced last month, we have discontinued the Phase 3 ENHANCE study In higher risk MDS due to futility in a second interim analysis. As you know, MDS is one of the most intractable forms of blood cancer and we are disappointed that the study was not able to deliver new hope for patients with the disease.

Speaker 2

We will take a thorough data driven approach regarding next steps as we carry out the ongoing analysis of migrolumab. Overall, we are executing well on our clinical commitments and our current performance speaks to the strength of our combined oncology portfolio. We have a rich pipeline of activity in the second half, including an initial look at a subset of evolco2 data On TRODELBI plus pembro in first line metastatic non small cell lung cancer. Before I hand over to Joanna, I'd like to welcome Cindy Peredy, our Head of Cell Therapy, to our first Gilead earnings conference call. Cindy has now been with Gilead for 2 months and brings a wealth of oncology and leadership experience from Roche Foundation Medicine and the Sarah Cannon Research Institute.

Speaker 2

We're delighted to have Cindy join our Gilead leadership team, and it's great to have her with us on the call today. With that, I'll hand the call over to Joanna for a discussion of our commercial results. Joanna?

Speaker 3

Thanks, Dan, and good afternoon, everyone. The Q2 was another strong quarter for Gilead with solid performance across our commercial portfolio leading to an increase in our Full year expectations for both the base and overall business. For the Q2 of 2023, as shown on Slide 7, Total product sales excluding VICLARY grew 11% year over year to $6,300,000,000 with year over year growth in each of our core franchises. This represents the 7th consecutive quarter of year over year growth for our base business, reinforcing the strength of our virology and oncology portfolios. The strong growth more than offset the decline in VACLURI sales, which were as expected given the lower hospitalizations.

Speaker 3

Altogether, total product sales including VEGLIRI was $6,600,000,000 up 7% year over year. Starting with HIV on Slide 8, 2nd quarter sales of $4,600,000,000 were up 9% year over year, driven by higher average realized price in part due to channel mix and higher demand, partially offset by lower channel inventory. Quarter over quarter, sales were up 10% driven by favorable pricing and inventory build following the typical first quarter dynamics. Overall, the global HIV treatment market continues to grow in line with our expectations of 2% to 3% annually. Specifically in the U.

Speaker 3

S, the market overall grew more than 2% in the first half of the year compared to the first half of twenty twenty two, reflecting growth in the non retail channels more than offsetting a roughly flat retail market. HIV product sales grew 11% in the first half of twenty twenty three compared to the first half of twenty twenty two, Helped by favorable pricing dynamics, including the phasing of certain government purchases and channel mix. Looking forward, We expect HIV product sales growth to more closely mirror market growth in the second half. Therefore, we are increasing our full year expectations for HIV And now expect full year HIV product growth for 2023 to be modestly higher than the 5% we reported in 2022. Turning to Slide 9.

Speaker 3

Biktarvy sales of $3,000,000,000 were up 17% year over year, driven by higher demand and favorable pricing dynamics, partially offset by lower channel inventory. With the market share up almost 3% year over year in the U. S, Biktarvy remains the treatment of choice for HIV with more than 46% market share. This represents the 20th consecutive quarter of share gains in the U. S.

Speaker 3

With a year over year growth rate that has once again outpaced new and existing regimens. Similarly, we continue to see solid share gains across other major markets as Biktarvy maintains its leading position for new starts as well as for those switching therapies. Descovy sales were $516,000,000 up 12% year over year. With awareness and utilization of HIV prevention higher than ever, the U. S.

Speaker 3

Market grew once again. And amid This growth, we're pleased to see strong demand for Descovy for prep, up 14% year over year in the U. S. With a strong market share that has remained over 40%. With this strong foundation, we look forward to potentially adding lenacapavir as a 6 monthly subcutaneous option for prevention as early as 2025.

Speaker 3

Moving to the liver disease portfolio on Slide 10, sales were up 4% year over year and 5% quarter over quarter to $711,000,000 We remain committed to eliminating HCV globally With our market leading portfolio of medicines and our efforts to increase awareness contributed to higher patient starts in the U. S, Europe and Asia in the 2nd quarter. HBV and HDV also contributed to growth in the liver disease portfolio driven by higher demand. Liver disease remains an important part of our portfolio, benefiting 100 of 1000 of patients. We're pleased to have received full marketing authorization for hepudex in HDV in Europe, a further recognition of the benefit this medicine brings to patients We have very limited therapeutic options.

Speaker 3

Across our portfolio of HCV, HBV and HDV products, The liver disease contribution to our commercial performance continues to stabilize overall to a run rate of more than $2,500,000,000 in sales a year. On to Slide 11. VACLEARY sales declined in the 2nd quarter as expected reflecting lower hospitalization rates With sales of $256,000,000 down 43% year over year. For those patients hospitalized and treated for COVID-nineteen, a majority Continue to receive Veklury, a testament to Veklury's robust clinical profile. Most recently, This has included decisions by the U.

Speaker 3

S. FDA and the European Commission to expand Vectlery's indication to reach patients with renal impairment, including those on dialysis. Moving to oncology on Slide 12. It is remarkable to observe that in less than 5 years, Our oncology business has grown from less than $300,000,000 and is now approaching an annualized run rate of $3,000,000,000 with tens of thousands of patients treated with Gilead and KITE oncology therapies to date. Beyond our well established leadership in cell therapy, We have the only TROPE-two directed ADC on the market with TRUDElvi and combined our oncology portfolio extends the options for patients in 8 indications.

Speaker 3

Looking in more detail at Trudelby on Slide 13, sales were up 63% year over year and 17% sequentially to $260,000,000 representing an annual run rate that exceeds $1,000,000,000 We continue to be very pleased with the launch We look forward to reaching even more patients in Europe following last week's marketing authorization from the European Commission. Additionally, we're beginning discussions with health authorities in Japan with plans to file for approval in metastatic triple negative breast cancer later this year. With a strong field force in place and robust data sets across multiple tumor types, Tudelby remains well positioned to maintain and expand its reach. And Gilead continues to build on our experience in breast and bladder cancers with a view to other indications over time as the development program evolves. Turning to cell therapy on Slide 14.

Speaker 3

Sales in the 2nd quarter were $469,000,000 up 27% year over year and 5% quarter over quarter. Yescarta showed continued growth With sales up 29% year over year to $380,000,000 primarily driven by strong underlying demand in the second and third line settings Tecartis sales were $88,000,000 up 21% year over year, reflecting increased demand for relapsed or refractory adult acute lymphoblastic leukemia as well as mantle cell lymphoma, primarily outside of the U. S. We are excited about the opportunity ahead as the body of evidence supporting broader adoption of The work that Kite has been leading to raise awareness and adoption of cell therapy will be accelerated by other providers as they ramp up their manufacturing capabilities. This overall expansion in supply will predictably impact our market share in the near term, But overall, cost share is the most important driver of our business over time.

Speaker 3

As cell therapy is offered and delivered to more patients, We are confident that Kite Cell Therapies will remain differentiated in terms of our manufacturing reliability and efficacy. Wrapping up the Q2, I'd like to acknowledge the commercial teams and our partners across Gilead and Kite that once again delivered an extremely strong performance, reflecting both solid execution and the compelling portfolio of Gilead products that positively impacts millions of people around the world. And with that, I'll hand the call over to Murdad for an update on our pipeline. Murdad?

Speaker 4

Thank you, Joanna. I'm pleased to highlight the ongoing progress our teams have made with 64 ongoing clinical programs and 21 Phase 3 trials. Notably, we presented multiple positive data readouts at medical conferences in the Q2, such as updated overall survival data for Tridelby in pretreated HR positive HER2 negative metastatic breast cancer, OS data for Yescarta in second line relapsed or refractory large B cell lymphoma and long term data from blebrotide in HDD. As we move into the second half of twenty twenty three, we remain focused on execution, Investing in capabilities to increase our productivity and portfolio prioritization. We also look forward to sharing an update on Tridelvia in non small cell lung cancer, Including YveloCo2 data at World Conference on Lung Cancer in September.

Speaker 4

Turning first to virology on Slide 16, We're proud of the role Gilead has played in transforming HIV care. We continue to innovate based on our commitment to both the HIV community and to those who could benefit from a prevention regimen Our unique profile of lenacapavir, our 1st in class capsid inhibitor enables the 8 prevention and treatment clinical programs we're focused on. In HIV treatment, the ARTISTRY-one trial evaluating oral Once daily bictegravir and lenacaprevir combination regimen is progressing well. We expect to provide an update on the Phase 2 portion of the study later this year. This novel regimen aims to provide an effective and simpler regimen for the 6% to 8% of biologically suppressed individuals who are currently on complex Multi tablet regimens to manage their HIV.

Speaker 4

We continue to advance in our goal of providing longer acting HIV treatment Through the development of Lenacapavir combination regimens with integrase inhibitors, NRTIs and NRTI as well as the Phase 2 study of our 2 broadly neutralizing antibodies. In HIV prevention, recruitment for our Phase 3 purpose 1 And 2 clinical trials evaluating every 6 months single agent subcutaneous linacapabir continues to exceed our expectations in the Q2. We look forward to potentially providing a data update in the late 2024 to early 2025 timeframe as we target approval in late 2025. Moving on to Slide 17, I'm pleased to note that the European Association For the Study of the Liver or EASL Has updated its HDV guidelines to recommend that all patients in the EU with chronic HDV infection should be considered for antiviral treatment. Recently, HEPCLUDEX was granted full approval by the European Commission and remains the only approved therapy for chronic HCV infection in the EU.

Speaker 4

The updated guidelines were supported by HEP Codex's 48 week data, which were published in the New England Journal of Medicine in June. Iliad also presented data demonstrating that 96 week treatment with blilebrotide improved biologic and biochemical responses With no evidence of treatment emergent resistance, including in those who were previously non or partial responders. These data reinforce our confidence in vilevratide And it's potentially longer term benefit for patients with HDV. As a reminder, vilevratide is not yet approved in the U. S.

Speaker 4

Turning to oncology on Slide 18. TRODELBY remains the 1st and only approved TROP-two directed ADC with indications across 3 tumor types. It's also the only TROP-two directed ADC to show overall survival benefit versus chemotherapy in 2 tumor types. We've now treated over 20,000 patients and evaluated more than 2,300 patients in our clinical trials. Tridelvi's robust dataset informs a well characterized safety profile with low discontinuation rates observed across multiple indications And no required increasing monitoring for severe interstitial lung disease.

Speaker 4

At ASCO, we presented additional data demonstrating Tridelby's potential, including in pretreated HR positive HER2 negative metastatic breast cancer, We presented the final analysis from our Phase 3 TROPICS-two trial supporting the marketing authorization we just received from the European Commission last week. In bladder cancer, we shared an analysis of TROPHY-one supporting Tridelby's efficacy in post platinum, Post IO metastatic urothelial cancer across a range of TROP-two expression. With our accelerated approval in bladder cancer, We hope to provide a data update from the ongoing confirmatory Phase 3 TROPICS-four trial and initiate global filings for TRODALBI in metastatic urothelial cancer by the end of next year. In heavily pretreated endometrial cancer, we presented promising efficacy data From our Phase 2 TROPICS-three basket trial demonstrating the expanding pan tumor potential of Trodelvi. Moving to Slide 19, our comprehensive clinical development program in non small cell lung cancer includes several signal seeking and ongoing Phase 3 clinical trials.

Speaker 4

We know non small cell lung cancer is not only an area of significant unmet need As a number one cause of cancer related deaths, but also an area we believe Tridelby has the potential to transform standard of care as a combination partner To an IO backbone in the first line setting as well as a single agent in the post IO setting. On Slide 20, we highlight the growing number of lung related catalysts. I'm particularly excited to highlight that we've added a new milestone With a preliminary readout from our Phase 2 EVOCO-two trial at the World Conference on Lung Cancer. This study is evaluating Tridelby plus pembrolizumab With or without chemo in first line non small cell lung cancer. We will be sharing data from the first two cohorts Evaluating Tridelby in combination with pembro in PD L1 high and PD L1 low patients.

Speaker 4

The abstract expected to be released later in August will be an initial subset of a small number of patients. Our presentation scheduled for Sunday, September 10th at World Lung will include data at a later cutoff date with more patients. Turning to damanilumab or Dom on Slide 21, we presented data from the last interim analysis of the full 150 patients enrolled in the Phase 2 ARK7 study at ASCO in June. The data continue to show consistent and clinically meaningful This combined with an investigational anti PD-one agent as compared to the PD-one inhibitor alone. These data form the basis for our DAWM program encompassing Phase 3 trials in first line non small cell lung cancer and upper GI cancers.

Speaker 4

Moving to cell therapy on Slide 22, Yescarta continues to strengthen its position as a cell therapy of choice for large B cell lymphoma. At ASCO in June, we presented overall survival data from a landmark Phase 3 ZUMA-seven trial of Yescarta in second line relapsed or refractory large B cell lymphoma. At a median follow-up of 4 years, a one time treatment with Yescarta demonstrated Statistically significant longer overall survival compared to standard of care with a 27% reduction in risk of death, representing a 38% relative improvement. Moreover, majority of the patients in the standard of care arm eventually received a cell therapy off And of those, 77% received Yescarta. Overall, Yescarta is the first treatment in nearly 30 years To demonstrate a significant improvement in survival for this patient population and these data add to the growing body of evidence that position cell therapy is potentially curative in some populations.

Speaker 4

With a strong pipeline of 6 ongoing Phase II and III Trials across lines of therapy, new tumor types and earlier stage assets, KITE continues to innovate and execute on expanding the potential benefit of cell therapies To new patients, both through internal or acquired innovation and through collaborations. We're working closely with one of these partners, Arcellx, to support their efforts regarding the IMAGINE-one clinical hold. We remain confident in the therapeutic profile for CAR T DD BCMA and the IMAGINE-one trial based on the data demonstrated to date And Sharon Arcellx's commitment to delivering this novel therapy to multiple myeloma patients. Turning to Slide 23, we highlight our progress against key clinical milestones for 2023 so far. We are of course disappointed by the outcome of the interim analysis of the ENHANCE trial evaluating migrolumab in higher risk MDS, Given the need for treatment options, we will continue to monitor and report on the other migrolimab trials.

Speaker 4

Importantly, while not every trial will be positive, our efforts at building a well diversified portfolio gives us multiple opportunities to improve the lives of We're excited about our momentum in making oncology and inflammation important contributors to our future And continue to make strong progress on delivering our key clinical catalysts for this year. Beyond our near term milestones, I'd also like to highlight our growing pipeline of early stage inflammation assets, including our oral alpha-four beta-seven and the progression of our IRAK-four inhibitor, edadacertib into Phase 2 as well as the advancement of the BTLA agonist program from the Miro Bio acquisition into Phase 1. We're excited by this differentiated inflammation pipeline and the potential to impact important gaps in the treatment of inflammatory diseases. Overall, we believe we have a very ambitious clinical portfolio that is well diversified across indication and stage. We look forward to updating you as we progress through 2023.

Speaker 4

With that, I'll hand the call over to Andy. Andy?

Speaker 5

Thank you, Mehrdad, and good afternoon, everyone. Turning to Slide 25, and as you heard from Dan and Joanna, Our base business continued to perform very well in the Q2 with total product sales excluding Vectlery up 11% year over year Driven by growth across all of our product families. FX was still a headwind, albeit more modest, impacting growth by approximately 1 percentage point. Total product sales were $6,600,000,000 up 7% year over year as strong execution in our base business more than offset the lower Vectlure sales as well as FX impact of $82,000,000 Moving to the rest of the P and L, on a non GAAP basis on Slide 26. Product gross margin was 86.9%, up 131 basis points from last year.

Speaker 5

R and D was $1,400,000,000 up 25% year over year Due to higher expenses associated with our broad clinical pipeline, including the acceleration of certain late stage clinical studies. As a reminder, we have 21 ongoing Phase 3 trials, highlighting the investment we continue to make in Gilead's near and long term growth profile. As mentioned earlier this year, we will continue to manage expenses carefully. And in R and D, with a number of significant mid to late stage trials ongoing, We'll continue to follow the science, pivoting investment if and when the data warrants. Acquired IPR and D was $236,000,000 Reflecting the Xynthara acquisition and expansion of the Arcus collaboration into inflammation, in addition to milestone payments associated with ongoing partnerships.

Speaker 5

SG and A was $1,800,000,000 up 45% year over year, including the 5.20 $5,000,000 legal accrual for settlements with certain plaintiffs in the HIV antitrust litigation as well as increased commercial activities in oncology and HIV. Excluding the legal settlement accrual, non GAAP SG and A expense was $1,300,000,000 up 4% year over year. Moving to tax, our effective tax rate in the 2nd quarter was 21%. Our non GAAP diluted earnings per was $1.34 in the Q2 of 2023, including approximately $0.32 of expense associated with the legal settlement accrual, partially offset by higher product sales. This compared to $1.58 of earnings for the same period last year.

Speaker 5

Overall, we had a very strong first half. As highlighted on Slide 27, with solid performance in each of our core franchises across virology and Given these strong first half results, We have updated our full year sales guidance. Moving to Slide 28. We now expect total product sales in the range of $26,300,000,000 $26,700,000,000 up from $26,000,000,000 to $26,500,000,000 previously. We expect total product sales, excluding Vectlery, in the range of $24,600,000,000 to $25,000,000,000 up from $24,000,000,000 to $24,500,000,000 previously.

Speaker 5

This new range represents growth of 6.5% to 8% for our base business year over year compared to 4% to 6% previously. On Veklury, the 2nd quarter and first half were below our internal expectations. Based on COVID-nineteen infections and hospitalizations to date, We have lowered our guidance for the full year to approximately $1,700,000,000 to bring second half expectations more in line with our first half experience. As a reminder, VACLORI is highly correlated with COVID related hospitalizations and as such, its utilization remains variable. We will share another update with you on our Q3 call.

Speaker 5

Moving to the rest of the P and L. We continue to expect non GAAP Gross margin to be approximately 86%. There is also no change to our non GAAP R and D guidance, where we expect expenses to increase by a low double digit percent compared to 2022. Reflecting the one time legal settlement accrual of $525,000,000 in the 2nd quarter, We now expect non GAAP SG and A expense to increase a high single digit percent compared to 2022. Excluding this legal settlement accrual, non GAAP SG and A expense for 2023 is expected to be down a low single digit percent compared to 2022 Consistent with our prior guidance, non GAAP acquired IPR and D has been updated to reflect the Xintera acquisition and expanded Arcus collaboration, Adding about $200,000,000 or $0.17 per share.

Speaker 5

For 2023, we now expect acquired IPR and $900,000,000 reflecting previously committed acquired IPR and D amounts as well as known milestone payments from existing collaborations. Similar to prior quarters, we will continue to include expected acquired IPR and D expenses if we announce additional transactions over the course of the year. We now expect non GAAP operating income in the range of $10,400,000,000 to $10,900,000,000 or roughly $650,000,000 lower at the midpoint Due to the $525,000,000 one time legal settlement accrual and $200,000,000 in additional acquired IP R and D expense, neither of which were reflected in our previous full year guidance. Moving to tax rate to be approximately 17%, reflecting an expected decrease in our tax reserves for the second half of the year. Altogether, we now expect non GAAP diluted EPS in the range of $6.45 $6.80 per share, down from $6.60 $7 previously as shown on Slide 29.

Speaker 5

The chart illustrates the underlying strength of our business With the higher product sales guidance flowing through to the bottom line in addition to lower expected tax rate. This is however offset by both acquired IPR and D at $0.17 per share and the legal settlement accrual at $0.32 per share, a non recurring cost. On a GAAP basis, we expect diluted EPS to be in the range of $4.50 $4.85 Moving to Slide 30, you can see that there is no change to our capital allocation priorities. We returned $1,100,000,000 to shareholders in the 2nd quarter through our dividend and repurchase of shares. We believe we have built a strong pipeline that will enable Gilead to deliver near and long term growth.

Speaker 5

And of course, we'll continue to remain opportunistic as we look to access high quality assets through partnerships or make smaller acquisitions in the normal course of business. We remain committed to growing our dividend and to using share repurchases primarily to offset equity dilution, although we will also be opportunistic from time to time. With that, I'll invite the operator to open the Q and A.

Operator

In addition, we will only be allowing one question from each analyst today. And if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from Geoff Meacham with Bank of America. Please proceed.

Speaker 6

Hey, guys. Thanks so much for the question. Just maybe a quick one for Dan or for Andy. You guys have had an aspiration to have about a third of total revenue From hematology oncology, I wasn't sure how big of a role migrolimab played in those assumptions and if it was a small amount, where do you see opportunities in the pipeline that you think the Street perhaps is underappreciating? Thank you very much.

Speaker 2

Yes. Hey, Jeff. I'll start and then turn it over to Andy. But thank you very much for the question. I want to be clear that we continue to be on Back to meet our goal of oncology representing 1 third of our 2,030 revenues and that's on top of a growing HIV Business overall.

Speaker 2

I'll just remind the team here that our portfolio is very broad. It's more than doubled since a few years ago In quantity and many fold on a quality risk adjusted basis as well, we have novel mechanisms and technologies and approaches Across many indications, precisely to allow for the fact that not every clinical card is going to turn over favorably. And Andy, why don't I'll let you add on to that in terms of what we what our initial assumptions were around the 3rd.

Speaker 5

Sure. Hi, Jeff. I'm good to hear from you and thank you for the question. You may recall that historically when we've talked about this, we've highlighted that that assumption is really tied to the cell And that we have a complete belief that we're going to get there based on those two franchises alone. Megalumab and TIGIT and the rest of the oncology pipeline provide additional upside.

Speaker 5

So just reiterating what Dan said, we continue to be on track to meet the goal Our oncology business representing a third of our total revenue by 2,030, and we remain excited about the breadth of our oncology portfolio and The exceptional progress that you see in cell therapy and TRIDELVY, which combined, as you heard in the prepared remarks, So we're on track to produce $3,000,000,000 of revenue roughly this year.

Speaker 1

Yes, may we have our next question?

Operator

Our next question comes from Chris Schott with JPMorgan. Please proceed.

Speaker 5

So on TRIDELVY and the EVOQ-two data, can you just help set some expectations for the profile that we'll see from that at World Lung? I guess specifically, we'd just be interested in your thoughts on what we should anticipate in terms of the ILD profile in the setting as well as your thoughts on a potential TROP-two expression

Speaker 2

Thanks, Chris. Over to Mehrdad, please.

Speaker 7

Yes. We're looking forward to sharing those data. And as you can imagine, we're under embargo. So I can't share too many details Until the presentation comes up. And the abstract itself will come out, I think in mid August, so very shortly.

Speaker 7

And that initial abstract will represent a Relatively small dataset from Evoqua2 and then there'll be more data at the time of the presentation in September. So, in terms of what's coming. In terms of ILD, across Our programs, including all the clinical trials, we have not seen ILD to date. We don't Screen for ILD in our clinical trials, nor in the clinical practice. So, at this time, We have not seen anything from in an ILD standpoint.

Speaker 7

And then in terms of TROP-two expression, as a matter of course, We are measuring TRO2 expression in all of our trials as we go forward and looking to see if we see Correlations between TROP-two expression and efficacy. And to date, we've not seen a Correlation, we've seen great efficacy across TRP2 expression levels in the tumors that we've studied to date. Now that may change with different tumor types, But to date, we have not seen a correlation with TRO2 expression levels. So we're optimistic for that to continue. I would not expect to see TROPE-two data in this upcoming data set.

Speaker 7

This is an early data set and those data usually trail The TRO2 expression data usually trail the clinical trials.

Speaker 1

Thank you. May we have our next question please?

Operator

Our next question comes from Tyler Van Buren with TD Cowen. Please proceed.

Speaker 8

Hey, guys. Good afternoon. Thanks for taking the question. Another one on Trodelbi, it looks like we're seeing a bit of a quarter over quarter inflection. Would you say this is attributed primarily to the HR positive, HER2 negative launch?

Speaker 8

And do you believe this is the beginning of a new sustainable trend?

Speaker 2

Great, Tyler. Over to Joanna, please.

Speaker 3

Hi, Tyler. Yes, we're very pleased with the results The early signs that we've seen from the recent launch of HR positive HER2 negative in the U. S, we've definitely seen, as you say, an inflection point. So we've seen a Really strong uptake in this setting. We've also kind of building on the foundation of triple negative breast cancer where we are the standard of care here as well.

Speaker 3

And we're excited about the fact that Europe, the EC just gave approval for HR positive HER2 negative in Europe. So building on the success And we've seen strong uptick in Europe for TNBC. So there's also a piece of that for the Trdelphi business performance. And we're excited to see what we can do with HR positive HER2 negative in Europe as well. So we do think this is definitely on the right path from a growth Point and very exciting times for Chudalby and breast cancer patients.

Speaker 1

Thank you, Sierra. May we have our next question please?

Operator

Our next question comes from Terence Flynn with Morgan Stanley. Please proceed.

Speaker 9

Hi, thanks so much for taking the question. This one's Joanna, I read that there's CMS could propose to have Medicare cover PrEP. Just wondering, if you have any insight on the likelihood here and timing? And then could you help us think about the size of that population? Thank you.

Speaker 3

Yes. So thanks for the question. I think you're referring to the national coverage determination, the NCD, right, for prevention for PrEP? Yes, I'm assuming. And that's really just because the right now, it currently only supports oral drugs And there's an opportunity for us to add injectable drugs and I think that was a Veeve request to CMS.

Speaker 3

And so we're very supportive of course. We believe PrEP is actually quite essential to ending HIV epidemic and fully support the CMS proposal. As from a timing standpoint, That's probably, hopefully in the coming quarters that we should see something come out, but, I don't have details on that. But I do think it can only help what we're trying to do in HIV prevention, let alone support as we think of launching the potential launch for linacapavir in 2025.

Speaker 1

Thank you. May we have our next question please?

Operator

Our next question comes from Robin Karnauskas with Truist. Please proceed.

Speaker 10

Hi. This is Bilal Jangari on for Robin. Thanks for taking our Question and congrats on all the progress. I had a question about TIGIT. And since you began the ARC studies, have you learned anything by way of TIGIT, CD155 or any other potential prognostic biomarkers in the tumor microenvironment That would warrant further development of DAMA in the Upright GI indications even if SKY-one were to fail?

Speaker 7

Thanks for the question. As I understand it, I think the question is around, predictors of response as it relates to The upper GI setting. What I would say is we, of course, are following biomarkers. As I mentioned with TRuP-two, we are looking for biomarkers of responsiveness to various markers that could predict TIGIT responsiveness. Our interest in the upper GI is, of course, based on TIGIT expression levels in tumor samples and things like that outside of the clinical trials, more based on clinical data that We've seen and others have seen for the efficacy of TIGIT in upper GI tumors.

Speaker 7

And so we'll of course across the programs be looking for Any potential markers for predictive response.

Speaker 1

Thank you. May we have our next question please?

Operator

Our next question comes from Brian Abrahams with RBC Capital Markets. Please proceed.

Speaker 11

Hi there. Thanks for taking my question and congrats on the quarter. Maybe a question on migrolumab. Do you have any preliminary thoughts on why the trial in high risk MDS was not successful just given the encouraging early data. And I guess, which indications are you most optimistic the drug could still be successful in going forward?

Speaker 11

Thanks.

Speaker 7

Thanks, Brian. Well, I mean, I think, you can imagine we are looking Thoroughly at the data, and

Speaker 2

the trigger for this was

Speaker 7

a futility analysis centered on overall survival. We'll of course update as we generate data and look at all those, we'll make those that information Publicly available. To your point, we're fairly far along in our AML trials. And as you know, we have some studies going on in solid tumors. And we believe that There are a number of factors that could that determine success or failure in these various settings.

Speaker 7

And each of these settings Represented slightly different biological experiment. So, we are going to continue to look broadly What we've learned from the initial data, we're going to continue to talk with the regulators and the IRBs in the near term. And then, we'll update you as we proceed down that path with where we're going to go. But we continue our efforts right now hoping that, migrolimab could have, an effect in other diseases outside of MDS. MDS is a uniquely challenging indication and we feel we were hoping we could bring a benefit to those patients and we're disappointed that we can't

Speaker 1

We have our next question please.

Operator

Our next question comes from Carter Gould with Barclays. Please proceed.

Speaker 12

Great. Good afternoon. Thank you for taking the question. As you talked about sort of the hematology portfolio, one thing you guys didn't talk on much Today is sort of the DD BCMA and it being on clinical hold. Your partner has talked about investigator conduct and bridging therapy being issues.

Speaker 12

Are you of in agreement with that characterization and to what extent is sort of timely addressing of the clinical hold critical to your underlying thesis behind the product. Thank you.

Speaker 2

Thanks, Carter. This gives us a chance we'll all have a chance to hear from Cindy for the first I'm with Gilead. So Cindy, over to you, please.

Speaker 13

Thanks a lot, Carter, for the question. I think first, it might be helpful if I can provide a little context associated with the clinical hold. On June 16, the FDA did notify Arcellx that it was placing the CAR TCD BCMA IND on clinical hold. That was following patient death. The patient was treated with the DVBCMA or CAR T and despite becoming ineligible for treatment under the trial protocol, due to the fact that they developed a secondary malignancy Before the time of infusion, so they would have not been allowed technically to be on protocol.

Speaker 13

After infusing that patient, they subsequently mismanaged, I would say, the manner in which the protocol specifies Treatment of adverse events. And so we are continuing to partner with Arcellx on this. We are very confident In the molecule, we're confident in the IMAGINE-one study design and we're looking at ways in which we can partner with Arcellx to Enhance protocol adherence. All of the clinical sites to date have been retrained so that we can again ensure that protocol adherence. And additionally, the FDA has allowed Arcellx to dose patients who had gone through lymphodepletion while on clinical hold.

Speaker 13

So Again, we remain confident that the therapeutic profile of DD BCMA CAR T and the IMAGINE-one trial It's going to be successful, I think, based on the data demonstrated to date. So our commitment in delivering that therapy to patients globally is still there for multiple myeloma.

Speaker 1

Thank you. Pierre, may we have our next question please?

Operator

Our next question comes from Salveen Richter with Goldman Sachs. Please proceed.

Speaker 1

Salveen, we're not hearing you very well. Maybe just try one more

Speaker 3

time. Asher or

Speaker 1

Salvi, maybe you can try and dial in on a different line.

Speaker 4

Hey, Jackie, can you hear me? This is Matt on for Salveen.

Speaker 1

Yes. We can hear you perfectly.

Speaker 4

Okay, great. So Daiichi expects to share full data from the Phase 3 TROPION LUNG 1 study Later this year, could you guys just share what you're focused on from a competitive standpoint and then in terms of read through to Tredelvi? Thank you.

Speaker 7

Sure. This is Bharat. Thanks for the question. So as you know, our program is relatively broad And pushing forward in lung cancer as well. As I mentioned earlier, we'll be presenting our frontline data in EVOCO-two, preliminary Frontline data from the EVOCO-two study, and I think that will help, provide, everyone sort of benchmarking In terms of how Trelvi is doing in that setting.

Speaker 7

And then what we'll be looking for, I think it's consistent with what our belief is for TRIDELVIA in the second line, which is look, the patients in second line Are sicker, they tend to have they're more difficult to manage and they're more challenging in terms of Outcomes. So, we are hopeful that we will see, a benefit in those In terms of outcomes, particularly PFS and OS. So we will keep you updated on the Progress of the EVOCO-one study in the second line as well. And we're pretty confident that we'll be In where we want to be, our underlying hypothesis remains that we will have comparable efficacy And that we will have a better tolerability profile with TRIDELVI. So we're very confident with where we're headed.

Speaker 1

Thank you. Sierra, may we have our next question please?

Operator

Our next question comes from Collin Bristow with UBS. Please proceed.

Speaker 14

Hey, good afternoon and congrats on the quarter. So the TRAPY and Breast A1 trial is I'm just curious on to get your thoughts really on how you view this from a sort of competitive threat standpoint. Thank you.

Speaker 1

I think we may just have answered that question.

Speaker 13

It's Brett.

Speaker 3

So maybe I'll pick it up.

Speaker 5

Yes, Joanna,

Speaker 7

you want to

Speaker 3

So thanks for the question, Colin. We are we have been expecting that data. We're also very pleased with what we've seen thus far with TRODELVI. And I think that's The piece that's important here, I think Trodelvie's positioning in the marketplace, both in metastatic triple negative breast cancer and second line as a standard of care in that setting, It is very well established with an opportunity to continue to make sure people move up lines of therapy because there's still Usage in the 3rd, 4th line setting when there's still an opportunity to displace chemotherapies. I think as we've seen with other ADCs in the breast cancer market, I think it does It's really helped the awareness of the benefits of ADCs and with TRUDElvi's overall survival both in triple negative breast cancer As well as in HR positive HER2 negative, I do think it sets up TRUDELLBI incredibly well and we've seen also ADC sequencing Either for INHER2 to TRUDELLI or TRUDELLI to INHER2.

Speaker 3

I think as a third ADC comes to market, I think it might be a little bit more challenging in light of I also think the safety profile that Murdad mentioned just a little bit earlier It's also something to consider when you think about a safety profile with Trigalvy where you're looking at neutropenia and diarrhea, which are very much in line with Other chemotherapies already on the marketplace, so physicians are very, confident in how to treat versus bringing in something like ILD is going to be a little bit So more to come and I guess we wait to see the data, but today in the field today, I think TREDOVI is definitely making a difference for these patients. Riddell, did you want to add anything?

Speaker 7

No, I didn't hit it all.

Speaker 2

Thank you, Joanna.

Speaker 1

Sierra, may we have our next question please?

Operator

Our next question comes from Evan Seigerman with BMO Capital Markets. Please proceed.

Speaker 11

Hi, all. Thanks. Thank you so much for taking my question. With I believe it's the 3rd anniversary of the Aimicomedics deal nearing us, can you walk us through how you And I look forward to BD. You digested this asset.

Speaker 11

Are you looking at oncology inflammation elsewhere? Thank you.

Speaker 2

Yes. Andy, do you want to start with this? Sure.

Speaker 5

Hi, Eldon. Thank you for the question. Look, I'd say, we continue to be very active in BD as you'd expect across Both Gilead and Kite, and that's across all of our areas of focus. So again, oncology, inflammation and virology. As we've said before, There are fewer virology opportunities externally.

Speaker 5

We have an incredibly robust pipeline and extraordinary research group. We're building out our research groups at KITE and Gilead in oncology and inflammation, we're excited about the progress that we're making there. We're still going to be active in the outside. That being said, what you should expect Over the next 5 years, it's different than what you saw over the last 5 years. So using Immunomedics as an example, that's a deal that we continue to be very excited about.

Speaker 5

You've heard all the excitement about where we are today with the franchise, where we see it going, but that was a unique point in time where we really needed an anchor molecule to build our oncology business around. We will continue to look at commercial assets, but you should expect consistent with what you saw last year that our focus is predominantly on ordinary course partnerships And smaller acquisitions. Again, we will be opportunistic. We will look for ways to build our franchise and to create value for shareholders, but that's the base case expectation.

Speaker 1

Thank you. May we have our next question, Sierra?

Operator

Our next question comes from Joe Catanzaro with Piper Sandler. Please proceed.

Speaker 15

Hi, everybody. Thanks so much for taking my question. I actually had a question on the XINTHERRA acquisition and just wondering if you could Share your thoughts around the plans and timelines for their PARP-one selective inhibitor and whether in the future there's opportunity to potentially combine it With Trodelvi given some preclinical data that supports that approach? Thanks.

Speaker 7

Yes, that's I think you hit the nail on the head. We're moving forward aggressively. I'm not sure we've disclosed the Time lines yet, but we're moving forward aggressively with our efforts to move that program into the clinic. And as you say, I think a key potential for that PARP inhibitor is in combination with TRIDELVY And combining those two agents to hopefully bring better outcomes to patients. So we'll update as we go along.

Speaker 7

Think things are progressing very nicely there though.

Operator

Our next question comes from Mohit Bansal with Wells Fargo. Please proceed.

Speaker 16

Great. Thank you very much for taking my question. Congrats Cindy on your new role. Maybe if I can ask a question to Andy regarding so you have a lot of clinical trials going on In oncology, especially, how should we think about the operating margin evaluation from here? If I take out the one time items as well as IP R and D, it seems like about 45% in the first half of the year.

Speaker 16

Is that a Good number, good proxy to go with or how should we think about it in next few years?

Speaker 5

Hi, Mody. Thanks for the question. This is an important point. What we said and we continue to believe is we have an exceptionally strong business With a lot of leverage, a highly efficient structure, a lot of leverage in our model, we've historically had industry leading Operating margins and we certainly expect to have that in the future. We also have said and acknowledged that we're at a unique point in time as we've built out Both our R and D portfolio and our sales and marketing team with the move into oncology, where Our expenses have increased in the short run and we expect over the coming years for the expense increases to moderate And we expect that you'll continue to see the strong growth that you've seen in our base business the last couple of years.

Speaker 5

So again, this is kind of Our strategy playing out where you see the extraordinary progress in the base business growth last year, certainly through this year, You see that with the raised guidance for the base business. We expect to carry that momentum going forward. Of course, we don't provide long term guidance. And we, as we've highlighted, have 21 late stage Phase 3 clinical studies underway. We will get to a point over The coming quarters and years where our expense growth moderates and you should see a lot of that carry to the bottom line.

Speaker 5

So and I think the way that you characterize the operating margin in The Q2 is entirely consistent with the way that I see it. And we don't provide long term guidance beyond saying that we expect to have a top tier operating margin Going forward and we think we're in a great place to achieve that goal. Thank you.

Speaker 1

Thank you. I think we have time for one last question, Sierra.

Operator

Our last question today comes from Simon Baker with Redburn. Please proceed.

Speaker 17

Thanks for taking my question. Given the recent developments within the CAR T space in non oncology indications such as lupus, I was just interested to know what your Perspectives are on the strategic, clinical and commercial opportunities for cell therapy outside oncology. Thanks so much.

Speaker 13

Thank you very much for the question, Simon. Similar to you, we are very intrigued also by the Data that we're seeing in spaces like autoimmune disease and lupus and it's something of great interest to us. We have established ourselves in oncology certainly and

Speaker 2

Terrific. So this is Dan. I just want to close this call by thanking you all for joining and maybe just relay some of the enthusiasm of Both the team here in the room and the colleagues throughout Gilead and Kite, we're really seeing continued Positive momentum and this is just another quarter of that related to our strategy that we set out several years ago. I mean, the first thing is the business is performing well and on a consistent basis. This is our 7th consecutive quarter of year on year growth for our business excluding Viclury.

Speaker 2

Secondly, we're much further ahead than we expected to be with our pipeline delivery. Now we are now 64 ongoing clinical programs, 21 in Phase 3 And that you saw that in the news flow for the Q2. And then finally, we have a lot to look forward to in the second half of the year and beyond. We're particularly excited about the potential to transform beyond the diseases that we're helping patients with today In lung cancer and continuing to help the epidemic for HIV and the epidemic for HIV. So I just want to take this opportunity on behalf of all of us to thank you for joining.

Speaker 2

As usual, if you have questions that we haven't been able to handle here today, please get in touch with Jackie and the IR team and we're more than happy to support you. Thank you, everybody, and thanks for joining today.

Operator

That will conclude today's conference call. Thank you all for your participation. May now disconnect your line.

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