Gilead Sciences [GILD] Conference call transcript for 2022 q3
2022-10-27 20:33:05
Fiscal: 2022 q3
Operator: Ladies and gentlemen, thank you for your patience, and thank you for attending todayâs Third Quarter 2022 Gilead Sciences Earnings Conference Call. My name is Amber, and I will be your operator for todayâs call. It is now my pleasure to hand the conference over to our host, Jacquie Ross, VP of Investor Relations. Jacquie, please proceed.
Jacquie Ross: Thank you, operator, and good afternoon everyone. Just after market close today, we issued a press release with earnings results for the third quarter of 2022. The press release, slides, and supplementary data are available on the investors section of our website at gilead.com. The speakers on todayâs call will be our Chairman and Chief Executive Officer, Daniel OâDay, our Chief Commercial Officer, Johanna Mercier, our Chief Medical Officer, Merdad Parsey, and our Chief Financial Officer, Andrew Dickinson. After that, weâll open up the call to Q&A, where the team will be joined by Christi Shaw, the Chief Executive Officer of Kite. Before we get started, let me remind you that we will be making forwardâlooking statements, including those related to Gileadâs 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, 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 forwardâlooking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forwardâlooking statements. NonâGAAP financial measures will be used to help you understand the Companyâs underlying business performance. The GAAP to nonâGAAP reconciliations are provided in the earnings press release, in our supplementary data sheet, as well as on the Gilead website. Now, Iâll turn the call over to Dan.
Daniel OâDay: Thank you, Jacquie, and good afternoon, everybody. Weâre pleased to connect with all of you today to share the details of another very strong quarter. Thanks to strong commercial and clinical execution by our teams, the positive momentum continues to build. Total product sales excluding Veklury were $6.1 billion, growing 6% sequentially and 11% yearâoverâyear. The total including Veklury was $7 billion. If we exclude the impact of foreign currency fluctuations and the tailâend of the loss of exclusivity for Truvada and Atripla in HIV, total product sales excluding Veklury grew 15% from the third quarter of last year. The majority of this growth was driven by HIV and over 40% of the $620 million increase in sales came from oncology. The team will share more details, but this has been a great quarter for commercial execution, including: continued share gains for Biktarvy, growing momentum for Trodelvy, another impressive quarter for cell therapy, and a strong quarter for Veklury. We also saw continued clinical momentum this quarter. Some of the highlights include: the FDA priority review granted to Trodelvy for late line HR-positive/HER2-negative metastatic breast cancer, the EU approvals for Yescarta for second line relapsed and refractory Large BâCell Lymphoma, and Tecartus in adult Acute Lymphoblastic Lymphoma, and in virology, lenacapavir received its first regulatory approval, in Europe. Marketed as Sunlenca, it is approved for heavilyâtreatment experienced people living with multiâdrug resistant HIV, making it the first approved capsid inhibitor and the first therapy with a sixâmonth dosing schedule for HIV treatment. We are taking multiple important steps to advance our ambitious clinical pipeline, including: in oncology, we are expanding our lung program, with 8 trials now active, and 3 more planned to start in the coming months; we plan to resume our phase two trial investigating a onceâweekly oral combination of Merckâs islatravir and our lenacapavir. This will be one of many ongoing combination studies we have for longâacting HIV treatment, in addition to our extensive program for prevention; and we continue to further strengthen our earlyâstage portfolio, adding a BTLA agonist for inflammation from MiroBio and an option for a bispecific antibody for oncology from MacroGenics. Moving to our clinical goals for 2022 on slide 5, weâre on track to start the 2 remaining Phase 3 trials, namely EVOKEâ03 for first line nonâsmall cell lung cancer and ZUMAâ23 for first line high risk LBCL. We continue to expect another interim readout for the Phase 2 ARCâ7 study in first line nonâsmall cell lung cancer before the end of the year. Overall, this has been another very strong quarter in a very strong year for Gilead. Weâre seeing impressive growth of our base business with continued share gains for Biktarvy, an excellent performance for cell therapy and growing demand for Trodelvy. On the clinical side, weâve had the first approval for lenacapavir, a foundational asset for the future of our HIV franchise. Trodelvy is now under priority review for HR-positive/HER2-negative breast cancer in the U.S. and weâre executing on an extensive development program across virology, oncology and inflammation. Finally, the recent TAF settlement is expected to significantly extend the exclusivity of key components of our HIV franchise in the U.S. Iâd like to take this opportunity to thank the Gilead and Kite teams for their outstanding clinical and commercial execution. This consistent execution of our strategy, along with a very robust portfolio has led to some terrific progress in 2022 and we look forward to building on that momentum through the rest of the year and beyond. With that, Iâll invite Johanna to share an update on our third quarter commercial performance.
Johanna Mercier: Thanks Dan, and good afternoon, everyone. Before I jump into the commercial results for the third quarter, I wanted to begin by acknowledging our teams for another exceptional quarter. Weâre making important progress in our goals of ensuring the strength and sustainability of our virology franchise, while also continuing to build our expertise and market presence in oncology. Turning to slide 7, we had a very strong quarter with total product sales excluding Veklury of $6.1 billion, up 11% yearâoverâyear, or 15% excluding FX and the residual impact of the HIV LOEs, with growth in each of our core franchise areas, and notable strength in HIV and oncology. Sequentially, total product sales excluding Veklury grew 6%, driven by HIV, HCV, and oncology. Growth excluding FX impact and the LOEs was 8%. On slide 8, HIV sales of $4.5 billion were up 7% yearâoverâyear. Excluding the impact of both FX and the LOEs, HIV revenue grew 10% yearâoverâyear. Similar to last quarter, this was primarily channel mix driven by U.S. government utilization leading to higher average realized price, in addition to higher demand. Overall, despite the quarterâoverâquarter shifts in average realized price, government plans continue to represent approximately 60% of our U.S. HIV treatment prescriptions, including Medicare in the lowâ20s. HIV revenue growth was driven by the U.S., while Europe was down yearâoverâyear, due to FX and less favorable pricing dynamics, offset in part by higher demand. Quarterâoverâquarter, HIV sales were up 6%, similarly driven by channel mix and inventory dynamics, as well as higher demand. Turning to the market more broadly, we are encouraged that on a year-over-year basis, the HIV treatment market across the U.S. and Europe has grown for five consecutive quarters. This reflects the work we have been doing with our partners to bring people living with HIV and people at risk of HIV back into care following the pandemic. The market growth we are seeing suggests that activity has returned to preâCOVID trends. In the third quarter of 2022, the market grew 2% yearâoverâyear both in the U.S. and Europe. Looking forward, we continue to expect annual treatment market growth in the 2% to 3% range. Descovy sales were $500 million, up 16% yearâoverâyear and 9% sequentially, and PrEP market share remains stable despite generic and other entrants. For the quarter, the PrEP market continues to demonstrate robust growth, largely driven by the growing awareness for PrEP and demand wellâabove preâpandemic levels. Overall, the PrEP market grew 19% yearâoverâyear and 6% sequentially. Onto slide 9. Third quarter Biktarvy sales were $2.8 billion, up 22% yearâoverâyear, driven by higher demand in both the U.S. and Europe, and favorable pricing dynamics. Sequentially, sales were up 8%, due to higher demand as well as favorable inventory and pricing dynamics. Once again, Biktarvy continues to command a leading position in the treatment of HIV, with another record quarter growing to 45% market share in the U.S., up 4 percentage points yearâoverâyear. Moreover, Biktarvy remains the leading medicine for those seeking to switch to a new regimen in the U.S. as well as those starting treatment in both the U.S. and Europe, most notably, capturing 10 new starts for every 1 person prescribed another medicine in the U.S. Looking to the fourth quarter, Iâd like to call out a few points. First, given the historic trend towards a significant inventory build in the fourth quarter followed by inventory draw down in the first quarter, we are renewing our focus on inventory management in an effort to better align the timing of product delivery with endâuser demand. Second, while we continue to see strong market share gains for Biktarvy in addition to solid growth in both the treatment and prevention markets, we will remind you that some of our second and third quarter performance has been driven by shifts in channel mix that have had a favorable impact on average realized price. Given the favorable trends we observed over the last two quarters we do expect the channel mix to be more stable in the fourth quarter. With these factors in mind, and also allowing for further FX impact, we expect fourth quarter HIV sales to be roughly flat on a sequential basis, noting that full year 2022 HIV growth is therefore expected to be approximately 4%, or 7% excluding the LOEs and FX headwinds year to date. In summary, weâre extremely proud of the portfolio we have built in HIV and excited about the way Gilead is positioned for 2023 and beyond. Specifically, Biktarvyâs clinical profile continues to impress, evidenced by ongoing, strong growth rates even though its annual revenue run rate is now in excess of $10 billion. Descovy for PrEP, maintained over 40% market share despite competition and generic entrants. And most recently lenacapavirâs approval as Sunlenca for heavily treatment experienced people living with multiâdrug resistant HIV in the EU. This is an important option for a group that has few treatment options, and is a great opportunity for physicians and the HIV community to get more familiar with a six monthly, subcutaneous HIV therapy. We believe this sets the stage well for our other planned lenacapavirâbased treatment and prevention regimens. All of this, combined with, the treatment and prevention markets showing solid recovery; the impact of the loss of exclusivity of Truvada and Atripla now behind us; and the recent TAF settlement extending projected U.S. LOEs for Descovy and Odefsey into the early 2030s, and Genvoyaâs patent to 2029 in the U.S. All of this truly underpins our confidence that Gilead is wellâpositioned for growth and continued leadership in the HIV market. Now onto slide 10. HCV sales for the third quarter were $524 million, up 22% yearâoverâyear and 17% sequentially, primarily due to the favorable resolution of a prior year rebate claim in Europe and other favorable pricing dynamics in the U.S. Offsetting these benefits, there were fewer patient starts in both the U.S. and Europe, consistent with our expectations for both the quarter and the general trend that you should expect in HCV going forward. Despite the trend in patients starts, weâre pleased to maintain HCV market share of more than 50% in both the U.S. and Europe, and third quarter share increased on a yearâoverâyear basis. For HBV and HDV on slide 11, sales were up 7% yearâoverâyear and 13% quarterâoverâquarter, primarily driven by favorable inventory dynamics. Moving to Veklury on slide 12, third quarter revenues were $925 million. As expected, sales were down yearâoverâyear given lower U.S. hospitalizations as compared to the same period last year. Indeed, though hospitalizations are below the peak seen at the start of the year, itâs clear with the sequential increase that the path of the pandemic remains difficult to predict. Nonetheless, weâre proud of the role Veklury continues to play in the fight against COVIDâ19. In the U.S., Veklury is used in approximately 60% of hospitalized patients who are being treated for COVID. And outside the U.S., Vekluryâs benefit to patients continues to be recognized by health authorities including the World Health Organization and the European Medicines Agency, based in part on the PINETREE data which demonstrated a significant reduction in the risk of hospitalization after a threeâday IV treatment in the outpatient setting. These factors continue to support Veklury utilization where it is needed. Moving to Oncology, and beginning with Trodelvy on slide 13. Sales of $180 million grew 78% yearâ overâyear and 13% quarterâover quarter, and we continue to work with regulators, payers and clinicians around the world to broaden access. Since its approval in second line metastatic TNBC late last year in Europe, Trodelvy is now reimbursed in 13 countries outside the U.S., with additional markets in Europe and elsewhere expected to come on line shortly. Weâve also begun work on establishing the right infrastructure to support a potential launch into pretreated HR-positive/HER2-negative metastatic breast cancer. Reinforcing the significant unmet need in this population, and the clinically meaningful overall survival data demonstrated in the Phase 3 TROPiCSâ02 study, FDA has accepted our supplemental Biologics License Application as Priority Review and we look to a decision in February of next year. Weâre excited by the potential for many more patients to benefit from Trodelvy. Now onto slide 14, and on behalf of Christi and the Kite team, Iâm pleased to share that Cell Therapy sales in the third quarter were $398 million, up 79% yearâoverâyear and up 8% sequentially. These strong results were driven by continued growth in large Bâcell lymphoma and Kiteâs ability to reliably meet customer demand. Together with our recently FDAâapproved viral vector manufacturing facility in Oceanside, Kite remains wellâpositioned to ensure clinical and commercial supply availability while it continues to execute on its geographic expansion. For the quarter, Yescarta sales of $317 million were up 81% yearâoverâyear and 8% quarterâoverâ quarter, driven by a continued successful launch in secondâline LBCL in the U.S. and partially offset by FX headwinds in Europe. Just last week, Yescarta was approved in the EU for secondâline LBCL and we look forward to launching there in the months ahead. Tecartus grew 72% yearâoverâyear to deliver $81 million in sales, driven by growth in adult acute lymphoblastic leukemia. In early September, the European Marketing Authorization for Tecartus in relapsed or refractory ALL was granted. We continue to broaden awareness and access to our cell therapies through indication and Authorized Treatment Center expansion in existing markets as well as through geographic expansion, as demonstrated by our most recent regulatory applications in Brazil, Singapore, and Saudi Arabia. As always, Christi is available for Q&A later on the call. Overall, this was an incredibly strong quarter for Gilead oncology, with revenue of $578 million up 10% from last quarter and 79% from last year. This represents an almost $2.4 billion annual run rate as we move into the last few months of 2022, and hints at the possibilities ahead as we continue to execute on our commercial and clinical oncology goals. And with that, Iâll hand the call over to Merdad for an update on our pipeline.
Merdad Parsey: Thank you, Johanna. Before I start, Iâd like to recognize the strong execution of our internal team and external partners across a broad range of activities thatâs diversified across therapeutic area and clinical stage with milestones spanning study initiations, the sBLA submission for Trodelvy, two EC approvals in cell therapy, and our first approval for lenacapavir in the EU. On slide 16, you can see that weâve made a lot of progress so far this year, meeting nearly all our milestones. Regarding our BLA filing for Hepcludex, we received a Complete Response Letter from FDA, citing concerns about the manufacture and delivery of Hepcludex. We will take the time to fully digest the CRL, but note that no new safety or efficacy clinical trials were requested by the FDA. We plan to resubmit as quickly as possible and will work with the agency on the path forward. We remain confident in bulevirtide and the potential benefits it can bring to people living with HDV, and will share an update on the U.S. regulatory pathway when we can. Moving onto HIV on slide 17. Weâre thrilled that lenacapavir received its first marketing authorization from the European Commission as Sunlenca for people living with multiâdrug resistant HIV, in combination with other antiretrovirals. Sunlenca is a firstâinâclass capsid inhibitor. It is the first and only twiceâyearly, subcutaneous HIV treatment and adds a muchâneeded option for those people living with HIV with limited alternatives. We continue to expect a decision on our NDA for lenacapavir from FDA in late December of this year. In the meantime, this first regulatory approval from the EC is an important validation while we continue to progress our other lenacapavirâbased treatment and prevention programs. For HIV treatment, a new clinical development plan allowing a lower dose of islatravir, Merckâs investigational NRTTI, is moving forward after FDA review. As such, we are planning to resume the Phase 2 trial investigating an oral, onceâweekly lenacapavir and islatravir combination. Our internal combination programs are also ongoing, and we expect to share data next year from the Phase 1b proofâofâconcept study for lenacapavir and two broadlyâneutralizing antibodies, or bNAbs, directed at HIV. In prevention, our clinical development continues to progress with four inâprocess or planned clinical trials evaluating every sixâmonth subcutaneous lenacapavir. Moving to slide 18, Veklury continues to be recognized as a standard of care for patients with severe COVIDâ19, with updated guidelines for Veklury from the World Health Organization. Additionally, the CHMP issued a positive opinion on the use of Veklury for the treatment of pediatric patients with COVIDâ19. Although novel treatments and vaccinations have improved the COVIDâ19 outlook, there is a continued need for effective and convenient oral treatment options for patients. I am pleased to share that the FDA has just granted our novel oral nucleoside, GSâ5245, Fast Track Designation, which aims to expedite development of promising new medicines. We continue to be in active discussions with the FDA and other global regulators on potential clinical pathways including a Phase 3 study that we expect to start within the next several months, either globally or outside the U.S. On slide 19, we show the Phase 3 TROPiCSâ02 results in patients with HR-positive/HER2-negative metastatic breast cancer that was a late breaking presentation at ESMO in September. Trodelvy demonstrated a statistically significant and clinically meaningful 3.2âmonth overall survival benefit. Patients with metastatic HR-positive/HER2-negative breast cancer who have progressed on endocrineâbased therapies and chemotherapy have limited options. As a reminder, the patients enrolled in TROPiCSâ02 were heavily preâtreated with a median of three prior chemotherapy regimens in addition to prior CDK4/6 inhibitors. Importantly, the FDA recently accepted our sBLA for Trodelvy in HR-positive/HER2-negative metastatic breast cancer and granted it a Priority Review. The PDUFA date is currently set for February 2023. We continue to work with regulatory agencies outside the U.S. to potentially make this medicine available to eligible patients. Additionally, following the acquisition of Trodelvyâs Asian commercialization and development rights from Everest Medicines, we expect data from our Phase 3 metastatic TNBC China bridging trial in the next few months and our Phase 3 Asian HR-positive/HER2-negative metastatic breast cancer study in midâ2023. Moving to lung cancer on slide 20, you can see that we expect to have at least 9 active clinical trials in nonâsmall cell lung cancer by the end of 2022, including 5 with Trodelvy, as well as programs with zimberelimab, domvanalimab and etruma, Merckâs Keytruda, AstraZenecaâs durvalumab, and our own magrolimab. Eight trials are already underway, including the Phase 3 EVOKEâ01 study in second to third line nonâsmall cell lung cancer and our Phase 2 EVOKEâ02 study in first line nonâsmall cell lung cancer without actionable mutations. Our partner Merck also plans to initiate the Phase 3 EVOKEâ03 study later this year to evaluate the combination of Trodelvy and Keytruda in firstâline patients with nonâsmall cell lung cancer whose tumors express high levels of PDâL1. Additionally, with our partner Arcus, weâre looking forward to the fourth interim analysis of the Phase 2 ARCâ7 trial evaluating zim and dom in PDâL1âhigh nonâsmall cell lung cancer before the end of the year. Data from ARCâ7 are expected to support our ongoing Phase 3 studies for domâbased combinations in lung cancer, including STARâ121 which just achieved first patient in. Lung cancer is a disease area with high unmet need, and we believe we have multiple promising MOAs and potential combinations that could help bring additional new treatment options to patients. To explore these opportunities, we plan to initiate two Phase 2 signal seeking platform studies, VELOCITY and the Arcusâled EDGEâlung in the coming months. Overall, we have initiated a comprehensive evaluation of the assets in our portfolio to address the significant unmet need in lung cancer, and look forward to sharing updates in the coming years. Moving to slide 21, and on behalf of Christi and the Kite team, we are highlighting our expanding clinical pipeline as we build on the growing momentum and adoption of cell therapy based on the significant survival benefit that Yescarta and Tecartus are delivering to patients. We believe there are still opportunities to bring Yescarta and Tecartus to more patients by moving into earlier lines as well as new indications. As you can see, we have recently enrolled patients in several studies, including ZUMAâ24, a Phase 2 study to evaluate Yescarta in an outpatient setting for second line LBCL, and ZUMAâ22, a Phase 3 study for Yescarta in second line plus highârisk follicular lymphoma. We also expect to begin screening patients for the ZUMAâ23 study of Yescarta in Q4. The decision to initiate a Phase 3 trial in first line HR LBCL was based on the encouraging data from ZUMAâ12, where Yescarta demonstrated 89% ORR and 78% CR. Additional studies include an evaluation of Tecartus in rare Bâcell malignancies, and KITEâ363 thatâs evaluating a CD19/20 bicistronic CAR T in postâCD19 third line plus LBCL. We are committed to continuously improving the safety and efficacy of our cell therapies through both internal pipeline and external partnerships. On slide 22, we turn to hematology and highlight the breadth of our programs across MDS and AML. For magrolimab, we fully enrolled our Phase 3 ENHANCE study in MDS ahead of schedule. Our discussions with the FDA and other regulators continue, and we expect to share an update in early 2023. Moreover, enrollment for the two AML trials, ENHANCEâ2 and â3, is well underway and we are targeting topline data in 2024. A few weeks ago, we announced our oncology collaboration with MacroGenics to develop bispecific antibodies. This includes the exclusive option to license MGD024, a bispecific antibody that binds to CD123 and CD3, currently in Phase 1, as well as 2 additional research programs. This complements magrolimab, and furthers our work as we explore therapies that could translate into better clinical outcomes for patients with AML and MDS. Finally, we were pleased FDA granted KITEâ222 orphan drug designation at the end of September. Itâs the first CLLâ1 targeted CAR T and is currently enrolling patients in a Phase 1 study. On slide 23, I wanted to take a moment to welcome MiroBio to Gilead. We completed the acquisition a few weeks ago and are pleased to add the MiroBio team to the Gilead research family, and bring their proprietary discovery platform and immune inhibitory receptor agonists to our portfolio. This acquisition complements our inflammatory disease cornerstones including IBD, RA and systemic lupus and opens opportunities in other indications. We are excited to continue to explore and develop these antibody agonists, which we believe have the potential to induce immunosuppressive signaling and restore tolerance in autoimmunity. Wrapping up, Iâll note that we now have 60 clinical programs underway here at Gilead, spanning a broad range of indications across virology, oncology and inflammation. Weâve accomplished a lot in 2022, and yet feel weâre really just getting started in exploring the possibilities offered by our portfolio. With that, Andy?
Andrew Dickinson: Thank you, Merdad, and good afternoon everyone. Weâre pleased to share another strong quarter of results, with sequential and yearâoverâyear growth in every franchise across our core business. As shown on slide 25, product sales, excluding Veklury, grew 11% yearâoverâyear, despite a $130 million headwind from FX. If we exclude this FX impact, in addition to the impact of previous HIV LOEs, total underlying sales growth yearâoverâyear was 15%. Moving to slide 26, you can see that Veklury was down, as expected, year-over-year, although it more than doubled on a sequential basis from the second quarter. Iâll note that with the continued strengthening of the U.S. dollar, the total FX impact on revenue, net of hedges, was higher than expected, at approximately $200 million compared to the third quarter of last year. NonâGAAP product gross margin was 87%, down 320 basis points from last year, primarily due to the third quarter 2021 reversal of a previously recorded litigation reserve. Additionally, nonâGAAP product gross margin was impacted by higher Biktarvyârelated royalty expense and lower Veklury sales. Nonâ GAAP product gross margin improved sequentially due to higher HIV and Veklury product sales. NonâGAAP R&D, excluding acquired IPR&D expenses was $1.2 billion, up 10% yearâoverâyear, primarily due to investments in Oncology. Sequentially, R&D excluding acquired IPR&D expenses was up 6% driven by investments in Oncology and COVID treatments. Acquired IPR&D, reflecting acquisitions, milestones and upfront payments for the quarter was $448 million and includes $389 million of expense related to the MiroBio acquisition. NonâGAAP SG&A was $1.2 billion, up 3% yearâoverâyear. NonâGAAP operating margin was 47%, down yearâoverâyear and driven primarily by higher Acquired IPR&D expenses and lower Veklury sales. Sequentially, nonâGAAP operating margin increased 400 basis points due to higher HIV and Veklury sales, partially offset by higher acquired IPR&D expenses. NonâGAAP effective tax in the third quarter was 22.4%, higher than normal due to the nonâdeductibility of the upfront MiroBio payment. Overall, our nonâGAAP diluted earnings per share was $1.90 in the third quarter of 2022, compared to $2.65 for the same period last year. Of note, the MiroBio transaction impacted postâtax EPS by $0.31 a share, and this was not reflected in the full year guidance we shared back in August. On slide 27, we take a quick look at our performance yearâtoâdate, which shows total product sales excluding Veklury of $16.7 billion, up 7% yearâoverâyear. If we exclude the approximately $385 million of FX headwinds yearâtoâdate as compared to the same period last year, in addition to the impact of the HIV LOEs, the underlying growth yearâtoâdate is 11%. Veklury, as expected, is down yearâtoâdate, highlighting the lower demand for COVIDâ19 treatments in this stage of the pandemic. Moving to slide 28, we are increasing our full year sales guidance to reflect our yearâtoâdate results and our expectations for Q4, including our latest view of FX. For Revenues, we now expect total product sales of $25.9 billion to $26.2 billion, up from our previous range of $24.5 billion to $25.0 billion. This reflects the strong performance yearâtoâdate, notably very strong growth in HIV, Veklury, and cell therapy, and incorporates our expectations for the broader macro environment, including FX which will, once again, be a headwind in the fourth quarter. In HIV, as Johanna discussed, we expect HIV revenue in Q4 to be roughly flat on a sequential basis. In cell therapy, we expect slower growth on a sequential basis, primarily due to stabilizing demand following the second line LBCL launch and FX headwinds. Additionally, we are taking a cautious view with regards to both the current shortage of fludarabine which we expect to be partially mitigated later in the fourth quarter, and to the competitive landscape as our peers improve their manufacturing reliability. Moving to Veklury, and with yearâtoâdate revenue of $2.9 billion, we are increasing our expectations to approximately $3.4 billion for the full year. Note that we expect Veklury sales to continue to track hospitalization rates and our guidance assumes no significant increase in hospitalization rates from the third quarter levels. Excluding Veklury, we expect our total product sales to be $22.5 billion to $22.8 billion, representing growth of 5% to 6% yearâover year, compared to our prior range of $22.0 billion to $22.5 billion. As for the rest of the nonâGAAP P&L, product gross margin is now expected to be in the 86% to 87% range, compared to our prior guidance of approximately 85% to 86%. There is no change to our R&D guidance, where we expect full year R&D expense to increase by a midâsingle-digit percentage compared to the 2021 baseline of $4.5 billion. Moving to acquired IPR&D, we are not issuing guidance for the full year and similar to what we did with MiroBio this quarter weâll update our EPS guidance quarterly as needed to reflect any relevant activity during the quarter. What we have included here is the yearâtoâdate acquired IPR&D amount, including approximately $0.04 per share associated with the MacroGenics collaboration that we announced last week. The guidance shared today does not include any upfront payments related to normal course of business partnerships or licensing deals that we might close in the fourth quarter. For SGâ¢&A, with our continued investment across our commercial organization, and expectations for higher costs as a result of inflation, we continue to expect SG&A expenses to grow by a low single digit percentage compared to 2021. Altogether, we expect operating income to be $11.8 billion to $12.2 billion for the fullâyear, up from $11 billion to $11.6 billion previously. And finally, we now expect our nonâGAAP diluted earnings per share to range between $6.95 to $7.15 per share, up from $6.35 to $6.75 previously. This EPS guidance range is approaching our 2021 nonâGAAP EPS results, despite an expected $2.2 billion decline in Veklury revenue, and more than half a billion dollars in total FX headwinds anticipated through the end of the year, as compared to 2021 rates. This highlights the strength of our core business, which is now expected to grow in the 5% to 6% range in 2022. On a GAAP basis, we expect our diluted earnings per share to range between $3.35 and $3.55 per share, compared to $2.90 and $3.30 per share previously. Finally, on slide 29, you can see that there is no change to our capital allocation priorities. In the quarter, we returned over $1.1 billion to shareholders, including $928 million in dividend payments and $180 million in share repurchases. As we announced previously, we repaid $1 billion of debt early in the third quarter and have returned to the same debt level we were at prior to the Immunomedics acquisition. With that, Iâll invite the operator to open the Q&A. With that, Iâll invite the operator to open the Q&A.
Operator: Our first question comes from Chris Schott with JPM.
Christopher Schott: My question was on lenacapavir and in treatment. So, I want to talk a little bit about, maybe first, islatravir and the lift of the clinical hold. How interesting is that as a partnered asset relative to your internal programs? And then the second part of that, just a bigger picture one in treatment. Do you see the portfolio with lenacapavir resulting in, I guess, a number of different combos that serve different segments of the market, or is it more likely youâre going to end up with one of these combos that really separates from the other and becomes an anchor type asset like we see with Biktarvy?
Merdad Parsey: Hi Chris, this is Merdad. Let me first start by saying that we are really excited about the recent approval for lenacapavir in this -- in the highly treatment-experienced population. Obviously, thatâs a group of people who have limited options, and I think lenacapavir as a new class provides a new opportunity for them. In terms of islatravir, what we like about islatravir is that it is fairly late in its development. We are able to be in Phase 2 with that. And I think it provides us a relatively near-term opportunity to launch a partner in treatment for lenacapavir that could be given in a long-acting way. And I think thatâs really important in terms of where the market is going and what our goal is in terms of, as weâve said before, providing a long-acting parenteral option that is longer than in the 3 months or longer time frame. And weâre optimistic about our ability to do that. So for that, we have our internal pipeline assets that are really providing our options there. For islatravir, thatâs part of our oral program. And for us, we do think that we have a number of opportunities in terms of oral programs to provide weekly oral treatment options for people using lenacapavir. And right now is a potential certainly islatravir is an option there, and we have other options in our pipeline that could potentially get that -- get to that level. So, the way I look at it, just to answer directly your last question, we do think that there will be a lenacapavir partner, and there will be probably one partner that will achieve our therapeutic goals in oral, potentially a different partner in parenteral. And as we go forward, if we can make improvements whether thatâs lenacapavir and being able to provide even longer than six-month therapy or to the partner that we could extend the duration of therapy with a different molecule or a different formulation, weâll always try to get to that longer exposure. So over time, I expect us to continue to try to innovate and move forward.
Johanna Mercier: So maybe just to add to that, Chris, in light of what Merdad was just referring to, weâve done a lot of patient market research to really understand the segments within the oral market, but also with the long-acting market, specifically in treatment, which is quite different to your point, to prevention. And in the treatment setting, it is clear that you will always have a market for that daily oral, which we believe Biktarvy has really set the standard there. And then there are others that the weekly oral will be more preferred. Some people just want to make sure theyâre taking something every single day. Others donât want to be reminded that they have HIV. And then you have, obviously, the injectables or the subQ with lenacapavir combinations every 3 months or potentially even every 6 months that will be very appealing to some that donât want to be reminded at all. And so those are kind of the segments weâre trying to play out. So, I do think as a long acting, there will be more of a split segment than weâve seen in the daily oral.
Jacquie Ross: Amber, you ready for the next question, please?
Operator: Our next question comes from Salveen Richter with Goldman Sachs.
Salveen Richter: On the TIGIT program, what is the likelihood that weâll see PFS data at this point? And if we donât, when could that come? And then based on the interim updates, it does seem like you already have clear benefit on ORR at least on the doublet arm versus monotherapy. So, would love to see if you could just walk us through the possible scenarios with this data readout? And if thereâs any outcome that could impact the recently initiated Phase 3 studies.
Merdad Parsey: Salveen, this is Merdad again. Yes, maybe Iâll start by saying that really, nothing has really changed in terms of the ARC-7 study and where weâre headed. And the reminder make is that this is going to be the fourth interim analysis for the ongoing Phase 2 study and enrollment was only recently completed over the summer. And so, when we look at that, if you think about it in that context, to your point, we continue to look for consistency in the dom and zim combination as a doublet in the ORR to bolster our ongoing Phase 3 program, right, just to underline our confidence in the TIGIT and dom combination. Based on the data weâve seen already, and this should continue to support that. In terms of PFS, I think PFS is -- as I tried to allude to, given the fact that enrollment went on until fairly recently, the likelihood is that PFS is going to be fairly immature and may not be informative. And certainly, when we think about the triplet there as well, itâs unlikely that PFS is going to be informative, but it may be. And so, weâll look at that, and our plan is to evaluate the data and then decide with our partners at Arcus what the data and how we approach it. And certainly, as weâve said before, making sure that we are sharing the data at a medical conference next year. And exactly to your point, itâs really about confirming the confidence we already have in TIGIT and moving into Phase 3 with our -- with the lead programs that weâre moving with. So, I hope that answers your question.
Operator: Our next question comes from Brian Abrahams with RBC.
Brian Abrahams: Congrats on the quarter. And thanks for taking my question. A question on Trodelvy. With the maturing TROPiCS-02 overall survival data and the evolving competitive landscape, Iâm curious on your latest views on where you see Trodelvy fitting in, in the HR-positive/HER2-negative population. Any updates on market research on how it might be used, your commercial strategy to align with that? And curious also your latest expectations on how effective it could be post in HER2 in certain patients who may receive that first? Thanks.
Johanna Mercier: Hi Brian, itâs Johanna. Thanks for the question. So basically, let me start by saying with Trodelvy, the performance for the quarter has been really strong. Weâre seeing 78% year-on-year growth, 13% quarter-over-quarter. And weâre seeing markets add in every week basically. And reimbursement kind of playing out. We have now over 13 countries ex U.S. that have gotten reimbursement. So, weâre seeing really strong launches namely France, Germany right now and other markets coming in as weâre speaking. So, strong foundations there. I think having OS data in both triple-negative breast cancer as well as now with TROPiCS-02 in the HR-positive/HER2-negative, patient population really helps the foundation for Trodelvy but really helps across breast cancer. To your specific question around kind of where do we position ourselves, obviously, with TROPiCS-02, weâre in previously treated -- heavily-treated lines of therapy, right, when you think about this patient population, so a little bit different than some of our competitors. And so, weâre excited actually because these patients have very limited options. And so, now with Trodelvy, there is a real potential for overall survival in these late-line patients. So, we do think that as weâre playing it out, as weâre doing our market research, we feel very confident that Trodelvy will be very well positioned in the marketplace, and weâll build on the success that weâve seen thus far in triple-negative breast cancer as well in how weâre playing that out. So, we expect continued momentum in our base business. And I might have mentioned before in one of the previous calls, how weâve expanded our footprint, specifically in the U.S. to prepare for both not only the expansion of what we need to do in triple-negative breast cancer, but also what we need to do in HR-positive. And so weâre well poised to make sure that weâre ready for that PDUFA date coming up in February to make sure that weâre successful.
Merdad Parsey: And maybe -- this is Merdad. Maybe Iâll add to that. Weâre not done, right? And I think weâre excited about how much weâve been able to achieve with Trodelvy so far, and youâve seen consistent positive data across tumor types. And in particular, I think, as Johanna highlighted, the late-line therapy, certainly, those are patients who may now -- thereâs a potential that some of them will be getting in HER2 beforehand. We donât have data on sequencing, but I do believe that there may be those who decide to treat for those patients who may not respond adequately to in HER2 to later lines, right? So thatâs kind of where, certainly, thereâs an opportunity there. The other thing I would add is that weâve got really strong data in triple-negative breast, including the HER2 -- sorry, in HR-positive breast cancer, including the HER2 zero population. And I think thatâs a very important distinction and really important to remember. And then finally, based on what weâve seen so far and the clinical benefit weâve brought, we certainly believe that thereâs an opportunity for us to move to earlier lines of therapy as well in breast cancer in triple negative, in HR-positive and in other tumor types. I think thatâs -- our excitement about Trodelvy has always been the ability to go into broad tumor types, and our strategy has always been to advance into earlier lines of therapy as we generate positive data.
Operator: Our next question comes from Michael Yee with Jefferies.
Michael Yee: Congrats on a great quarter. I also wanted to ask Merdad a question on Trodelvy in lung cancer. I mean I would think that this is an even bigger opportunity than breast cancer on EVOKE-01 which is ongoing. Can you confirm you think you would update next year and how you think about that opportunity versus second-line docetaxel? I know thereâs some early response rates based on the basket study when you acquired Immunomedics. And I was wondering if you had more data in lung cancer that youâve been observing to give you more confidence there? And then you commented on EVOKE-02 and EVOKE-03, which is first line. I just wanted to understand if you think we would update on EVOKE-02 next year. I would think thatâs pretty big trying to replace chemo. So maybe comment on EVOKE-01 and EVOKE-02. Thank you.
Merdad Parsey: Yes, Michael, Merdad, thanks for the question. I think just to follow on, itâs a great follow-on to the prior question around our ability to really look across tumor types and earlier lines. And in particular, I think what youâre referencing is our confidence in going into early line lung cancer and starting those studies. To your point, weâve seen data, as you know, very well from our early Phase 1b study in lung cancer. And we continue to enroll and weâve initiated now studies looking at both the second- and third-line setting and we -- and then as well as in the frontline setting. As you know, weâre doing a study in combination with EVOKE-03 with the PD-1 and the PD-L1 high population, which I think is really an important trial for us to proceed on. So, I think what I would say is that the timing of the data, Michael, is always difficult to predict. We have to see how the study enrollment goes, and itâs early days. But weâre really excited about the opportunity to bring a meaningful therapy to a group with a very high unmet need.
Operator: Our next question comes from Brian Skorney with Baird.
Brian Skorney: Maybe perhaps for Merdad, just kind of jumping off on the long-acting HIV discussion. I noticed in the pipeline slides, long-acting bictegravir has been removed from the pipeline. Obviously, it would have been nice to have a known entity like the bictegravir part of the combo. I was just wondering maybe you could give us any insight to what happened in the Phase 1 there? Is it sort of bictegravir missing a PK threshold, or is it something that youâre seeing with the 6212 or 5894 that gives you more confidence there? Thanks.
Merdad Parsey: Yes. Thanks for the question. Happy to expand on that. Yes, look, bictegravir is an amazing molecule and has done a lot for patients. And one of the opportunities we looked at is in addition to thinking about bictegravir for long-acting oral was to see if we could give it as a long-acting subcutaneous. And really, what happened is we had tolerability issues just given that molecule subcu in terms of injection site reactions. So, itâs not about the molecule itself. One of the challenges of developing long-acting subcutaneous therapies is tolerability. And so, I want to make sure that itâs clear that bictegravir as an oral agent continues to be a huge part of where we want to go. And then maybe just to step back to your point, the way I think about it, maybe the way to think about is from a PrEP standpoint, long-acting, we are lenacapavir, itâs prep for long-acting and that -- those studies are underway, moving along nicely. From a treatment standpoint, as I mentioned earlier, lenacapavir is a huge part of our backbone therapy for us. And now, we are looking at a number of different opportunities to get to long-acting oral and long-acting parenteral. And molecules like lenacapavir donât come along every day. We are looking for a number of -- at a number of molecules. We think we have the world-class expertise in chemistry and preclinical development that gives us a leg up on the competition to get to those molecules that will really get to the need that Johanna laid out, which is to get to the subcutaneous or every three-month dosing or even longer, and thatâs what weâre looking for.
Operator: Our next question comes from Matthew Harrison with Morgan Stanley.
Matthew Harrison: I just wanted to ask a question on 5245. Can you just talk a little bit about the range of possibilities you might be thinking about in terms of what a Phase 3 might look like? And then, just sort of where you see commercially, what sort of data you might need to compete just given the fact that it may be hard to have the same kind of data set as some of those pills that were developed earlier in the pandemic? Thanks.
Daniel OâDay: Hey Matthew, Dan OâDay here. So weâll have Merdad take the first part of your question, and then Johanna can feed into the second.
Merdad Parsey: Yes. Thanks, Dan. Yes. Thanks, Matthew. So, 5245 has -- as you know, we started those trials in Phase I earlier this year. Things are going well. And as you know, the pandemic has changed a lot. And I think you make an excellent point that looking at high-risk patients is a challenge right now in looking at high-risk patients who may get hospitalized as a challenge right now, giving vaccination, other treatment options. So exactly to your point, I think the discussion weâre having internally and with our regulators is whatâs the best population for us to establish the benefit of 5245. And how does that anticipate what might come down the road, which has been the unpredictable part, whether that is resistance to other agents, the need for combination agents, new variants that may increase the hospitalization rates. Those are all the things that we have to be prepared for. And we really see 5245 as a way -- as we move forward with that and move into clinical trials once we demonstrate its efficacy as an important tool, should the pandemic start to pick up again, heaven forbid, but thatâs how we think about it. So both combinations and treating resistance or a new surge.
Johanna Mercier: Yes. So in line with that, Matthew, itâs Johanna. I would just add to what Merdad is saying. So I think from a commercial standpoint, what weâre thinking is the fact that it doesnât have a boosting agent is a real plus here as well as the fact that weâre going to look at rebound effects as weâve seen with current marketed products right now have that issue, and so, -- in addition to the antiviral activity. So I think those pieces are kind of what weâre thinking about. As well as you well know, drug-drug interactions has been a bit of an issue with some of the current agents today. So I think if you -- without the boosting agent, I think those will just open up a little bit more for a broader patient population potentially to really benefit. And as weâve seen with this pandemic, itâs not over. Weâve seen hospitalizations go up and down. Weâve seen a little bit of an increase most recently, and weâre tracking that very closely with hospitalizations, of course, because of Veklury. But we do believe that thereâs still opportunity for more options here to make sure that we curve this pandemic.
Daniel OâDay: And Matthew, this is Dan OâDay. Iâll just add one other thing in addition to my colleagues, which is in our conversations with the U.S. government, particularly the recent Fast Track designation that was applied to GS-5245, thereâs 3 major things that theyâre interested in, too. Number one is more oral antivirals; number two, to the points that both Merdad and Johanna made, working across the variance as the virus continues to mutate; and then thirdly, lack of DDI, lack of boosting and this rebound issue. So, I think itâs a recognition of the fact that there is a need for the ongoing pandemic/endemic, whatever you want to call it with COVID for additional options. And I think thatâs expressed in the way the U.S. government wants to work closely with us as we continue to develop this program.
Operator: Our next question comes from Tyler Van Buren with Cowen.
Tyler Van Buren: Congratulations on the results. Great quarter. I had a follow-up, a high-level question on Biktarvy. So, the product continues to see very impressive uptake, and it looks like it will be around 60% of HIV product revenues this year. So, where do you expect the product to peak out as a percentage of HIV sales over the next several years?
Johanna Mercier: Tyler, itâs Joanna. Thanks for the question. I would say that weâre really proud of the Biktarvy performance, but I would say even the increased momentum that weâre seeing. And this is not just in the U.S., this is really around the globe. And so, weâre just about 45% market share with Biktarvy. Weâve seen 4% share gain year-on-year. And now, weâre looking at an annual run rate in excess of about $10 billion. So, I do think weâre very well poised for the future. The -- weâre looking at both the naïve share, obviously, just about under 60% of that share right now with Biktarvy, so really setting the standard for new patients coming into HIV. And obviously, the switch share, and you canât -- switch share is obviously a little bit lower because you can switch to Biktarvy if youâre already on Biktarvy. So therefore, weâre tracking that very closely as well, but making sure that when there is opportunity, either from older drugs or when thereâs been some issues for patients to really come on to Biktarvy just because it really does have a profile from an efficacy standpoint and safety standpoint. So, we do believe that continued growth with Biktarvy is on the agenda. And I would also add just a little bit of a note around the market as well, which also helps, right, because where the market goes, Biktarvy goes and where Biktarvy goes, the market goes. Weâve seen market stabilization actually back to pre-pandemic levels and growing at about 2% or so year-on-year, both in the U.S. as well as in Europe. And so, that also really helps our momentum continue and Biktarvy is driving that as well, of course, in a lot of our efforts. The teams have worked very closely with community partners and physicians and advocacy groups to make sure that we get patients back into clinics, back into care, both from a screening standpoint and diagnosis standpoint. Now that weâre -- and you really see those numbers back to pre-pandemic. So I think weâre in good place moving forward and well poised for the future to continue this leadership in HIV driven by Biktarvy.
Jacquie Ross: Amber, weâll squeeze in just two more, please. Maybe go to the next caller.
Salveen Richter: Our next question comes from Umer Raffat with Evercore.
Umer Raffat: I wanted to touch up on a slightly different topic today, and I have a two-part question for Dan and Andy. And this is on the tenofovir litigation thatâs been ongoing. And then I guess my question really was thereâs a very unusual amount of plaintiffs aggregated up in this case. And Iâm curious, is it something you guys are looking to take to a final judgment, or would you be open to a settlement? And that brings me to sort of the second part, Andy, how much of a legal charge have you taken on this litigation to date? Because I know youâve been doing that on the Biktarvy and other indications in litigation in the past. And is there something more significant that has to happen for a more prominent charge to show up? I ask because every company handles the accounting differently. So, I was just curious. Thank you.
Daniel OâDay: Thanks, Umer. Let me just start before I hand it over to Andy to say, obviously, with any litigation, weâre -- we donât comment on ongoing litigation in any level of detail. I do want to emphasize the confidence we have in our overall patent portfolio in general. And maybe with that, Iâll hand it over to Andy to answer some more specifics of your question as well.
Andrew Dickinson: Yes. Thanks, Dan. Hi Umer, thanks for the question. Happy to touch base on this. This is a topic, as you know, that weâve been getting a lot of questions on with the Zantac litigation. So a number of things that I can provide some background and context. So first of all, like most companies, anyone operating in the U.S., we are routinely managing a lot of different litigation matters, as you know. Many of those are from our perspective, meritless or baseless. As a matter of practice, we donât typically -- or usually comment on specific litigation cases. What I can say stepping back is that we have won or resolved the 3 material litigation -- or 3 material litigation matters over the past year, as you know, on terms that were favorable to the Company and to our shareholders, that is the Juno Kite IP litigation, the ViiV IP litigation around bictegravir, then the third was the TAF litigation with generic companies. We have an outstanding legal team, both internally and externally. And then maybe to your specific question, I mean, we have complete confidence in the merits of the defense on the ongoing product liability case. So, it is very different than the Zantac litigation case. So just to your question on the number of plaintiffs, for instance, if I remember correctly in the Zantac cases, there were 250,000 patients in our case -- Iâm sorry, plantiffs. There were 25,000 in ours. But the key difference is that the issues at hand here, I mean, our TDF-based products are life-saving products that really transform care for HIV. And the side effects of the products were in the label from day one. The labels in the U.S. and Europe were slightly different but the labels were there. These were well known, well disclosed potential side effects. And I think thatâs an important piece of it. So, itâs a very different case. Zantac, as I remember correctly was taken off the market and reformulated. So Iâd be careful about drawing too many parallels between what you saw with Zantac and some of the companies that were affected by that in this litigation. That doesnât mean that we donât take it seriously. We do take it very seriously. And as I said, we have a great team thatâs working on it. The last thing, Umer, maybe the last two things, there are a number of amicus briefs that have been filed. Those are all publicly available. This is in the California state litigation that I would encourage you to read. I think there are 4 or 5 amicus briefs that really speak to how different this cause of action is relative to what you would typically expect to see in a case. And then finally, on the charge, no, we have not taken a charge. And as I said, we feel very strongly about the merits of our case and look forward to proceeding with the litigation over the coming months and years. So good question. Thank you.
Jacquie Ross: Amber, may we go to our last question, please?
Operator: Our last question comes from Geoff Meacham with Bank of America.
Geoff Meacham: Merdad, I want to follow up on a few questions that youâve gotten on long-acting HIV. I know itâs been tricky to develop a doublet that has a comparable profile to lenacapavir, but is there a mechanism that you have either in-house or that youâve seen in HIV that looks like itâs more straightforward to develop long-acting? I wasnât sure if integrase would be better than nuke versus non-nuke, something of that category? Thank you.
Merdad Parsey: Thanks, Geoff. This is Merdad. Yes, weâre -- I think our chemistry and our virology team do favor the INSTIs as a class where we believe that we have a better shot at getting to a long-acting partner for the capsid inhibitors. So, I would say a fair bit of our effort is going into those. But -- and we are open to looking at a variety of mechanisms to achieve our goal. We just think that the INSTIs are more likely to get there. I will remind you, this may have gone under the radar, but we do have the program where we are looking at the bnAb. I did mention it in the script and that does provide us another option for people from a long-acting standpoint where weâre looking at every six months potentially there. So, we are pretty open and committed to finding the right partner that will achieve our goals.
Daniel OâDay: Terrific. With that -- this is Dan. I just want to thank all of you for joining today. And I just wanted to emphasize how we believe our third quarter performance demonstrates the tangible impact of delivering on our strategy. After putting the right foundation in place over the past three years, weâre now seeing the positive momentum that continues to build. Itâs an exciting time for the Company as we realize our potential to do more, to reach further and to help more patients and the communities we serve. So, I just want to take this opportunity to thank all the colleagues again at Gilead and Kite to thank all of you for joining your interest in Gilead. And as usual, if you have any additional questions, please reach out to our Investor Relations team. As you know, theyâre more than happy to help. And thank you for joining today.
Operator: This concludes todayâs Third Quarter 2022 Gilead Sciences Earnings Conference Call. Thank you for your participation. You may now disconnect your line.