Jacquie Ross:

Thank you, Rebecca. Just after market closed today, we issued a press release with earnings results for the first quarter of 2024. The press release, slides and supplementary data are available on the Investors section of our website at gilead.com.

Daniel O'Day:

Thank you, Jacquie, and good afternoon, everyone. I want to start by thanking the Gilead teams for delivering a strong first quarter, which you see in our commercial performance and our clinical execution. Total product sales, excluding Veklury, grew 6% year-over-year to $6.1 billion, driven by higher demand across HIV, oncology and liver disease. Veklury sales continue to track with the rates of hospitalization for COVID-19 and reached a total of $555 million.

Johanna Mercier:

Thanks, Dan, and Good after noon, everyone. With the first quarter marking the ninth consecutive quarter of year-over-year growth for our base business, our teams delivered a strong start to 2024, notably navigating the seasonal first quarter dynamics and establishing a firm base on which we can continue to build this year.

We also have 2 once-weekly oral programs:

first, a combination of lenacapavir with Merck’s NRTTI, islatravir, in virologically suppressed people with HIV, expected to advance into Phase III later this year. And second, a combination of a capsid inhibitor with GS-1720, our novel oral integrase inhibitor. We're working to advance this combination into a Phase III study. This second program has the potential to be the first once-weekly oral regimen containing an INSTI agent. INSTIs are the standard-of-care treatment for HIV, and an important treatment option for clinicians who continue to prefer INSTI-based regimens.

Andrew Dickinson:

Thank you, Merdad, and good afternoon, everyone. Beginning on Slide 23. It was a strong start to the year with our base business up 6% year-overyear. The solid growth achieved across HIV, Oncology, and Liver Disease offset the decline in Veklury, with total product sales up 5% year-over-year to $6.6 billion. As expected, our base business was down quarter-over-quarter, primarily driven by seasonal inventory and pricing dynamics in HIV.

Operator:

[Operator Instructions]

Christopher Schott:

Just had a question on the HIV franchise and the impact from the Medicare redesign as we think about 2025, I know this is coming from more and more conversations. Can you just talk a little bit about how you're thinking about that impact to your franchise? And maybe just more broadly, can we directionally still think about top line growth and margin expansion for Gilead next year despite this headwind? So any color you can provide there would be appreciated.

Johanna Mercier:

Thanks, Chris, for the question. So we do expect an impact of the Part D redesign to be weighted towards our HIV business and expect our HIV growth in 2025 to be offset by the Part D redesign impact. So as a result, we expect our HIV sales to be roughly flat year-on-year in 2025. Having said that, overall, we expect our total business to grow despite the impact of the Part D we designed in 2025 with the top line, building momentum in 2020 -- beyond 2025, right, '26 and beyond. So we do expect growth in '25, but our HIV business, the demand of HIV will offset the impact of Part D.

Operator:

Our next question comes from Daina Graybosch at Leerink Partners.

Daniel O'Day:

Thanks, Daina. We've got Cindy Perettie here, so we'll go right over to her.

Operator:

Our next question comes from Umer Raffat of Evercore ISI.

Daniel O'Day:

Merdad is here, so I'll let him answer.

Operator:

Our next question comes from Tyler Van Buren at TD Cowen.

Merdad Parsey:

Thanks, Tyler, it's Merdad again here. So it's a little challenging because I can't share too many details now because we're under embargo for both of those. And obviously, happy to fill in a lot of the blanks once the data are released, and we can talk about it in ASCO. I think for EVOKE-01, we think there are a number of pipeline updates in our ASCO presentations that we have upcoming, which were -- we see as a real change for us and a real evolution of our pipeline overall and our ability to build our oncology pipeline and bring new options for patients.

Operator:

Our next question comes from the line of Geoff Meacham at Bank of America.

Daniel O'Day:

Thanks, Geoff. This is Dan. We're going to have Cindy Perettie answer that question, if you don't mind. So Cindy, over to you.

Operator:

Our next question comes from Michael Yee at Jefferies.

Merdad Parsey:

Thanks, Michael. This is Merdad again. As we've noted, I think, and as you talked about, the EVOKE-01 data in second line will be something that we discuss at ASCO and show those data. And the full data set is -- does motivate us to go forward in lung cancer and including with discussions with regulators. The unmet need in this population is great, and the data give us options, including discussions with health authorities and conducting follow-up trials. We'll be able to share more once the data are provided at ASCO, and so we look forward to having those deeper discussions once we can speak directly to the data.

Operator:

Our next question comes from Salveen Richter of Goldman Sachs.

Andrew Dickinson:

Salveen, it's Andy. Maybe I'll start with that one. In our prepared remarks, I highlighted that in the near term, we don't expect sizable M&A.

Daniel O'Day:

And Salveen, this is Dan. Just to answer the end of your question. I mean, we're always therapeutic area agnostic when we approach these. I mean, first of all, we've got robust portfolios around both urology and oncology and a building portfolio in inflammation. So we look, frankly, across those spectrums. Seladelpar is a great example of finding an opportunity within our liver disease or -- franchise and be able to use that channel. But equally, we'll look for opportunities and synergies that complement our portfolio across therapeutic areas. And that's our approach. We think that makes sense. We look for the most attractive science. And as Andy said, we have a lot in our hands now to work through and to execute on. And so we'll keep the bar very high.

James Shin:

I wanted to ask on Trodelvy's efforts in HR+/HER2-. DESTINY-Breast06 is going to have data pretty soon it seems. And you also have ASCENT-07. Sort of sounds similar to DESTINY-Breast04 versus TROPiCS-02. Can you share like how you think this landscape will play out with these 2 trials?

Operator:

Our Next question comes from Mohit Bansal, Wells Fargo.

Daniel O'Day:

Mohit, maybe I'll start and then have others add. First of all, I think just stepping back and thinking about the portfolio that we've built over the past 4 years now more than doubling the size of the portfolio and with significant advances in our HIV portfolio and oncology and with outside of cell therapy. So as we think about growth moving forward, I mean, first of all, I would say on the HIV side of the business, we have to constantly remind ourselves and others that in addition to the treatment market and the potential for long-acting treatment that we have a very robust program on, and we'll update you a little bit more on towards the second half of this year with an analyst event, we've got the PrEP market that is just beginning to kind of be dimensionalized.

Simon Baker:

One on seladelpar, if I may. And a question really around the competitive dynamics at launch. If all goes according to plan, your launch in August and Ipsen will launch Elafibranor in June. So I was just wondering if that really makes any difference. You've obviously got far greater infrastructure than Ipsen. Is it too early for them to steal in March? Or paradoxically thus having somebody else on the market promoting PBC actually raise disease awareness and help the situation? So any color around the dynamics at launch would be very helpful.

Operator:

Our next question comes from Brian Skorney at Baird.

Merdad Parsey:

Thanks, Charlie. This is Merdad. Frontline is a challenge given the -- what is currently the background standard of care. But as you know, we think that seladelpar is going to bring a lot of benefit to a lot of patients, especially given the pruritus and the potential for getting to patients earlier in their course will be really important for us. And so we have to see how the market starts to respond to the presence of seladelpar in the second line. And recall, I think the other thing to recall or think about is the -- how long people actually get frontline therapy before moving on to second-line therapy, given the efficacy profile of the frontline therapies and the fact that there haven't been any options, one could anticipate that patients are moved to second-line therapy relatively early in their treatment course and making -- moving up formally for registrational trials to the frontline potentially superfluous. So I think we'll see how that plays out in the market. And once we see our label and all those sorts of things, so we'll be able to update more after that.

Brian Abrahams:

PURPOSE 1 is obviously an upcoming readout. So I wanted to clarify some elements of its unique design, specifically what's the sensitivity of assessing when HIV infection occurred to accurately project the control infection rate? And then how do you control for potential intrinsic differences in risk behavior that the screened out group serving as the control may have versus individuals who are -- who make it into the trial?

Operator:

Our next question comes from Terence Flynn at Morgan Stanley.

Cindy Perettie:

Thanks, Terence, for the question. So on the commitment to anito-cel, we're -- as it relates to Parkinson's, we absolutely feel that we're differentiated potentially on both safety and efficacy. As we noted earlier, we have not observed the neurotox that some of the other constructs have observed, and we'll continue to monitor it, but we feel great about the profile right now. And then the efficacy profile, early signals are we think we will be equivalent or could be best-in-class. So we're 100% behind anito-cel and we're looking forward to bringing those data soon.

Operator:

Our last question comes from Carter Gould at Barclays.

Cindy Perettie:

Yes. No, we feel very confident that we're going to return to growth in the second half of the year, as we stated. I think just as a reminder, we had shared in quarter 4 our guidance was that we'd be flat to slightly down in quarter 1. And part of that is due to the restructure. So we are putting our strategy into play. We feel very confident about the approach we're taking in the U.S. And we now are looking at having almost a fully stacked sales team back out and working hard. I think a piece that we need to talk about as well as the market dynamics. So the things we're observing. We're observing out-of-class competition with the bispecifics, the ATC constraints that we've spoken about in the past based on multiple myeloma constructs coming in. But what we're seeing is a lot of the hospitals and ATCs are working through those constraints, and we feel really confident about the second half of this year.

Jacquie Ross:

Thank you, Dan. To close, just one housekeeping item. I can share that we are tentatively planning to release our second quarter 2024 earnings results on Thursday, August 8. Please note that this is day is provisional and could be changed to accommodate scheduling conflicts that arise between now and then. As always, we will announce our confirmed date following the close of the second quarter. We appreciate your continued interest in Gilead and look forward to updating you on our progress throughout the quarter. With that, we'll close our call for today. Thank you.

Jacquie Ross:

Thank you, Operator, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the fourth quarter and full year of 2023. The press release, slides, and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today’s call will be our Chairman and Chief Executive Officer, Daniel O’Day; our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. After that, we’ll open the call to Q&A, where the team will be joined by Cindy Perettie, the Executive Vice President of Kite. 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 2024 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. With that, I’ll turn the call over to Dan.

Johanna Mercier:

Thanks Dan, and good afternoon, everyone. Beginning on Slide 8, total product sales for the full year were at the high-end of our guidance range at $26.9 billion, reflecting solid base business growth, with total product sales, excluding Veklury, up 7% year-over-year to $24.7 billion. This was almost entirely offset by the expected decline in Veklury sales. For the full-year, Veklury sales were $2.2 billion, reflecting the uptick in hospitalizations at the end of 2023, though still below levels seen in 2022. Turning to the fourth quarter on Slide 9, total product sales were $7.1 billion, down 4% year-over-year. Our base business sales were roughly flat year-over-year at $6.3 billion, primarily driven by higher Oncology sales, offset by lower HIV sales due to changes in channel mix that resulted in lower average realized price, in addition to the expected decline of our portfolio of non-promoted products. Moving to Slide 10, our HIV business delivered very strong results for the full-year, up 6% year-over-year to $18.2 billion and contributing almost $1 billion in base business growth, primarily driven by demand, as well as higher average realized price due to channel mix and inventory dynamics. More specifically, almost half of the full-year HIV growth was driven by higher demand, most notably by Biktarvy which delivered solid double-digit year-over-year growth of 14%, with annualized revenues now more than $12 billion. Already the clear market leader, Biktarvy continues to demonstrate impressive share gains, growing almost 3% year-over-year in the fourth quarter of 2023, to approximately 48% share in the US. This growth once again outpaced all other branded regimens for HIV treatment, and represented the 22nd quarter of consecutive year-over-year share gains. For the fourth quarter, as highlighted on Slide 11, HIV sales of $4.7 billion reflected strong demand in line with our expectations. On a year-over-year basis, this was offset by lower average realized price due to channel mix that was notably favorable in the fourth quarter of 2022, and resulted in a decline of 2%. Sequentially, sales were up 1%, similarly driven by strong demand as well as favorable inventory dynamics, partially offset by lower average realized price due to channel mix. As we have noted previously, the pricing tailwinds we saw in the second half of 2022 and the first half of 2023 are not expected to repeat, and will make year-over-year comparisons more challenging in the immediate term, as we saw in the fourth quarter. As a reminder, quarterly HIV growth is, in general, significantly more variable and less indicative of overall trends than the full year, particularly as certain quarterly pricing and inventory dynamics tend to normalize over the course of the year. Factors include, first, gross-to-net adjustments which can be difficult to forecast due to the lag between product sales and claim payments that frequently occur in different quarters. Second, the timing of bulk government purchases which contribute to overall demand but can have a significant, negative impact on pricing in the quarter in which they occur. For example, certain discounted government segments are unpredictable in terms of bulk order timing, and this impacts overall average realized price. And then finally, the inventory build by subchannel wholesalers and customers that typically occurs towards the end of the year. Historically, this happens in the fourth quarter. In 2023, we saw the build start in the third quarter and continue, albeit to a lesser extent relative to prior years, into the fourth quarter. Overall, despite these quarterly variables, we remain confident that overall demand trends are strong and unchanged. With our HIV treatment market share above 70% in US and above 40% in PrEP, Gilead remains well-positioned to continue delivering demand-driven growth. For 2024, we expect HIV sales to grow approximately 4%, reflecting, annual treatment demand growth of 2% to 3%, Biktarvy market share gains and continued double-digit growth in demand for HIV prevention. In terms of quarterly HIV revenue, keep in mind that the first quarter is always impacted by the reset of patient copays and deductibles. Additionally, we’ve historically seen inventory build-up in the fourth quarter that has led to notable draw-downs by wholesalers in the first quarter. In the first quarter of 2023, this contributed to HIV sales declining 12% sequentially, and we expect a similar decline in the 10% to 12% range for the first quarter of 2024. The continued strong performance of both Biktarvy and Descovy for PrEP are shown on Slide 12. Overall, Gilead’s leadership in HIV is unmatched, with a solid commercial portfolio and robust pipeline of potentially best-in-class regimens to serve the daily oral, long-acting oral, and long-acting injectable markets. And I can share that we are off to a strong start in terms of HIV demand, which gives us confidence in our full year expectations for 2024. Moving to Liver Disease portfolio on Slide 13. Sales of $2.8 billion for the full year highlight the consistently strong and stable contribution from our Liver Disease portfolio. In the fourth quarter, sales were $691 million, flat year-over-year and down 2% sequentially, primarily driven by unfavorable pricing dynamics, offset by higher HCV market share and our efforts to increase linkage to care, in addition to growing HDV demand in new and existing European geographies. In HCV, we continue to reinforce Gilead’s leadership with market share of over 60% in the US and over 50% in Europe. While we continue to expect the rate of HCV new starts to trend downwards over time, given the curative nature of our medicines, demand growth in both HDV and HBV is largely offsetting that headwind. Onto Slide 14. Veklury sales continue to be highly variable with the fourth quarter down 28% year-over- year, though up 13% sequentially due to higher COVID-related hospitalizations in the fourth quarter. For the full-year, Veklury sales of $2.2 billion exceeded the expectations we set out at the beginning of 2023. Turning to Slide 15, our Oncology business has achieved an annualized run-rate that now exceeds $3 billion with strong fourth quarter sales of $765 million, up 24% year-over-year. In just three years, Trodelvy revenue has grown to more than $1 billion, and we continue to see strong growth across our approved indications. And in Cell Therapy, sales approached $2 billion in 2023 and Kite remains firmly established as the leading provider of CAR T-cell therapies globally. Looking more closely at Trodelvy on Slide 16, sales for the full year were $1.1 billion, up 56% year-over-year. For the fourth quarter, sales were $299 million, up 53% year-over-year and 5% sequentially. With over 30,000 patients treated to date, Trodelvy’s solid demand trends continue to reinforce its robust clinical profile as the only TROP2-directed antibody-drug conjugate approved and available in multiple tumor types. Awareness and utilization continue to increase, driving notable share gains. In second-line metastatic triple-negative breast cancer, approximately one-third of patients are receiving Trodelvy, reinforcing its position as the leading regimen across the US and other major markets. In pre-treated HR+/HER2- metastatic breast cancer, we’re encouraged to see share growth overall, driven by increasing adoption in the IHC0 setting as well as continued use in HER2-low. Additionally, we look forward to potentially making Trodelvy more broadly available in metastatic bladder cancer. Data from the confirmatory Phase 3 TROPiCS-04 study in the first half of the year could enable global filings and subsequent launches, as well as potentially drive adoption in the US, altogether expanding Trodelvy’s potential reach to nearly 25,000 second-line plus patients with metastatic bladder cancer. Turning to Slide 17, and on behalf of Cindy and the Kite team, Cell Therapy sales of $1.9 billion in 2023 grew 28% from 2022, driven by impressive growth, particularly outside the US as we expanded our network of authorized treatment centers, and secured reimbursement following recent approvals. In the fourth quarter, Cell Therapy product sales were $466 million, up 11% year-over-year and down 4% sequentially, with strong growth in both Yescarta and Tecartus in Europe and other international markets, offset in part by near-term headwinds for Yescarta in the US, from both in-class and out-of-class competition. As previously discussed, CAR T class share of eligible second-line plus large B-cell lymphoma patients remains at roughly 15% in the US as growth continues to be slower-than-anticipated despite the compelling clinical data that suggests these therapies are potentially transformative for many patients. In Europe and other markets, CAR T class share in this same second-line plus setting continues to be stronger, at approximately 30%. Following a restructuring in November, the Kite team has been focused on extending the reach of cell therapies from primarily academic medical centers to community practices, especially in the US. In late 2023, we established partnerships with leading community networks, which include over 1,750 physicians nationally. We are certifying affiliated practices to become authorized treatment centers to provide Kite cell therapies. So far, we’ve made notable headway across centers in the southeast United States, for example, that operate over 40 locations to serve cancer patients. We expect to see the initial impact of these initiatives in mid-2024. In the meantime, we expect our Cell Therapy business to be flat to slightly up in the first quarter of 2024 compared to the fourth quarter of 2023. Importantly, alongside our 96% reliability rate, we’re also thrilled to share that we have shortened our manufacturing time in the US by two days for Yescarta, bringing our anticipated median turnaround time to 14 days. This further extends our industry leadership in terms of manufacturing, and the Kite team continues to innovate in this critical element of the cell therapy business. We look forward to inviting you to visit one of our manufacturing facilities later this quarter during an analyst and investor event. In conclusion, I would like to thank our teams for a strong 2023 performance and setting up such great momentum for continued growth in 2024. The team is excited to continue to make our medicines accessible to all those who can benefit from them. With that, I’ll hand the call over to Merdad.

Andrew Dickinson:

Thank you Merdad, and good afternoon, everyone. Starting on Slide 26, we closed the year with total product sales of $26.9 billion, at the top-end of our guidance range due to a strong contribution from Veklury. For the full-year, total product sales, excluding Veklury, grew 7%, driven by growth in both HIV and Oncology. HIV increased 6% year-over-year, driven by Biktarvy, which grew 14% from 2022 to $11.8 billion. And, Oncology grew to $2.9 billion for the full year, an increase of $792 million or 37% from 2022. Altogether, total product sales, excluding Veklury were $24.7 billion, modestly below the lower-end of our full-year guidance range largely due to quarterly pricing variability in HIV in the fourth quarter. Importantly, HIV volumes were in line with our expectations and we are confident in our full-year revenue growth expectations for HIV in 2024. Veklury revenue of $2.2 billion exceeded our guidance of approximately $1.9 billion, and reflected higher hospitalization rates in the latter part of 2023. Compared to 2022, full year Veklury revenue declined as expected, and represented a headwind of more than $1.7 billion to total product sales. This was largely offset by almost $1.7 billion in growth from our base business, resulting in roughly flat total product sales year-over-year. On Slide 27, our non-GAAP results were largely as expected, including gross margin and operating expenses, notably R&D which showed disciplined moderation as we progressed through 2023. Non-GAAP EPS was $6.72, and within our guidance range despite the incremental $0.10 cents of acquired IPR&D associated with the Arcellx and Compugen partnerships that we announced following our guidance revision in November 2023. A quick note that our GAAP results were impacted by some restructuring expenses, primarily related to our manufacturing strategy and our activities at Kite. As we discussed in the later part of 2023, we have been taking steps to evolve our business model and expense structure to set us up for a strong 2024. As a result, our GAAP results reflect approximately $500 million of associated expenses in 2023, or $0.40 per share, and contributed to GAAP EPS of $4.40 for the full year. Moving to our fourth quarter results starting on Slide 28. Total product sales, excluding Veklury, were $6.3 billion. Including Veklury, total product sales of $7.1 billion were down 4% from the same quarter in 2022. As expected, Veklury sales decreased year-over-year due to lower rates of COVID-19 related hospitalizations. On Slide 29, you can see that on a non-GAAP basis, product gross margin was 86%, down 66 basis points from the prior year. R&D expenses were $1.5 billion, down 6% year-over-year. Acquired IPR&D was $347 million, reflecting payments related to our collaborations with Arcellx, Assembly Biosciences, and Compugen and our XinThera acquisition. SG&A was $1.6 billion, down 21% year-over-year, primarily related to the 2022 charge for the termination of the Everest collaboration that did not repeat in 2023. Excluding this 2022 charge, non-GAAP SG&A was down 1%. Operating margin was 39%, up from 37% in the fourth quarter of 2022, and effective tax rate in the fourth quarter was 17%, flat compared to the prior year. Overall, our non-GAAP diluted earnings per share was $1.72 in the fourth quarter, compared to $1.67 in the fourth quarter of 2022. I’ll move now to Slide 30 and our guidance which assumes a generally stable macro environment including FX at current rates. For the full-year 2024, we expect total product sales in the range of $27.1 billion to $27.5 billion. We expect total product sales, excluding Veklury, in the range of $25.8 billion to $26.2 billion, representing growth of 4% to 6% for our base business year-over-year. Within total product sales, and as Johanna discussed, we expect HIV revenue to grow approximately 4%, and we expect Veklury sales of approximately $1.3 billion although, as always, we caution you that Veklury sales remain highly variable depending on hospitalization rates. We do not expect to update our Veklury guidance until our third quarter earnings call, absent a very clear trend in COVID-19 infections. Moving to the rest of the P&L, and on a non-GAAP basis, we expect product gross margin to range between 85% and 86%, modestly lower than the 86.1% reported in 2023 due to the growing contribution from our oncology portfolio. We expect R&D to grow by a low to mid-single digit percentage compared to 2023, highlighting the substantial moderation in expense growth as we approach a steadier state of active Phase 3 programs. We expect acquired IPR&D to be approximately $350 million. Consistent with our approach in 2023, we will highlight incremental acquired IPR&D expenses as we announce new transactions and update our guidance each quarter. And we expect SG&A to decline by a mid-single digit percentage compared to 2023. Excluding the $525 million legal settlement in 2023, we expect SG&A to grow in the low-to-mid single digit percentage range compared to SG&A of $5.5 billion in 2023, excluding this settlement. As a result, we expect our operating income for 2024 to be between $11.2 billion and $11.7 billion. We expect our effective tax rate to be approximately 19%. And finally, we expect our non-GAAP diluted EPS to be between $6.85 and $7.25 for the full year, and GAAP diluted EPS to be between $5.15 and $5.55. As a reminder, for the first quarter of 2024, we expect HIV to decline sequentially in the 10-12% range from Q4 2023, similar to what we saw in the first quarter of 2023, and Cell Therapy to be flat to slightly up from Q4 of 2023. Moving to capital allocation on Slide 31, our priorities have not changed. In 2023, we returned $4.8 billion to shareholders. This included $3.8 billion in dividend payments and $1 billion in share repurchases. Fourth quarter share repurchases were $150 million. For 2024, we announced today a 2.7% increase in our quarterly cash dividend to $0.77 per share and we remain committed to growing our dividend over time, in-line with earnings growth. You can also expect to see continued investments in our business both internally and externally through select partnerships and business development transactions. Finally, we will continue to utilize share repurchases to offset equity dilution, as well as additional repurchases on an opportunistic basis. With that, I’ll invite the Operator to begin the Q&A.

Tyler Van Buren:

Hey guys, good afternoon. Regarding the 2024 product sales guidance, I understand you guys are guiding to a near $900 million sales drop-off year over year for Veklury, but the guidance, ex- Veklury looks to be a 5% year-over-year growth at the midpoint versus 7% for this year. So what do you view as some of the levers to ex-Veklury product sales guidance in 2024 where we could see upside?

Andrew Dickinson:

Hey, Tyler. It's Andy. Thanks for the question. You're absolutely right. Our product sales guidance for products excluding Veklury implies 4% to 6% growth year-over-year, again continuing the trend of strong growth that you've seen over the last two years. I'd also highlight that it implies a substantial moderation of our operating expense growth, which is an important piece of the puzzle that we spent a lot of time talking about. To your question specifically on product growth, the growth drivers for 2024 are the same as the growth drivers last year. You continue to see strong growth in our HIV business. As you see in the quarter, you really need to focus on the full year for the HIV to see the growth trend. And we saw another year of very strong growth across our HIV business for the full year in ‘23. We expect the same thing in ‘24. And you heard on the call that we're expecting at least 4% growth for the HIV business next year. And then of course, the Cell Therapy business and Trodelvy are expected to continue to grow as well. So those are the key growth drivers. We look forward to updating you throughout the year, but we're excited about the set up as we move into 2024.

Operator:

Thank you so much. Of course, Thank you so much for your question. Our next question comes from the line of Salveen Richter with Goldman Sachs. Your line is now open.

Daniel O’Day:

Great. Thanks, Salveen. This is Dan. Maybe I'll start and then ask others to add, but appreciate the question. I think just to reinforce our M&A strategy, I mean, nothing has changed from a business development perspective. And particularly, that's against the context of the background of nearly doubling our clinical trials underway over the past four years, multiple late stage results. As you know, we're expecting more than 20 results still this year and against the backdrop of no significant patent expirations in our business until early parts of the next decade. So I think we'll continue to be opportunistic about pursuing business development in the three areas that we are focused on, which is obviously Virology, Oncology, and Inflammation. We'll be driven by the science. We continue to articulate that building our late research, early development pipeline is probably one of our biggest focuses and we'll continue to look at later stage deals as they fit into our portfolio and our range. It might also be important to note that we are back to pre-immunomatics levels now relative to our leverage ratios. And so we're comfortable with our ability to put capital to work. But nothing has changed and we feel we have everything within Gilead right now to achieve our ambitions over the second half of this decade.

Operator:

Of course. The next question comes from a line of Carter Gould with Barclays. Your line is now open.

Daniel O’Day:

Thank you, Leon. So we've got Cindy Perettie here to handle that. Thanks.

Jacquie Ross:

Great. Victoria, we are ready for our next question, please?

Terrence Flynn:

Thanks so much for taking the question. I was just wondering if you could speak to your confidence level in Trodelvy in the front line, non-small cell lung trial setting here, given the EVOKE-01 data, and if you're considering any potential changes to that frontline trial as a result? Thank you.

Operator:

Our next question comes from a line of Umer Raffat with Evercore. Your line is now open.

Daniel O’Day:

All right. I think Andy is going to take this one.

Operator:

Our next question comes from the line of Olivia Brayer with Cantor Fitzgerald. Your line is now open.

Cindy Perettie:

Thanks a lot, Olivia, for the question. This is Cindy. We continue to be the leaders in Cell Therapy. And I think the piece that Johanna mentioned is that we are looking at how do we expand beyond the existing ATCs. So the dynamics that we observed this quarter were capacity constraints within the existing ATCs that we have. We saw a little bit of in-class and out-of-class competition. And in parallel, we have been continuing to work on expanding our ATCs. So today we have over 400 ATCs globally. We are moving out of urban centers and those academic centers into the community to meet patients where they are. As Andy suggested, that -- bringing up those ATCs in the community is going to be really important part of our future strategy, but it does take a little bit longer than bringing an academic center up. So we expect to be flat to slightly up in quarter one, and you'll start to see that return to growth in the second half of the year.

Geoff Meacham:

Great, thank you. We have another one on Cell Therapy but more on the profitability. This is a franchise that's almost $2 billion in sales. You guys have improved the turnaround time. You've reached scale. You've treated a ton of patients. What can you tell us about the progress that you've made to making this a profitable franchise? I'm just thinking not for the current products, but also looking out five years plus. Thank you.

Cindy Perettie:

I think the only thing I would add to Andy's comment is beyond the three manufacturing facilities, we also have our own viral vector facility. So given the fact that viral vector has had some supply challenges, That's something that we are not suffering from. So we own these sort of end-to-end cost of goods for our products.

Operator:

Of course. Our next question comes from the line of Michael Yee with Jefferies. Your line is now open.

Johanna Mercier:

Sure, Michael. Hi, it's Johanna. Let me take that one. So what you're referring to is actually we saw some pricing favorability in Q4 of ‘22 and the first half of 2023. That pricing favorability was namely driven by actually just the inflation being so high and therefore some of our rebates are actually based on that inflation rate. And so therefore there was actually upside during those quarters. We knew that that was not going to repeat itself. So we had kind of shared with you, I think, from Q3 on that this was going to normalize. And so that was kind of what happened in the first half of 2023. As we think about the second half of 2023, and mainly the fourth quarter, what we did see there is very strong demand, and that continued throughout the whole year, but we had some fluctuations, some quarterly variabilities, mainly due to channel mix and more government channels resulting in lower average realized price because of higher rebates. And so you really have to look at it on a full year basis. And so that's why it's so important to know that HIV performance on it will always have some quarterly variabilities. And we always need to look at the full year to really get the full picture of what's going on. HIV for the full year of 2023 grew 6% with nearly $1 billion in revenue growth driven by Biktarvy obviously growing at 14% and at 48% share with 3% share growth in that year outpacing all competitors. And so we're really proud of the demand driven results that we've seen in 2023. And as we think about 2024 and our predictions for ‘24, we believe that our expectations is going to be in line with HIV treatment, which is still about 2 to 3 points. Layer on top of that, the demand growth from Biktarvy and Descovy for PrEP, and that's why we're expecting about a 4% growth in HIV. So that gives you the full picture of what's going on and what happened in the past. So we don't expect that on a yearly basis, but on a quarterly basis we do expect that variability and I would expect that that will continue as we move forward.

Chris Schott:

Great. Thanks so much for the question. Can you just talk about the TIGIT program and what drove the decision to step up your investments here? And maybe as part of that, can you elaborate a little bit more on the decision to de-emphasize the PD-L1 high population in favor of the [indiscernible]. So any color there would be appreciated. Thank you.

Merdad Parsey:

And excuse me, this is Merdad. I think you're referring to the ARC-10 study. And as you may recall, we started that study together with Arcus back in 2021 outside the US with a chemo comparator arm. And at the time, there was really limited access to PD-1 -- PD-L1 inhibitors outside the US. And so, we subsequently updated that study march of last year to include PD-L1 inhibitors as the standard of care was evolving. It took us time to get this all going. And while that was happening, we had a number of competitors launch similar trials in the space with their TIGIT antibodies. So as a result of all that, the enrollment for the ARC-10 trial wasn't as robust as we had hoped for and as it had been. And STAR-121, which is the all-comer study, was recruiting very well. And so we decided to really prioritize our efforts for that all-comers population where we think we could be first or second in class. And it was really a prioritization to ensure that we could stay ahead and keep moving the molecules forward as quickly as possible.

Brian Abrahams:

Hi, good afternoon. Thanks so much for taking my question. I realize this is pending KOL and regulatory discussions, but I was wondering if you could frame the potential next steps for the PD-L1 poor responders. Do you think this is a fileable population for Trodelvy in second-line lung, or might you also consider running another study in that population? And along those lines, I'm curious what you're expecting to see from the updated EVOKE-02 data this year and how that might shape your overall plans for Trodelvy in lung? Thanks.

Jacquie Ross:

Thank you and good afternoon everyone. Just after market close today, we issued a press release with earnings results for the third quarter of 2023. The press release, slides, and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day; our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. After that, we'll open the call to Q&A, where the team will be joined by Cindy Perettie, the Executive Vice President of Kite. 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 supplemental data sheet, as well as on the Gilead website. With that I'll turn the call over to Dan.

HER2-:

Our Phase 2 EVOKE-02 trial showed a strong objective response rate in the PD-L1 high cohort which supports proof of concept for our ongoing Phase 3 EVOKE-03 trial. Important new data at ESMO for Trodelvy's Phase 2 TROPiCS-03 basket trial in our small cell lung cancer and head and neck squamous cell carcinoma cohorts. All of these milestones reinforced our conviction in Trodelvy as our cornerstone oncology asset with pan tumor potential.

GS-1720:

In HIV prevention, we completed enrollment ahead of schedule in our Phase 3 PURPOSE-1 trial investigating once every six months lenacapavir subcutaneous injection and announced plans to initiate the Phase 2 PURPOSE-5 trial in 2024 to support access in Europe.

1:

In HIV prevention, we completed enrollment ahead of schedule in our Phase 3 PURPOSE-1 trial investigating once every six months lenacapavir subcutaneous injection and announced plans to initiate the Phase 2 PURPOSE-5 trial in 2024 to support access in Europe.

Johanna Mercier:

Thanks, Dan, and good afternoon, everyone. I'm pleased to share the details of another strong quarter for Gilead and would like to thank the teams that have delivered 10% growth in our base business in the first nine months of 2023. Our third quarter results represent the eight consecutive quarter of year-over-year growth in our base business, illustrated strong commercial execution and revenue growth as our virology and oncology products impact more patient lives. In the third quarter of 2023, total product sales excluding Veklury were up 5% to $6.4 billion as shown on Slide 8, with notable growth in our oncology and HIV businesses partially offset our lower HCV sales. Total product sales including Veklury were $7 billion with a solid base business performance contributing $305 million of growth, offset as we expected by lower Veklury sales compared to the same quarter last year. Moving to HIV on Slide 9, the treatment market continued to grow in line with our expectations of 2% to 3% annually. And as we've discussed previously, a favorable pricing dynamics in recent quarters have begun to normalize with HIV sales growth more closely mirroring market and demand growth. This was evident in the third quarter where HIV sales were up 4% year-over-year to $4.7 billion, driven by higher treatment and prevention demand and higher channel inventory, partially offset by lower average realized price due to a shift in channel mix. Sequentially, sales were up 1%. Looking to the full year, we continue to expect HIV product sales to grow slightly more than the 5% reported in 2022. Turning to Slide 10, third quarter Biktarvy sales were $3.1 billion, up 12% year-over-year, driven by higher demand as well as higher channel inventory. Sequentially, sales were up 4%. Once again, Biktarvy gained market share up over 2% year-over-year in the U.S. to over 47% share in the third quarter. Thanks to its robust clinical profile, Biktarvy remains the number one prescribed regimen for new starts and number one in treatment switches across most major markets, including the U.S. Descovy sales in the third quarter were $511 million, up 2% year-over-year with strong year-over-year growth in demand for Descovy for PrEP offset by less favorable pricing dynamics to ensure broad access ahead of the potential launch of lenacapavir as early as late 2025. The U.S. PrEP market grew about 15% year-over-year and Descovy for PrEP continued to maintain more than 40% market share due to its strong clinical profile and despite the availability of other regimens including generics. Moving to the liver disease portfolio on Slide 11, sales were down 10% year-over-year to $706 million, primarily due to the resolution of a rebate claim in HCV recognized in the third quarter of 2022, as well as other pricing dynamics. From a demand perspective, HCV new starts increased compared to the third quarter of 2022 in both the U.S. and Europe, driven by our continued efforts to link HCV patients to care. Given the curative nature of our treatment, we expect HCV new starts to trend down overtime, but are pleased that we are maintaining 50% to 60% market shares in the U.S. and Europe and that our labor portfolio more broadly has stabilized from a revenue perspective. On to Slide 12, Veklury sales continued to be highly variable and declined 31% year-over-year in the third quarter to $636 million. On a quarter-over-quarter basis, sales were up 149%, driven by an uptick in hospitalizations during the third quarter. And over the last few weeks, we have seen a slowdown in COVID related hospitalization. Veklury's strong clinical profile continues to be recognized most recently by the FDA and the European Commission for use in patients with mild-to-severe hepatic impairment. While the COVID environment remains ever changing, Veklury's performance in the third quarter further reinforces its established role as a key part of the standard of care for patients hospitalized with COVID-19. Moving to Slide 13, our oncology business achieved another strong quarter with sales up 33% year-over-year to $769 million, representing an annual run rate that now exceeds $3 billion. With clear momentum and a solid infrastructure in place, in addition to our compelling clinical pipeline, we look forward to providing more patients with potentially new and effective options. Looking at Trodelvy on Slide 14, sales were up 58% year-over-year and 9% sequentially to $283 million. As a reminder, Trodelvy is the only approved TROP2-directed antibody drug conjugate and to date, we have delivered this therapy to more than 20,000 patients, reinforcing the clinically meaningful benefit Trodelvy can provide across multiple tumor types.

Merdad Parsey:

Thank you, Johanna. The clinical highlight of our third quarter was the release of our promising Phase 2 data for Trodelvy in combination with pembrolizumab in first line metastatic non-small cell lung cancer, highlighting Trodelvy's potential to bring a much needed treatment alternative for patients. More broadly, we continue to progress our increasingly diverse pipeline of 60 ongoing clinical programs spanning virology, oncology and inflammation. Starting with our virology programs on Slide 17, we have 10 clinical programs with our long-acting capsid inhibitor lenacapavir including two Phase 3 studies underway in PrEP. I'm pleased to share that we have completed enrollment earlier than anticipated for our Phase 3 PURPOSE-1 trial evaluating lenacapavir for prevention in adolescent girls and young women. Our Phase 3 PURPOSE-2 trial insists [ph] men and trans women and men and non-binary people continues to enroll well and we could have an opportunity to share data from one or both PURPOSE trials in late 2024 ahead of schedule. We are targeting our first approval for lenacapavir in production in late 2025, potentially making lenacapavir the first six-monthly dosing regimen available for PrEP. Turning to treatment, we continue to make strong progress on evaluating nine candidate partners for lenacapavir. Of the remaining candidates, six are already in Phase 1 or 2. We expect to share updates on at least four of these in 2024, including data from our Phase 1 trial of GS-1720, our once weekly long-acting oral integration inhibitor to be combined with lenacapavir and from our Phase 2 ARTISTRY-1 trial evaluating once daily oral combination of lenacapavir and bictegravir for virologically suppressed treatment experienced people living with HIV. We plan to share results from both trials at a conference in early 2024 and we look forward to advancing these programs into the next phase of development. We're also pleased to share that enrollment for our Phase 2 program evaluating our lenacapavir plus bNAbs combination dosed every six months is progressing very well and is another program we expect to update you on next year. Putting this all together, our data continues to support our confidence that lenacapavir has the potential to transform HIV treatment and prevention globally. Turning to oncology on Slide 18. To date, Trodelvy has been delivered to more than 20,000 patients across three approved indications since our launch three years ago. Trodelvy remains the first and only marketed TROP2-directed antibody drug conjugate to achieve meaningful overall survival benefit in two of its indications. With that said, we're seeing both growing real world evidence and clinical trial data supporting not only the approach we're taking for Trodelvy's clinical development across tumor types, but also Trodelvy's unique ADC construct. In particular, trodelvy is the only ADC to have a high 7 to 8 drug to antibody ratio that's able to deliver a highly potent SN-38 payload directly into the tumor microenvironment through its hydrolyzable linker. As a result, in our studies to date, Trodelvy has shown a potentially differentiated safety profile with regards to ILD and stomatitis. We look forward to sharing more emerging Trodelvy data in 2024 as we continue to expand Trodelvy across tumor types and lines of therapy.

024:

As a reminder, we are currently enrolling patients with first line PD-L1 high metastatic non-small cell lung cancer in our registrational Phase 3 EVOKE-03 study. Preliminary data from the PD-L1 TPS less than 50% cohort has also been encouraging, demonstrating an ORR of 44% similar to previous trials that evaluated pembro plus chemotherapy. These results inform our plans to expand into broader first line non-small cell lung cancer patient populations across all PD-L1 expression levels. We're looking forward to sharing further analysis from EVOKE-02 that will highlight the efficacy of Trodelvy and pembro across both squamous and non-squamous histologies in first line metastatic non-small cell lung cancer patients.

042:

As a reminder, we are currently enrolling patients with first line PD-L1 high metastatic non-small cell lung cancer in our registrational Phase 3 EVOKE-03 study. Preliminary data from the PD-L1 TPS less than 50% cohort has also been encouraging, demonstrating an ORR of 44% similar to previous trials that evaluated pembro plus chemotherapy. These results inform our plans to expand into broader first line non-small cell lung cancer patient populations across all PD-L1 expression levels. We're looking forward to sharing further analysis from EVOKE-02 that will highlight the efficacy of Trodelvy and pembro across both squamous and non-squamous histologies in first line metastatic non-small cell lung cancer patients.

FOLFOX:

Although anti-TIGIT will not work in every tumor type, we're excited to see that DOM has shown encouraging efficacy and tolerability in the tumor types we have advanced into Phase 3 studies including first line non-small cell lung cancer and upper GI cancer. Turning to cell therapy on Slide 21, we are continuing to work to expand the benefits of cell therapy to even more patients with eight ongoing trials in earlier lines, new indications or new settings. We also have an extensive early stage pipeline where we are exploring allergenic CAR-Ts including healthy donor and IPSC derived cell therapies as well as natural killer and invariant natural killer T cell therapies.

ddBCMA's:

Finally, and before I hand over to Andy, the teams progress on key 2023 clinical milestones is shown on Slide 22. As is expected with the diverse and large clinical portfolio, not all our programs will benefit patients the way we hope they will and the ENHANCE and ENHANCE-2 programs evaluating magrolimab have both been discontinued based on futility analyses. The ENHANCE-3 study remains under partial clinical hold in frontline unfit AML and we continue to evaluate the progress of this and other Phase 2 solid tumor trials for magrolimab. With regards to some of the remaining milestones for 2023 as referenced previously, we look forward to sharing data from ARTISTRY-1 at a medical conference in 2024. For our HIV prevention studies, we continue to expect to have our first patient in for the PURPOSE-3 and PURPOSE-4 clinical trials by the end of this year. Additionally, we remain on track to initiate our Phase 2 PALEKONA trial evaluating our potential first in class 222 inhibitor for ulcerative colitis later this year. Our 222 inhibitor represents one of our many oral agents for inflammation. Looking beyond 2023, we will share our target 2024 milestones in due course, but it's already clear that it will be a rich year for data updates for Gilead, including potential updates or regulatory filings for Obeldesivir, lenacapavir, Trodelvy and CAR-T ddBCMA. With that, I'll hand the call over to Andy. Andy?

Operator:

Thank you. [Operator Instructions] Our first question today goes to Geoff Meacham of Bank of America. Geoff, please go ahead, your line is open.

Merdad Parsey:

Sure. Hey, Geoff, this is Merdad. Thanks for the question. I would say that our DDI profile has been pretty well characterized and is in our label and laid out. As you noted lenacapavir is metabolized by CYP3A and like many other drugs in the class and we -- that's been available and labeled for quite some time. We don't anticipate any changes to our programs based on that. There are no adaptations that we are making in our clinical development program based on that. As you know, we're well on our way in our PURPOSE 1/2 lenacapavir for PrEP studies and have the approval and highly treatment experienced people and have not made any modifications based on any DDI concerns in those trials. And I'd encourage folks to take a look at the label. You can see what's laid out fairly clearly there.

Jacquie Ross:

Nadia, may we have our next question, please?

Michael Yee:

Thanks, great. And appreciate the question. Maybe from Merdad coming away from ESMO and some of the recent conferences, obviously a ton of Trop-2 data, and there's a lot of talk around the benefit, particularly in lung, for non-squamous versus squamous. And some of your competitors have modified their studies to be more focused on non-squamous. Can you maybe just talk about how you see the benefits here in the different populations and whether you would consider emphasizing or modifying to be a non-squamous as well to improve probability success? Thank you.

Jacquie Ross:

Nadia, next question please?

Daina Graybosch:

Thank you. A question about Kite. I wonder if you can talk through the specific barriers that are limiting uptake of CAR-T and the second-line large B cell lymphoma indication. And what do you think will be required to upshift the earlier line demand for cell therapy in a large B cell lymphoma, and maybe even a multiple myeloma as well?

Jacquie Ross:

Nadia, may we have our next question, please?

Chris Schott:

Great. Thanks so much for the question. Can you elaborate a little bit more on HIV channel mix dynamics this quarter and how you're thinking about that for 4Q and beyond? I know channel has been a bit of a tailwind over the past year or two. Seems like we're now may be starting to see some headwinds, at least sequentially. And I just was wondering how you think about that progressing from here? Thanks so much.

Jacquie Ross:

Thank you. Maybe I have our next caller, please.

Unidentified Analyst:

Hi. Thanks for taking our question. This is Adam on for Tim Anderson at Wolfe Research. Also on TROP2, just in light of competitor data, can you provide some more color on just latest thoughts on the competitive dynamics within the class? For example, if AstraZeneca gets a label for HR+ breast cancer in the second-line, and Trodelvy only has a label for the third-line, won't that displace Trodelvy? Thanks.

Daniel O'Day:

Yes, I would just add that we continue to expand our programs and continue to want to generate additional data for Trodelvy. So we are very comfortable with where we are. I think our ability to interact with our caregivers and patients now having been on the market for quite some time, is really helping us make sure that we get Trodelvy to as many patients who could benefit from it as possible.

Operator:

Of course, our next question goes to Salveen Richter of Goldman Sachs. Salveen, please go ahead. Your line is open.

Daniel O'Day:

Sure. Maybe I'll start with TIGIT and I'll hand it off to Cindy for the multiple myeloma discussion. Yes, I think, look, we find the data that we presented today at the ASCO plenary to really be promising for continued momentum for TIGIT. The data from an ORR standpoint, and I think importantly, the landmark PFS analysis are very promising. It's early data, it's single-arm data, and I think those are all caveats that are appropriate when looking at these. But when you think about the context around what the standard of care PFS and OS are, we think there's certainly promising signals that we could do better than that. So, obviously, what we need to do next is allow these data to mature in ARC-21. And then, of course, we have the 221 study. That is our Phase 3 study, where we will be comparing to standard of care in a randomized Phase 3 trial. We think the data shown today really will help us with momentum in accruing that trial and hopefully demonstrating the promise of TIGIT added onto standard of care, a standard of care like regimen with zim and FOLFOX. We're excited about that Phase 3 outcome, and it really gives us the opportunity to be, we think ahead on that indication compared to the competition in TIGIT. And Cindy, do you want to.

Jacquie Ross:

Thank you, Nadia. We're ready for our next question.

Tyler Van Buren:

Hey, guys, thanks for the presentation. I have another question, actually on the myeloma program. So assuming that Arcellx's CAR-T ddBCMA data continue to look great at ASH, and the IMAGINE-1 trial does later next year and leads to approval, how prepared have you guys gotten on the manufacturing front in the past year? And do you expect the launch to have a similar trajectory to Yescarta in terms of supply or be significantly better.

Jacquie Ross:

Thank you, Nadia. We're ready for our next question.

Brian Abrahams:

Hi there. Thanks for taking my question. It seems like the long acting HIV combos are moving ahead really well. I was wondering if you could talk a little bit more about the strategic role that the Lenacapavir, Bictegravir daily oral or the weekly 17/20 based combo could play in the HIV competitive landscape. Do you think these could move beyond treatment experienced patients on complex regimens into the earlier lines? Thanks.

Johanna Mercier:

Sure. Thanks for the question, Brian. I think the way we're looking at lenacapavir, bictegravir in the virologically suppressed really has to do with. We've set the standard of care with Biktarvy, and the opportunity now is to ensure that if for some reason there was a reason to switch Biktarvy from a tolerability profile or anything else that they have an option to go to that has a really interesting combination. Right. When you think about a capsid inhibitor as well as an integrase inhibitor. So for us, it's really about the optionality for patients and making sure that this could offer something a little bit different in the daily oral market. And I do think that this will also be a longer term strategy for us as we think about beyond Biktarvy's LOE in 2033. So I would go there and on the weekly just to start, and then I'll kick it over to Merdad to share with you our plans there. On the weekly oral, it's clear from the patient research that we've done in treatment that we really do see benefit not only the daily oral market, but also in the oral weekly, or even potentially even a little bit longer, as we think about what patients are asking for today. So as much as we're very interested in the long actings that are every three months or every six months. We are also making sure that we meet the needs of patients and their requests as they're looking at for some really don't like any injectables or sub Q, and really looking at that weekly oral as potentially expending a little bit the time they don't think about the fact that they have HIV.

Jacquie Ross:

Nadia, may we have our next question, please?

Terrence Flynn:

Thanks for taking the question. I was just wondering if you can provide any preliminary thoughts on 2024 spend or margins. Andy, thanks so much.

Jacquie Ross:

Nadia. Our next caller, please?

Evan Seigerman:

Hi, guys. Thank you so much for taking my question. I want one on kind of capital allocation as a function of competitiveness in your respective markets. For example, you have a great moat in virology. How do you think about investment there, say versus oncology, where it's a more competitive marketplace and where we're seeing incremental kind of benefit over time? Maybe some thoughts there. Thank you so much.

Merdad Parsey:

I would just add that our goal has been to diversify the portfolio. We remain committed and think one of our key competitive advantages is our track record and strength in virology. And I would agree with you, Evan, that's critical to our continued success and growth. And we also believe that having more diversity in our portfolio, whether its oncology or inflammation, is going to be really important to our long term future. So our capital allocation will happen on where the best data are, and we make those tradeoffs virtually every day.

Operator:

Our final question goes to Joe Catanzaro of Piper Sandler. Joe, please go ahead. Your line is open.

Johanna Mercier:

So maybe I'll start and then throw it over to Merdad first from a clinical standpoint, what we're thinking from a commercial standpoint, with the data that we saw, I think the standard of care is going to change in first line, clearly, with that data, and we see that as a potential opportunity to actually move up Trodelvy lines of therapy. So right now in the U.S., we do have accelerated approval in the U.S., and we're seeing about 15%, 16% share in bladder cancer, but later lines of therapy. So third line plus, I think with the opportunity to have Padcev kind of move up in the first line setting with Pembro. I think it'll be interesting to see how Trodelvy kind of moves up as we've seen a lot of sequencing from ADCs here as well. So that's in the here and now and maybe Merdad, you want to comment on the clinical development?

Operator:

Thank you. That's all the questions that we have time for today. I'll now hand back to Dan for any closing comments.

Operator:

Thank you. This now concludes today’s call. Thank you for joining. You may now disconnect your lines.

Jacquie Ross:

Thank you, operator, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the second quarter of 2023. The press release, slides, and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day; our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. After that, we'll open the call to Q&A, where the team will be joined by Cindy Perettie, the Executive Vice President of Kite. 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 supplemental data sheet, as well as on the Gilead website. With that I'll turn the call over to Dan.

Johanna Mercier:

Thanks, Dan, and good afternoon, everyone. The second quarter 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 second quarter of 2023, as shown on slide seven, total product sales excluding Veklury grew 11% year-over-year to $6.3 billion with year-over-year growth in each of our core franchises. This represents the seventh 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 Veklury sales, which were as expected given the lower hospitalizations. Altogether, total product sales including Veklury was $6.6 billion, up 7% year-over-year. Starting with HIV on slide eight. Second quarter sales of $4.6 billion 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 US, the market overall grew more than 2% in the first half of the year compared to the first half of 2022, 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 2023 compared to the first half of 2022, 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 nine. Biktarvy sales of $3 billion were up 17% year-over-year, driven by higher demand and favorable pricing dynamics, partially offset by lower channel inventory. With a market share up almost 3% year-over-year in the US, 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 US, with the 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 million, up 12% year-over-year. With awareness and utilization of HIV prevention higher than ever, the US market grew once again. And amidst this growth, we're pleased to see strong demand for Descovy for PrEP, up 14% year-over-year in the US, with a strong market share that has remained over 40%. With this strong foundation, we look forward to potentially adding lenacapavir as a six-monthly subcutaneous option for prevention as early as 2025. Moving to the liver disease portfolio on Slide 10, sales were up 4% year-over-year and 5% quarter-over-quarter to $711 million. 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 US, Europe, and Asia in the second 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 hundreds of thousands of patients. We're pleased to have received full marketing authorization for Hepcludex in HDV in Europe, a further recognition of the benefit this medicine brings to patients who have very limited therapeutic options. 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 $2.5 billion in sales a year. On to slide 11. Veklury sales declined in the second quarter as expected, reflecting lower hospitalization rates, with sales of $256 million, down 43% year-over-year. For those patients hospitalized and treated for COVID-19, a majority continued to receive Veklury, a testament to Veklury's robust clinical profile. Most recently, this has included decisions by the US-FDA and the European Commission to expand Veklury'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 five years, our oncology business has grown from less than $300 million and is now approaching an annualized run rate of $3 billion, 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 TROP2-directed ADC on the market with Trodelvy, and combined, our oncology portfolio extends the options for patients in eight indications. Looking in more detail at Trodelvy on slide 13, sales were up 63% year-over-year and 17% sequentially to $260 million, representing an annual run rate that exceeds $1 billion. We continue to be very pleased with the launch in pre-treated HR+/HER2- metastatic breast cancer, with strong awareness of our approval in US. 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 datasets across multiple tumor types, Trodelvy 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, sales in the second quarter were $469 million, up 27% year-over-year and 5% quarter-over-quarter. Yescarta showed continued growth with sales up 29% year-over-year to $380 million, primarily driven by strong underlying demand in the second and third-line settings for relapsed or refractory large B-cell lymphoma, both in existing, as well as new markets. Tecartus sales were $88 million, up 21% year-over-year, reflecting increased demand for relapsed or refractory adult acute lymphoblastic leukemia, as well as mantle cell lymphoma, primarily outside the US. We are excited about the opportunity ahead as the body of evidence supporting broader adoption of cell therapies continues to grow. The work that Kite has been leading to raise awareness in the 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 class share is the most important driver of our business over time. 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 second quarter, 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 a compelling portfolio of Gilead products that positively impacts millions of people around the world. And with that, I'll hand the call over to Merdad for an update on our pipeline. Merdad?

Andrew Dickinson:

Thank you, Merdad, 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 second quarter, with total product sales excluding Veklury 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 one percentage point. Total product sales were $6.6 billion, up 7% year-over-year, as strong execution in our base business more than offset the lower Veklury sales, as well as FX impact of $82 million. Moving to the rest of the P&L, on a non-GAAP basis, on slide 26. Product gross margin was 86.9%, up 131 basis points from last year. R&D was $1.4 billion, 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 investments 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&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&D was $236 million, reflecting the XinThera acquisition and expansion of the Arcus collaboration into inflammation, in addition to milestone payments associated with ongoing partnerships. SG&A was $1.8 billion, up 45% year-over-year, including a $525 million 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&A expense was $1.3 billion, up 4% year-over-year. Moving to tax. Our effective tax rate in the second quarter was 21%. Our non-GAAP diluted earnings per share was $1.34 in the second quarter 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. Overall, we had a very strong first half. And as highlighted on slide 27, with solid performance in each of our core franchises across virology and oncology, driving 13% year-over-year growth excluding Veklury. 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 $26.3 billion to $26.7 billion, up from $26 billion to $26.5 billion previously. We expect total product sales excluding Veklury in the range of $24.6 billion to $25 billion, up from $24 billion to $24.5 billion previously. 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 second quarter and first half were below our internal expectations. Based on COVID-19 infections and hospitalizations to date, we have lowered our guidance for the full year to approximately $1.7 billion to bring second half expectations more in line with our first half experience. As a reminder, Veklury is highly correlated with COVID-related hospitalizations and as such, it's utilization remains variable. We will share another update with you on our third quarter call. Moving to the rest of the P&L. We continue to expect non-GAAP gross margin to be approximately 86%. There is also no change to our non-GAAP R&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 million in the second quarter, we now expect non-GAAP SG&A expense to increase a high-single-digit percent compared to 2022. Excluding this legal settlement accrual, non-GAAP SG&A expense for 2023 is expected to be down low-single-digit percentage compared to 2022, consistent with our prior guidance. Non-GAAP acquired IPR&D has been updated to reflect the XinThera acquisition and expanded Arcus collaboration, adding about $200 million or $0.17 per share. For 2023, we now expect acquired IPR&D to be approximately $900 million, reflecting previously committed acquired IPR&D amounts, as well as known milestone payments from existing collaborations. Similar to prior quarters, we will continue to include expected acquired IPR&D expenses if we announce additional transactions over the course of the year. We now expect non-GAAP operating income in the range of $10.4 billion to $10.9 billion, or roughly $650 million lower at the mid-point, due to the $525 million one-time legal settlement accrual and $200 million in additional acquired IPR&D expense, neither of which were reflected in our previous full year guidance. Moving to tax. We now expect our non-GAAP effective 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 and $6.80 per share, down from $6.60 and $7 previously as shown on slide 29. 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&D at $0.17 per share and the legal settlement accrual of $0.32 per share in nonrecurring cost. On a GAAP basis, we expect diluted EPS to be in the range of $4.50 and $4.85. Moving to slide 30, you can see that there is no change to our capital allocation priorities. We returned $1.1 billion to shareholders in the second 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. 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&A.

Geoff Meacham:

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 magrolimab 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.

Andrew Dickinson:

Sir, Hi Geoff, good to hear from you, and thank you for the question. You may recall that historically we've talked about this, we've highlighted that, that assumption is really tied to the cell therapy business and to Trodelvy and that we have a complete belief that we're going to get there based on those two franchises alone. Magrolimab and TIGIT and the rest of the oncology pipeline provide additional upside. So just reiterating what Dan said, we continue to be on track to meet the goal of our oncology business representing a third of our total revenue by 2030 and we remain excited about the breadth of our oncology portfolio and the exceptional progress that you see in cell therapy, and Trodelvy, which combined, as you heard in the prepared remarks, are on track to produce $3 billion of revenue roughly this year.

Operator:

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

Daniel O'Day:

Thanks, Chris. Over to Merdad, please.

Jacquie Ross:

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

Tyler Van Buren:

Hey guys, good afternoon. Thanks for taking the question. Another one on Trodelvy, it looks like we're seeing a bit of a quarter-over-quarter inflection. So, would you say this is attributed primarily to the HR+/HER2- launch? And do you believe this is the beginning of a new sustainable trend?

Johanna Mercier:

Hi, Tyler. Yes, we are very pleased with the results and the early signs that we've seen from the recent launch of HR+/HER2- in the US. We've definitely seen as you say, an inflection point, so we've seen a really strong uptake in this setting. We're also kind of building on the foundation of triple-negative breast cancer where we are the standard-of-care here as well, and we're excited about the fact that Europe and the EC just gave approval for HR+/HER2- in Europe. So, building on the success of TNBC and we've seen strong uptake in Europe for TNBC. So, there's also a piece of that for the Trodelvy business performance. And we're excited to see what we can do with HR+/HER2- in Europe as well. So, we do think this is definitely on the right path from a growth standpoint and very exciting times for Trodelvy and breast cancer patients.

Operator:

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

Johanna Mercier:

Yes, so thanks for the question. I think you're referring to the National Coverage Determination, the NCD, right, preparation for prep?

Johanna Mercier:

I'm assuming. And that's really just because the -- right now it currently only supports oral drugs and there is an opportunity for us to add injectable drugs and I think that was a we request to CMS and so we're very supportive of course and we believe the path is actually quite central to ending HIV epidemic and fully put -- fully support the CMS proposal. As from a timing standpoint, that 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 lenacapavir here in 2025.

Operator:

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

Daniel O'Day:

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 TROP2, 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, but more based on clinical data that we -- that we've seen and others have seen for the efficacy of TIGIT in upper GI tumors. And so we'll of course across the programs be looking for any potential markers for predictive response.

Operator:

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

Daniel O'Day:

Thanks, Brian. Well, I mean I think you can imagine, we are looking thoroughly at the data and the trigger for this was a futility analysis centered on overall survival. We will of course update as we generate data and look at all those, we'll make those -- that information publicly available. To your point, the -- 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 determine success or failure in these various settings and each of these settings is represented slightly in different biological experiments. So we are going to continue to look broadly at what -- 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 magrolimab 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 do that.

Operator:

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

Daniel O'Day:

Thanks, Carter. This gives us a chance for all a chance to hear from Cindy for the first time with Gilead. Cindy, over to you, please.

Jacquie Ross:

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

Jacquie Ross:

Salveen, we're not -- we're not hearing you very well. Maybe just try one more time. Salveen, maybe you can try and dial in on a different line. Salveen, you still there?

Jacquie Ross:

Yes, we can hear you perfectly.

Merdad Parsey:

Sure. This is Merdad. 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 EVOKE-02 -- preliminary frontline data from the EVOKE-02 study. And I think that will help provide everyone sort of benchmarking in terms of how Trodelvy is doing in that setting. And then what we'll be looking for I think is consistent with what our belief is for Trodelvy in the second line, which is that patients in second-line are sicker, they tend to have -- they are more difficult to manage and they are more challenging in terms of outcomes, so we are hopeful that we will see a benefit in those patients in terms of outcomes, particularly PFS and OS. So we will keep ourselves -- keep you updated on the progress of the EVOKE-01 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 Trodelvy. So, we're very confident with where we're headed.

Operator:

The next question comes from Colin Bristow with UBS. Please proceed.

Jacquie Ross:

I think you may just have answered that question.

Merdad Parsey:

No. You hit it all.

Jacquie Ross:

Tia, may we have our next question, please?

Evan Seigerman:

Hi, all. Thank you so much for taking my question. With I believe it's the third anniversary of the Immunomedics deal nearing us, can you walk us through how you look look-forward to BD, you've digested at that, but are you looking at oncology, inflammation elsewhere? Thank you.

Andrew Dickinson:

Sure. Hi, Evan, 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. We have an incredibly robust pipeline and extraordinary research group. We're building out our research groups at Kite and at 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 five years is different than what you saw over the last five years. So, using Immunomedics as an example, that's a deal that we continue to be very excited about. You've heard all the excitement about Trodelvy and 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.

Operator:

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

Daniel O'Day:

Yes, that's -- I think you hit the nail on the head. We are moving forward aggressively, not sure we've disclosed the timelines 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 the -- that PARP inhibitor is in combination with Trodelvy and -- and combining those two agents to hopefully bring better outcomes to patients. So, we will update as we go along. I think things are things are progressing very nicely there.

Operator:

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

Andrew Dickinson:

Hi, Mohit, thanks. Thanks for the question. This is an important -- 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 in a unique point in time as we've built-out both our R&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 year for the expense -- 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. 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 so. And I think the way that you've characterized the operating margin in the second quarter is it 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.

Operator:

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

Johanna Mercier:

Thank you very much for the question, Simon. Similar to you, we are very intrigued also by the data that we're seeing in places like autoimmune disease, the lupus, and it's something of great interest to us. We have established ourselves in oncology certainly and expanded into multiple myeloma with the Arcellx collaboration and we are also looking at autoimmune disease going forward.

Operator:

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

Jacquie Ross:

Thank you, operator, and good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for the first quarter of 2023. The press release, slides and supplemental data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day; our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. 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 reconciliation is provided in the earnings press release, in our supplementary data sheet, as well as on the Gilead website. With that, I'll turn the call over to Dan.

Johanna Mercier:

Thanks, Dan, and good afternoon, everyone. The commercial organization delivered a very strong start to the year and continued to build on the momentum we saw in 2022, to set a firm foundation for continued execution and growth in 2023. As our results show on Slide 7, each of our core franchises delivered year-over-year growth led by HIV and oncology, and total product sales excluding Veklury totaled $5.7 billion, up 15% year-over-year. Including Veklury, total product sales were $6.3 billion, down 3% driven by lower Veklury sales associated with fewer COVID-19 hospitalizations. On Slide 8, HIV sales were up 13% year-over-year to $4.2 billion, driven by favorable pricing dynamics, higher demand and lower inventory drawdowns. Quarter-over-quarter, sales were down 12%, associated with the normal seasonality we typically experience in first quarter. As a reminder, at the start of the year, patient co-pays and deductibles reset, which had an impact on average realized prices and market growth. We expect these pricing impacts to normalize through the remainder of the year. And we also see typically a buildup in inventory in the fourth quarter, followed by meaningful inventory drawdowns in the first quarter. Following a focused effort to better manage this dynamic, we're pleased to see less of an impact than we have historically on both a quarter-over-quarter and year-over-year basis, highlighting our goal of better matching product delivery with end user demand. We expect these efforts to contribute to a more stable quarter-over-quarter growth in our HIV business, as compared to prior years. Turning to Sunlenca. First quarter sales of $4 million was very much in-line with our expectations. Sunlenca is an important option for the small number of people living with HIV who have developed resistance and have few, if any, other options. We are leveraging the launch to engage with providers and the community ahead of lenacapavir's potential launches in prevention and treatment. Overall, the HIV treatment market grew approximately 2% year-over-year in the U.S., and almost 4% in Europe, tracking in-line with our expectations for annual growth of 2% to 3%. And in prevention, awareness continues to grow with the US PrEP market up over 19% year-over-year. Moving to Slide 9. Biktarvy sales of $2.7 billion were up 24% year-over-year, driven by higher demand, as well as favorable pricing and inventory dynamics. Biktarvy continues to cement itself as the therapy of choice for people living with HIV, now capturing a treatment market-share of 46% in the U.S., up 3% year-over-year, and representing a growth rate that has impressively outpaced new and existing regimens. Moreover, Biktarvy has maintained its leading position for new starts across the U.S., Europe and other major markets, as well as in treatment switches across most major markets, including the US. On Descovy, sales were $449 million in the quarter, up 20% year-over-year. Demand for Descovy for PrEP remained strong at 14% year-over-year. Descovy for PrEP once again maintained its greater than 40% market share. The continued resilience of our PrEP business despite availability of other prevention options, including generics, provides a solid foundation as we make progress towards the potential approval and launch of lenacapavir for PrEP. Moving to slide 10. The Liver disease portfolio was up 6% year-over-year to $675 million, highlighting the continuing contribution of our viral hepatitis medicines to patients and the Gilead portfolio. In HCV, sales were $445 million, up 12% year-over-year, driven by favorable pricing dynamics and timing of purchases by the Department of Corrections. HBV and HDV sales we're $230 million, down 2% year-over-year, primarily due to pricing dynamics outside of the U.S. We continue to expect HCV start to trend down over time, given the curative nature of therapy, with some offset from HBV and HDV. In the meantime, we are pleased to observe solid and stable market shares across all of our Liver portfolio. On to Slide 11, and as we expected, Veklury sales of $573 million were down year-over-year, and sequentially, as COVID-related infections became less severe and hospitalizations remain below peak levels. As a reminder, the winter surge occurred earlier than we had expected, beginning in the fourth quarter and lasting only through the beginning of Q1. As Veklury's use tracks hospitalization, it's sales are volatile and highly subject to surges and the overall path of the pandemic. Veklury is backed by clinical data and real-world evidence that reinforces its clinical profile and despite the lower hospitalization rates in the quarter, Veklury's share of hospitalized patients treated for COVID-19 grew modestly, maintaining well over 50% share in the United States. Moving to oncology and beginning with Trodelvy on Slide 12. Sales of $222 million were up 52% year-over-year and 14% sequentially, driven by strong growth both in the U.S. and Europe. Following U.S. approval in early-February, we're off to a strong start with Trodelvy in pretreated HR positive HER-2 negative metastatic breast cancer, as some clinicians moved quickly to make this new option available for patients in this setting. We look forward to extending Trodelvy's reach to these patients in Europe, where a decision is expected later this year. Of course, our efforts here are underpinned by the successes and learnings in metastatic triple-negative breast cancer with TNBC. From our expansion of the field force last year and a strong body of data across a number of tumor types, more physicians are recognizing Trodelvy's clinically meaningful overall survival benefit. This recognition is not just in metastatic TNBC, but also in HR positive HER-2 negative metastatic breast cancer regardless of HER-2 negative status. Now on to slide 13. Cell therapy sales in the first quarter were $448 million, up 64% year-over-year and 7% quarter-over-quarter. We're pleased with the continued growth of Yescarta, with sales up 70% Year-over-year to $359 million, primarily driven by growth in the second and third-line setting for relapsed or refractory large B-cell lymphoma. Sequentially, sales were up 6%, driven in-part by strong demand and favorable pricing dynamics, both primarily in Europe. Turning to Tecartus. Sales were $89 million, up 40% year-over-year and 8% sequentially, driven by growing demand for both relapsed or refractory mantle cell lymphoma and adult acute lymphoblastic leukemia. Looking ahead, we continue to work to raise awareness of cell therapies and increase cost share. We believe that compelling data including ZUMA-7's recent positive overall survival results, in addition to peer dataset in the cell therapy space will support broader adoption over time. In summary, it's been a positive start to the year with our current product portfolio of virology and oncology medicines, delivering strong performance. We look forward to maintaining this momentum through the rest of the year and beyond. And with that, I'll hand the call over to Merdad for an update on our pipeline. Merdad?

Andrew Dickinson:

Thank you, Merdad, and good afternoon, everyone. Starting on Slide 21, the first quarter was a strong commercial start to the year, with total product sales, excluding Veklury, up 15% year-over-year despite continued FX headwinds. Overall, our base business demonstrated growth in each of our product families, including almost 60% growth in oncology, and 13% growth in HIV. Total product sales were $6.3 billion, down 3% due to lower Veklury sales, partially offset by growth in our base business. FX negatively impacted first quarter total product sales by $106 million, representing approximately 150 basis points of growth. Turning to Slide 22. Non-GAAP product gross margin was 86.2%, down 1.2 percentage points from last year, due to, among other things, the timing of the Biktarvy royalty initiation in the first quarter of 2022 and product mix, partially offset by inventory benefits. Moving to OpEx, expenses were higher than we anticipated in the first quarter due to R&D investments and inflationary pressures. Non-GAAP R&D was $1.4 billion, up 25% year-over-year, due to higher expenses, including the acceleration of certain late-stage clinical studies, as well as about $50 million in one-time items. As Merdad mentioned, we have started 10 new trials so far this year, including four Phase 3 programs. This brings the total number of ongoing Phase 3 studies to 22, highlighting the investment we are making in Gilead's future growth. Clinical trial enrollment for a number of new and ongoing Trodelvy and lenacapavir trials was faster than we expected, with a notable acceleration, for example, in certain lenacapavir trials in March. Our clinical team has been working hard to rapidly advance our studies and bring new therapeutic options to patients as fast as we can. This includes working to close the gap that some peers have in certain programs and we believe we are starting to see the impact of these acceleration efforts in our trials, although this did contribute to higher R&D expenses in the first quarter. Consistent with past practice, we will continue to manage expenses carefully, including the ongoing process of prioritizing programs based on potential impact and data. We have taken the last several years to build the most diverse and robust clinical pipeline in Gilead's history, now with well over 100 trials across our three targeted therapeutic areas. We are excited to see so many of these programs in later-stage trials with a number of data readouts building momentum over the next several years. Non-GAAP acquired IP R&D was $481 million, primarily driven by expenses related to our acquisition of Community, as well as upfront and milestone payments associated with the Arcellx and Nurix collaborations. Non-GAAP SG&A was $1.3 billion, up 22% year-over-year, primarily due to the commercial expansion and investments in our oncology business, in addition to higher branded prescription drug fee expenses and higher corporate expense that continue to be impacted by inflation. Moving to tax, our non-GAAP effective tax rate in the first quarter was 18.9%, lower than expected driven by discrete tax benefits recorded in the first quarter. Overall, our non-GAAP diluted earnings per share was $1.37 in the first quarter of 2023 compared to $2.12 for the same period last year, reflecting higher operating expenses and lower product gross margin. I'll move now to guidance for the full year 2023 on Slide 23. There is no change to our revenue guidance. We continue to expect total product sales in the range of $26 billion to $26.5 billion and we continue to expect total product sales excluding Veklury in the range of $24 billion to $24.5 billion, representing growth of 4% to 6% for our base business year-over-year. On Veklury, the first quarter was modestly below our internal expectations and our $2 billion full year guidance assumes an increase in infections at some point later this year, not dissimilar from what we saw in 2022. We know from experience that COVID-19 related sales are extremely volatile and are leaving our guidance unchanged pending additional data points as we move through the year. Moving to the rest of the P&L. We continue to target non-GAAP product gross margin of approximately 86%, as discussed, we now expect full year 2023 non-GAAP R&D expenses to increase a low double-digit percentage compared to 2022. This resulted in an overall R&D investment for the full year in the low 20's as a percentage of total revenue. We believe this is a more appropriate level of investment for a company with a broad late-stage clinical portfolio that is targeting attractive opportunities and sustainable revenue growth. We continue to expect non-GAAP acquired IP R&D to be approximately $700 million, reflecting previously committed acquired IP R&D amounts. Similar to prior quarters, we will continue to include expected acquired IP R&D expenses as we announced additional transactions over the course of the year. Moving to non-GAAP SG&A, there is no change to our prior guidance, where we expect a full year declined by a low-single digit percentage compared to 2022. Although we will continue to look for opportunities to partially offset the higher R&D investments, we now plan for this year. Overall, there is no change to our expectations for non-GAAP operating income in the range of $11 billion to $11.6 billion. Additionally, there is no change to our tax guidance, and we continue to target a non-GAAP effective tax-rate of approximately 20%. And finally, we continue to expect non-GAAP diluted EPS in the range of $6.60 and $7 per share, reflecting, first, that the initial guidance model we shared with you in early-February allowed for a broad range of potential revenue and expense scenarios. And second, that we're committed to finding room in our overall P&L to absorb the higher R&D investments that we are choosing to prioritize in 2023. On a GAAP basis, we expect diluted EPS to be in the range of $4.75 to $5.15. Moving to Slide 24, you can see there is no change to our capital allocation priorities. We returned $1.4 billion to shareholders in the first quarter through our dividend and repurchase of shares. Finally, on business development, there is no change to our philosophy, we are very comfortable with the breadth and the quality of the pipeline that we've built, acquired or partnered and the growth it will enable in the coming years. With that in mind, you can expect us to continue to opportunistically access high quality assets through partnerships or to make smaller acquisitions in the normal course of business. And now, I'll hand it over to Dan for some closing remarks.

Operator:

Thank you. [Operator Instructions] Our first question today goes to Michael Yee of Jefferies. Michael, please go ahead, your line is open.

Daniel O'Day:

Thanks for the questions. So in terms of the competitor Trop-2 data, I think it's a little early for us to be doing comparisons across data we haven't seen yet. We're really comfortable with the data we've already shown and have certainly led to approvals in breast cancer with OS benefit. So, you can see from the uptake of Trodelvy in the breast cancer market that being approved and having those OS data has had an impact for patients and we're very comfortable with where we are. Of course, we'll keep an eye on those emerging data as they become available, and every indication. And then in terms of the long-acting orals, as you know, we have a number of programs in the clinic for our long-acting portfolio, both oral and injectable, and we've moved several of them, including an oral program into the clinic and we'll be sharing those data as they become available. Very excited about that. That portfolio we remain committed to and, really excited about our long-acting portfolio to do -- to leverage [lenacapavir] (ph) profile to go into both oral long-acting as well as parenteral long-acting formulation. So stay-tuned as those data develop, we'll gladly share.

Operator:

Thank you. The next question goes to Brian Abrahams of RBC. Brian, please go ahead, your line is open.

Daniel O'Day:

Thanks so much. Brian, Dan O'Day here. I'm going to have Johanna answer the first part of your question and then Merdad the second Thank you.

Merdad Parsey:

Yeah. And then in terms of the ASCENT-07. Look, as we design and move into earlier lines of therapy in that study, as you know, we're going to be looking at chemo-naive population. And we do anticipate that study getting started in the second half of this year. So things are moving along very nicely, and we are really excited about that program. The final details in terms of design will be rolled out. I think we're crossing the [indiscernible] right now in terms of that final protocol. So you'll see that posted and available in short order.

Operator:

Thank you. The next question goes to Chris Schott of JP Morgan. Chris, please go ahead, your line is open.

Andrew Dickinson:

Hey, Chris, it's Andy Dickinson. Thanks for the question. That's a great question. Maybe just stepping back, again, highlight and reinforce that we've built a large and diverse portfolio that really positions us for significant growth, both in the short-term as well as in the long-run. As you heard in our prepared remarks, we're really investing and kind of leading into that, we had an accelerated -- significant focused efforts to accelerate some of our clinical development, which is starting to pay dividends. You're also seeing the validation of this approach in our commercial results that Johanna highlighted and the strength across our base business. So to your point, we are now this year, I think we already have 22 Phase 3 trials underway, which is significantly more than we have as a company, historically. It's actually frankly a healthy level, I highlighted in my comments that this year we're targeting kind of low 20's percentage point of revenue for our R&D investment. And that's a reasonably good place to be. We believe it's on line with peers over the long-run, there will be years when we have expenses that are greater than that, and years lower. But over the cycle, I think that's kind of what we're targeting. So -- and then maybe to your question on operating margin, we still have a very healthy operating margin, as you know. Again, there's apples and oranges comparisons with the new IP R&D rules. But we do expect to see our operating margin strengthened again over time, as we get through this bolus of Phase 3 trials that we have underway and that drives growth above and beyond what you've already seen in the last 18 months, which we think is off to a great start. So more to come, it's going to take a little more time to get through it, to your point, but we're in a very good spot from our perspective.

Operator:

Thank you. The next question goes you Salveen Richter of Goldman Sachs. Salveen please go ahead, your line is open.

Daniel O'Day:

Yeah, thanks. What we have said and I think what we're planning is, we will have an updated dataset from a more recent cut. So there'll be additional data compared with what was presented, what we talked about last year at the ASCO plenary. And so, there should be more mature data with a larger patient population. And so that should help reinforce our confidence. In terms of the Roche data, I think it's a great question. Look, I think, we believe in our own data, as well as, all the other public data that are out there in terms of TIGIT bringing benefit certainly in terms of response rates and other parameters. Certainly, in our dataset we've seen those PFS benefit. And our expectation is that the Roche data will continue to demonstrate benefit TIGIT -- adding TIGIT to PD-1 inhibitors, so -- PD-L1 inhibitors in their case. So we will be looking forward to seeing those OS data and I think that should help to provide additional confidence to all the TIGIT antibodies out there.

Operator:

Thank you. The next question goes to Geoff Meacham of Bank of America. Geoff, please go ahead, your line is open.

Merdad Parsey:

Thanks, Geoff. Very complicated question. I'll try to give a very brief answer. Look, I think that leveraging the engineered T-Cells so far in hematology has demonstrated really great efficacy and a reasonable tolerability profile for that patient population. I think it's all about therapeutic index. As you start to go into broader indications where treatment options are different and the disease state is different. I think they are different considerations for therapeutic index. So, as we look into different populations, we're going to keep a very close eye on the appropriate therapeutic index for a given patient, whether you're talking about lupus or anything else outside of oncology related to your question. From our perspective, maybe the broader perspective that I would offer is that, we do believe that modulating the immune system will lead to better outcomes in-patients, whether you're talking about agonizing or antagonizing and in hematologic disorders, we do believe that getting to better and more targeted immune blockade is going to be better for patients. And so, from our perspective there is not only to cell therapy in play and I think that's what we like about our portfolio is that, we have -- we're not modality restricted, and you've seen the deals we've done, we have our BTLA antibody and the rest of our portfolio in inflammation. So we are going to be pursuing the best outcome for patients regardless of modality and certainly, cell therapy will be one of those.

Operator:

Thank you. The next question goes to Terrence Flynn of Morgan Stanley. Terrence, please go ahead, your line is open.

Johanna Mercier:

Sure. So let me start and then maybe Andy can touch on the manufacturing piece of the puzzle. So thanks for the question, Terrence. I think what we've seen is really strong growth across second-line and third-line, and obviously, a little slower coming into second-line, but we are seeing nice momentum in the second-line as well and I think the OS data from ZUMA-7 coming through, that will be presented at ASCO that will only help continue that and really differentiated versus current standard-of-care. And -- but what we have seen is growth that has really picked-up quite nicely and you're seeing it both in U.S., as well as, Europe and really happy to say actually although we just got recent approval for second-line in Europe late last year, we're getting a lot of markets coming in from reimbursement, accelerating reimbursement because of the importance of the data for patients, and actually one example of that is actually just today with the NICE approval for a second-line therapy with Yescarta. And so we're very excited about where this is going. There's still a lot of growth opportunity in second-line. And obviously, the team is really working diligently to make sure that physicians are well-educated to make sure that they understand the benefits and the overall survival over long-term for these patients. So more to come on that. And with that, I'll turn it over to Andy for manufacturing.

Jacquie Ross:

Nadia, may we have our next question, please.

Unidentified Participant:

Hi, thanks for taking my question. This is Adam on behalf of Tim. No on Biktarvy, it doesn't need exclusivity over the next decade, but it's possible, gets targeted by the IRA before done. We know that [indiscernible] accounts are limited portion of Biktarvy’s volume and is it possible that the pricing impact extends to commercial patients? Also the other aspect to the IRA that you think investors are discounting beyond the negotiation. Thanks.

Jacquie Ross:

May we have our next question, please.

Umer Raffat:

Hi guys, thanks for taking my question. I want to touch up on Trodelvy real quick in terms of how the prescription trends are tracking in TNBC in particular, especially in light of your competitor, Daiichi, saying they now have number one patient share in HER2-low and growing. So I'm just curious how that's shaking out, because I know you've got a new indication this quarter. And secondly also, there's a lot of renewed interest in CAR-T, especially as it relates to immunology. But as I think of immunology and the price points, maybe 3 times HUMIRA, so that will be $150,000. But conversely, I would imagine each cell therapy dose would be at least $100,000. So how do you think about economics as you head into potentially immunology indications? Thank you very much.

Daniel O'Day:

Great, Umer. This is Dan O'Day too. I think -- I appreciate your question on the second one. I'll dovetail on to what Merdad said before about the importance of therapeutic index. But before I do that, let me just articulate the tremendous benefit that CAR-T is providing a large B-cell lymphoma from a pharmaeconomic standpoint. The fact that we now have patients in very late-stage disease, 50% of them surviving up to five years and essentially a flat line survival curve, you can imagine the benefit from both a mortality perspective and cost of the system of the current price point in large B-cell lymphoma. I think any price point in other therapeutic areas would be based upon the clinical benefit that, that brings to those particular patients. Of course, we understand that this wouldn't necessarily be a broad-scale use across all different types of patients. There will be patient segments where the therapeutic index is more important. And for those patients, we would look at the level of benefit that brings, both to the patient and to the health care system and then price it accordingly, of course. So I think it's hypothetical at this stage. But given the benefit that we're seeing in cancer, we would take the same approach to other disease states.

Operator:

Of course, the next question goes to Tyler Van Buren of Cowen, Tyler. Please go-ahead, your line is open.

Andrew Dickinson:

Hey, Tyler, it's Andy Dickinson. I'll take the question on behalf of the Kite team. Obviously, we and others want to see the full data set. We read the same releases that you've read. And we continue to believe that Arcellx and now Kite have a very interesting program that has the potential to be very competitive in that area to get on par or better potentially than the J&J Legend product. And as Dan said earlier, it doesn't come as a surprise to us that cell therapy is delivering that magnitude of benefit to patients across different disease areas. And it's exciting to see where cell therapy may go in terms of becoming the standard of care in second-line BCMA potentially over time, which, of course, increases the size of the potential opportunity for the Arcellx and Kite team. So look forward to seeing more on the data, look forward to carrying our program forward together with Arcellx team and to updating you over time. But certainly, it looks like a fantastic data set and great for patients.

Operator:

Our next question goes to Hartaj Singh of Oppenheimer & Co. Hartaj. Please go-ahead, your line is open.

Merdad Parsey:

Sure. Hartaj. Yes, I think there are several things that we -- give us a lot of confidence in terms of moving forward in non-small cell lung cancer. Certainly, the distribution of Trop-2 has demonstrated broad expression in non-small cell lung cancer, not too dissimilar from breast cancer. And so I think that gives us a lot of incentive to believe that the expression of Trop-2 in those tumors is going to give us efficacy by delivering the payload to those cells. Secondly, we've seen both internal and external data for Trop-2 targeted ADCs that support the value of bringing Trop-2 directed antibody drug conjugate to non-small cell lung cancer. So our approach, which has been broad and we're very excited about it. I think, is going really well is we are, as you know, in EVOKE-01 going into second line non-small cell lung cancer, and that study is going very well. We are then as well looking in front-line lung cancer in our other trials and looking at combinations of PD-1s with Trodelvy in those tumors in non-small cell. And we think that the potential for Trodelvy in those tumors is very high. We believe that we'll start to see those data start to roll out from our second-line studies first, as you would imagine. And then we'll continue to build on that as we go.

Operator:

Our next question goes you Brian Skorney of RW Baird. Brian, please go ahead, your line is open.

Merdad Parsey:

Yes. Very important that, that breakthrough was not associated with lenacapavir resistance, right? And I think that's really important to keep in mind. Look, BmAbs are relatively new clinical tools to look for, options for people in terms of treating HIV. And it's one of the many approaches we're taking. Our approach has been to move a broader portfolio of small molecules to complement that early foray into long-acting with BmAbs, where we believe that the tried and true mechanisms that we have used, again, both orally or parenterally, should provide us with an opportunity to bring treatment options to people living with HIV that will be associated with low resistance rates and high efficacy. So that's what we're testing out. As we find the ideal partners, and I use the plural intentionally, we will be moving that forward. And so, I would look at those -- the BmAb data as early -- an early first approach to a long-acting treatment for people living with HIV. A - Johanna Mercier And maybe just to cover, Charlie, the second part of your question around the size of the market. So I'm going to split it out. When you think about the market from a treatment standpoint, we do believe that the long-acting market, probably by the end of this decade, will look about 50-50 or so. We think that there are definitely patients out there that are looking for us not to be reminded that they have HIV and an opportunity to think about the next-generation long-acting to really bring to patients what they're looking for. I think that's the kind of the last unmet medical need in this space at this point in time. I also think Biktarvy will continue to be the standard of care in the daily oral market, where there's still a lot of patients that actually do want to take their medicine every single day to make sure that they know that they're taking something to put at bay their HIV. Just to touch on the expansion from a PrEP standpoint, I just wanted -- the prevention market, very different in our view. And some discussions we've had with community partners and people that are at risk of HIV, what we're seeing here is probably the split is different, but the market expansion is also very different. So the split is probably going to go towards 70-30 by the end of this decade is what we assume. That has a lot to do with the fact that these are not patients, these are people at risk, and they don't necessarily want to take a pill a day for something they don't have. And so that makes a lot of sense. So something every six months aligned with physician visits could be an ideal scenario in this setting. And then from an expansion standpoint, as you all know, we've talked about this a lot. If you look at the CDC assumptions around the number of people that are at risk in the U.S., we've only kind of captured about 25% of those folks that are currently under medication. And unfortunately, there's still 75% that are not and that are at risk. And so there's an incredible opportunity, especially with something every six months, to really expand in this marketplace and make sure that we truly work together to end this epidemic. So, very exciting times to come. And within the next two years, hopefully, we'll have lenacapavir as the data reads out and approvals in prevention and then just a bit after that in treatment with different partners that Merdad was mentioning. So very exciting time.

Operator:

Thank you. The next question goes to Steve Seedhouse of Raymond James. Steve, please go ahead, your line is open.

Johanna Mercier:

Thanks. So Ryan, I'll take that question. So what we have seen in the last year or so is somewhat of a lessening of the severity of infections, and therefore, from a hospitalization standpoint, obviously, less hospitalizations as well. So we've seen a couple of different things. So obviously, much more non hospitalizations of late, and we've seen that obviously in the numbers because as you well know, that Veklury tracks very closely to hospitalization. And what we've seen is, despite the fact that hospitalizations have come down versus our expectations in Q1, the actual usage of Veklury has gone up. And that's super interesting. And a lot of that has to do with the strength of the data that keeps delivering for Veklury around the updates of guidelines, the strength of our data, real-world data that's come out continuously showing reduction in mortality and reduction in readmissions to hospitalization. So very powerful data, but definitely a bit of a play there. This is -- our outpatient use with Veklury is still quite small, in the single digit or so. Having said that, it is growing. But it's really the only antiviral that is approved in hospitalized setting for COVID-19. And so that continues to drive. I think as we think about our oral COVID program, I think we are thinking more the nonhospitalized setting, which I think would then complement what we have in our portfolio that works really nicely both in the nonhospitalized setting and the hospitalized setting to make sure that patients at risk have what they need if they do get infected.

Operator:

Yes. The next question goes to Olivia Brayer of Cantor Fitzgerald. Olivia please go ahead, your line is open.

Johanna Mercier:

So I'll take that one, Olivia. As we think about magro, we are excited, obviously. We're waiting for the data to read out. But we are excited, and we have started thinking about our commercial model for sure. I think a couple of pieces to that one. One is the strength of the community and making sure we understand kind of what that looks like, but also the strength that Kite brings in this play as well. So we're not starting from scratch, right? We are going to -- we partner very closely with our Kite colleagues to make sure that there's a lot of learnings there that I think we can apply and a lot of overlap from a physician standpoint that also that we've been working through. So a lot of those pieces are in play. And the last piece I would say, just to add to the commercial model and our thinking, also has to do with the fact that we're also trying to get ahead of the game and better understanding, right? These are diseases that sometimes community physicians will not see on a regular basis and how do we make sure that we understand the when and where and making sure that the commercial model support that timing as well and being a little bit smarter in our approach from an execution standpoint. So, all those pieces are coming into play. But obviously, we're excited and anxious for the data. But we will be sure that we are ready for not only the data, but the approvals as well.

Operator:

Of course, the next question goes to Colin Bristow of UBS. Colin, please go ahead, your line is open.

Merdad Parsey:

Sure. Thanks for the question. So the -- in terms of the interim analysis, it's a good reminder that the study is powered for the final analysis. And so our expectation for any study that has interim analysis is that we run to the final analysis, which I think we've guided to occurring next year. When an interim analysis occurs, we generally will not see the data. Generally, what happens is that the DSMB will tell us to either continue or potentially discontinue. If -- obviously, we discontinue, we'd share that. But if it's just continue, we would continue the trial, and there will be nothing other than that to share because we don't have any data to share since we won't have seen it. So our expectation is that, we run to the end of the trial. It would certainly be upside if we saw something earlier than that. And then I think in terms of the expectations, you're absolutely right. I think everyone has looked at the Takeda data and are wary as to the efficacy of azacitidine in performing in that patient population. And so we're going to have to wait and see what that looks like at the end of the trial. I'm -- I guess, buttressed by the fact that we have -- the DSMB has told us to continue the trial, it gives me a little bit of more confidence that we are going to see a treatment effect. But that's a very indirect assessment. So we're going to have to see. But we are powered for -- we've made some assumptions in terms of how we power the trial. So hopefully, we'll be able to detect the difference between the two.

Operator:

Thank you. Our final question guys Mohit Bansal of Wells Fargo. Mohit. Please go ahead, your line is open.

Andrew Dickinson:

Mohit, it's Andy. Thank you for the question. Nothing's changed from our recent updates. I mean we think that BD is an important part of the puzzle for us going forward. It's important to continue to bring new and exciting innovation and products into our portfolio over time. We don't expect that to stop. That said, and to your point, we have made extraordinary progress over the last four years that we're really proud of. And so the breadth -- given the breadth and depth of our pipeline, you should expect that we will do less over the coming years than we did over the last three or four years. But we will still be active. And what we've said recently and I'd reinforce is that we will do ordinary course licensing deals. Obviously, you saw the Community and Arcellx deals last year. We've talked about the Merrell Bio deal, all of which we're very excited about. And then we expect from time to time to do small acquisitions. But our portfolio, to your point, is in a great spot. We're very excited about what that's going to do to drive growth, and we will always look for opportunities to add to it, if we can, in a thoughtful way that we think will benefit patients and our shareholders. But that's the way I would think about it at this point.

Daniel O'Day:

Thank you so much. I just want to thank you all for joining today for your continued interest in Gilead. Look, bottom line is we've had a very strong start to the year building on the momentum from 2022. And we collectively at Gilead and Kite believe we have a very strong and firm foundation for continued growth in 2023. As usual, if we didn't get to your questions or you have additional follow-up questions, please reach out to Jacquie and the IR team, and we'd be more than happy to support you. Thank you very much for joining.

Jacquie Ross:

Thank you, operator, and good afternoon everyone. Just after market close today, we issued a press release with earnings results for the fourth quarter and full year 2022. The press release slides and supplementary data are available on the investors section of our website at gilead.com. The speakers on today’s call will be our Chairman and Chief Executive Officer, Daniel O'Day, our Chief Commercial Officer, Johanna Mercier, our Chief Medical Officer, Merdad Parsey, and our Chief Financial Officer, Andrew Dickinson. After that, we’ll 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 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. Now, I’ll turn the call over to Dan.

Johanna Mercier:

Thanks, Dan, and good afternoon, everyone. Before discussing our commercial results, I want to acknowledge our Gilead team for delivering another outstanding quarter and closing out a very successful year. 2022 was an exceptional year for Gilead with our virology franchise well positioned to continue its leadership for years to come. And significant progress in executing our oncology strategy and bringing new medicines to improve the lives of more patients all around the world. Starting on Slide 7, we had a very strong quarter, delivering a total product sales excluding Veklury at $6.3 billion, up 9% year-over-year, or 12%, excluding the impact of FX and the loss of exclusivity of Truvada and Atripla. With solid growth in each of our core franchises and growth across all geographies, once again, led by HIV and oncology. Quarter-over-quarter sales grew 5%, driven by HIV, Trodelvy and cell therapy, partially offset by HCV. For the full year, total product sales, excluding Veklury, were $23.1 billion, up 8% year-over-year, or 11%, excluding the impact of FX and the Truvada Atripla LOE, driven by HIV and oncology. As expected, full year Veklury sales were down meaningfully in 2022 compared to 2021. That said, Veklury’s performance has been more sustainable than we previously expected. And it's clear that it continues to play an essential role for hospitalized patients treated for COVID-19. In 2022, Veklury delivered $3.9 billion, including $1 billion in the fourth quarter. Overall, full year total product sales of $27 billion was flat compared to 2021, as growth in our base business was offset by the decline in Veklury sales. On Slide 8, HIV sales for the fourth quarter were $4.8 billion, a 5% year-over-year, driven by higher demand as well as favorable pricing dynamics. This was offset in part by a smaller than usual inventory build in the fourth quarter, reflecting our early efforts on seasonal inventory management. Sequentially, HIV sales in the fourth quarter were up 6%, primarily driven by favorable pricing and inventory dynamics as well as higher demand. For the full year, HIV sales of $17.2 billion were up 5% year-over-year due to higher demand primarily related to the continued strength of Biktarvy, in addition to channel mix, leading to higher average realized price. This was partially offset by inventory dynamics and FX. Overall, the HIV treatment market in the fourth quarter grew 1.5% year-over-year in the U.S. and over 2% in Europe. On an annual basis, the market has grown in line with our expectations of 2% to 3%. Moving to Prevention, the U.S. PrEP market grew 18% year-over-year and 3% sequentially in the fourth quarter of 2022, reflecting growing awareness. Descovy sales for the fourth quarter were $537 million, up 13% year-over-year and 7% sequentially. Notably, despite generics and other entrants, demand for Descovy for PrEP continues to increase up more than 20% for the full year, in addition to maintaining a stable market share of over 40%. With these trends and the TAF IP settlement last year, Descovy’s position in the growing PrEP market has only strengthened. Overall, this provides a strong foundation as we look to the potential launch of lenacapavir for PrEP as a true long acting every six months regimen in the middle part of the decade. Moving to Biktarvy on Slide 9, sales for the quarter were $2.9 billion, up 15% year-over-year, primarily driven by higher demand, as well as favorable pricing dynamics, offset in part by lower channel inventory. Quarter-over-quarter, sales were up 6%, similarly driven by higher demand, as well as favorable pricing and inventory dynamics. In every quarter since our launch, we've seen Biktarvy continue to gain market share, and the fourth quarter was no exception, getting more than 3 percentage points in share year-over-year. This continued momentum is a testament to Biktarvy’s differentiated clinical profile, reinforced by the long-term five-year data we presented last year. Notably in U.S., Europe and other major markets, Biktarvy remains the number one regimen for new starts in addition to its number one position in treatments, which is across most of the major markets, including the U.S. At the end of 2022, there were almost 1 million people managing their HIV with Biktarvy worldwide. Taken all together, this has led Biktarvy for the first time to achieve full year sales of over $10 billion in 2022. Looking ahead, we're confident Biktarvy will remain the leading medicine for the treatment of HIV in U.S., Europe and other major markets for years to come. Now looking ahead for the first quarter of 2023 for HIV, a few points I just wanted to call out. First, with respect to pricing dynamics as we enter the New Year, we expect a typical first quarter reset in patient co-pay and deductibles. As always, these will have an unfavorable impact on average realized price in the first quarter. Second, a reminder that we've historically seen inventory build-up in Q4 that has led to notable drawdowns by wholesalers in Q1. While we've implemented new processes to better manage inventory dynamics from the fourth quarter into the first quarter, we continue to expect an inventory drawdown to occur in Q1, albeit at more modest levels compared to prior year. So with this in mind, we expect HIV sales for the first quarter to decline by low teens sequentially from the fourth quarter. This compares to the 18% sequential decline we reported in the first quarter of 2022. For the full year 2023, I'd like to remind you that some of our HIV performance in 2022 was driven by shifts in channel mix that had a favorable impact on average realized price, contributing in part to the 5% year-over-year revenue growth we reported in 2022. We expect channel mix in 2023 to be relatively similar to last year, and therefore do not expect HIV growth to benefit from changes in average realized price like we saw in 2022. As a result, we continue to expect HIV to grow in 2023, albeit at a modestly lower growth rate than 2022. As we think about the future of the HIV market, Gilead is well positioned to provide many people living with HIV and those at risk of HIV with multiple options for care. To that end, we're excited about the recent approvals for Sunlenca in U.S. and Europe for heavily treatment experienced adults with multi drug resistant HIV infection. This first indication represents only 1% to 2% of people living with HIV. There's a huge unmet medical need. These individuals have cycled through multiple antiretroviral regimen, and until now have had very few if any, effective options left available. Sunlenca is now approved in the U.S., U.K. and European markets and we're working as quickly as possible with regulators and reimbursement bodies to make Sunlenca available in many more countries. We believe that first launch of Sunlenca represents a key milestone for Gilead and looking forward in the treatment and potential prevention of HIV. With Sunlenca, a true long acting regimen is a reality as awareness and familiarity of Sunlenca every six months subcutaneous administration grow among health care providers, community groups and people living with and at risk of HIV, we believe Sunlenca is well positioned for the future. Turning to HCV on Slide 10, sales for the fourth quarter were $439 million up 12% year-over-year, reflecting timing of Department of Corrections or DOC purchases, and favorable pricing dynamics in the U.S. Quarter-over-quarter HCV sales were down 16% primarily due to resolution of a rebate claim in Europe in the third quarter of 2022 that did not repeat, as well as other pricing dynamics in the U.S. offset in part by timing of DOC purchases. Going forward, we continue to expect new starts to decline, but are encouraged that our market share remains over 50% in both U.S. and Europe. Sales of HPV and HDD for the fourth quarter were $255 million as shown on slide 11. Sales were down 4% year-over-year and down 3% sequentially, primarily due to lower than ready demand and pricing dynamics outside of the U.S. Moving to Veklury on slide 12, sales the fourth quarter $1 billion with a full year totaling $3.9 billion. It's clear that the pandemic has evolved Veklury’s role in the treatment of COVID-19 has remained unchanged as a key part of the standard-of-care for hospitalized patients. In fact, Veklury is still the only antiviral approved and it's setting and in the U.S. Veklury continues to be used in over 50% of hospitalized patients who are being treated for COVID-19. We're excited to continue to work on our oral COVID-19 nucleoside which Merdad will discuss shortly. Moving to oncology, and beginning with Trodelvy on Slide 13. Sales of $195 million in the fourth quarter grew 65% year-over-year, and 8% sequentially. For the full year Trodelvy's sales were $680 million up 79% year-over-year. As we continue to broaden access to Trodelvy around the world, we're encouraged by the growing demand and existing market. Trodelvy is now reimbursed across the major European markets. And in the U.S. demand was up 13% quarter-over-quarter, a growth rate almost doubled from the prior quarter, reflecting the solid contribution of our expanded field force and growing awareness. We're also excited by the expected decision from the FDA later this month, which could expand Trodelvy’s potentially clinically meaningful benefits into the pre-treated HR-positive/HER2-negative metastatic breast cancer setting. We estimate this represents at least 6000 addressable patients in the U.S. and our U.S. field force has just wrapped up its launch meeting and is energized for the upcoming approval. The opportunity for Trodelvy to benefit patients with pre-treated HR-positive/HER2-negative metastatic disease is supported by the recent NCCN Category 1 preferred recommendation for Trodelvy based on the TROPiCS-02 data. Additionally, the European Medicines Agency recently validated our marketing authorization application for Trodelvy in HR-positive/HER2-negative and we look forward to a decision later this year. Now on to Slide 14 and on behalf of Christi and the Kite team Cell Therapy sales in the fourth quarter were $490 million up 75% year-over-year and 5% sequentially. Full year Cell Therapy sales were $1.5 billion up 68% year-over-year. The growth in the fourth quarter and full year were driven by continued uptake of Yescarta in large B cell lymphoma, notably in the U.S. Growing physician familiarity with Yescarta data and Kite industry leading manufacturing continue to be key growth drivers. Yescarta sales was $337 million up 85% compared to the fourth quarter of 2021 and 6% sequentially. We're pleased to see not only strong momentum and second line LBCL in the U.S., but also continued uptake in third line LBCL in both the U.S. and across European market. Yescarta sales were $82 million in the fourth quarter up 2% quarter-over-quarter with growing volume demand in both mantle cell lymphoma and adult acute lymphoblastic leukemia. Year-over-year Yescarta sales were up 44%. We're pleased to see the building momentum of CAR-T Cell Therapy as a treatment class with curative potential and Yescarta and Tecartus as the leading cell therapies of choice globally. More patients are getting access due to Kite’s industry leading reliable manufacturing capabilities and the team's expanding footprint of authorized treatment centers around the world. And just last week, U.K’s National Institute for Health and Care Excellence or NICE, recommended Yescarta for routine use in third line large B cell lymphoma. This makes Yescarta the first party available for commissioning in England. Approvals and reimbursement into additional indications that are currently available in the U.S. and other markets is expected to continue over the next year. Yescarta was recently approved for second-line LBCL in Japan, which has the potential to be the second largest cell therapy market outside of the U.S. And we look forward to the transfer of the marketing authorization to Gilead and Kite later this year. In the interim, other still early days, we'll continue to work with our partner Daiichi Sankyo to make Yescarta available to approximately 7000 patients in the second line plus setting. Kite will begin manufacturing supplies for the Japanese market through our El Segundo, California, facility. And with that, I'll hand the call over to Merdad for an update on our pipeline. Merdad?

Andrew Dickinson:

Thank you, Merdad, and good afternoon, everyone. Gilead closed out the year with a strong fourth quarter, driven by Biktarvy, Veklury and oncology. For the full year, our sales, excluding Veklury, grew 8%, which is by far the strongest full year growth rate Gilead has reported since HCV sales peaked in 2015. Of note, and excluding the impact of the Atripla and Truvada LOEs, HIV grew 8% year-over-year, driven by continued strong performance of Biktarvy, which grew 20% from 2021 to $10.4 billion. Biktarvy continues to demonstrate strong potential for further growth in 2023 and beyond. Oncology full year revenues exceeded $2 billion for the first time and grew 71% from 2021. Moving to our quarterly results starting on Slide 24. The fourth quarter demonstrated another strong performance across our business. Total product sales, excluding Veklury, grew 9% year-over-year despite an approximately $130 million headwind from FX. If we exclude FX in addition to the impact of HIV LOEs, total underlying sales growth for the fourth quarter was 12% compared with the prior year. Moving to Slide 25. Veklury was down as expected, year-over-year although it grew 8% on a sequential basis from the third quarter, highlighting that Veklury will continue to play an important role even as COVID-19 progresses into its endemic phase. Non-GAAP product gross margin was 86.8%, up more than 16 percentage points from last year, primarily due to a $1.25 billion charge related to a legal settlement recorded in COGS in the fourth quarter of 2021. Non-GAAP R&D expenses for the fourth quarter 2022 were $1.5 billion compared to $1.3 billion in the same period in 2021. Higher R&D expenses were driven by timing of clinical investments, mainly in oncology in addition to the impact of inflation on expenses. Fourth quarter acquired IP R&D was $158 million, primarily reflecting the MacroGenics collaboration and the license amendment with Jounce. And lower than prior year due to the $625 million charge related to the exercise of opt-in rights for Arcus assets in the fourth quarter of 2021. Non-GAAP SG&A was $2 billion, up 23% year-over-year, primarily reflecting a charge of $406 million associated with the termination of the Trodelvy collaboration with Everest Medicines. This $406 million charge includes the $280 million that we agreed to pay Everest to acquire the development and commercial rights to Trodelvy in China and other Asian territories in addition to some other termination-related expenses. Excluding this Everest impact, SG&A was down 2% year-over-year. Fourth quarter non-GAAP operating margin was 37%, down sequentially due to the factors referenced earlier, including the $406 million Everest charge and up year-over-year. Excluding the Everest charge, non-GAAP operating margin was 42%. Non-GAAP effective tax rate in the fourth quarter was 16.8%, lower than the prior year, driven by discrete tax charges recorded in the fourth quarter of 2021. Overall, our non-GAAP diluted earnings per share was $1.67 in the fourth quarter compared to $0.69 in the fourth quarter of 2021. Of note, the Everest contract termination impacted non-GAAP diluted EPS by $0.25 a share. This was not reflected in the guidance we shared back in October. Moving to the full year on Slide 26. Total product sales were $27 billion. Excluding Veklury, total product sales were $23.1 billion, up 8% compared to 2021, primarily driven by Biktarvy and oncology. Excluding around $380 million of FX headwinds and the $350 million impact of the Truvada and Atripla LOEs, total product sales, excluding Veklury, were up 11% as compared to 2021. I touched on the main P&L impacts in the overview, but we'll highlight on Slide 27 that our non-GAAP effective tax rate for 2022 was 19.3% and non-GAAP diluted EPS was $7.26 per share compared to $7.18 per share reported in 2021. I'll move now to guidance on Slide 28. We recognize that the macro environment continues to be uncertain. Our initial 2023 guidance assumes an overall stable macro environment and relatively stable FX at current rates. While inflation is expected to moderate, our 2023 guidance reflects a full year of higher expenses experienced in 2022 associated with inflation. With that in mind, we expect total product sales in the range of $26 billion to $26.5 billion. For total product sales, excluding Veklury, we expect sales in the range of $24 billion to $24.5 billion, representing growth of 4% to 6% for our base business year-over-year. And we expect Biktarvy sales of approximately $2 billion. As always, Biktarvy sales will continue to track hospitalization rates and will remain highly variable depending on the frequency and severity of surges. Notably, we have seen a decline in hospitalization rates in recent weeks, and we'll continue to monitor the landscape carefully. As a result and similar to last year, we will update you on our Biktarvy expectations on a quarterly basis. Moving to the rest of the P&L. We expect our non-GAAP product gross margin to be approximately 86%, just slightly below our 2022 results and primarily reflecting the growing contribution from oncology. For non-GAAP operating expenses, we expect R&D to increase by a high single-digit percentage compared to 2022 levels, reflecting our on-going investment in strategic areas of growth and an increase in activity from later-stage trials. As a reminder, we had 8 Phase III trials start in 2022, and we expect to have 23 active Phase III trials by the end of 2023. Looking ahead, we expect R&D growth to moderate although we will step up investments as needed to support promising programs based on clinical data. Acquired IP R&D includes previously announced payments for our SELEX community and milestone payments for existing collaborations. Consistent with our approach in 2022, we will continue to share our expected acquired IP R&D expenses as we announced additional transactions. Finally, we expect SG&A to decrease by a low single-digit percentage compared to 2022. However, this is primarily due to some expenses reported in 2022 that we don't expect to repeat in 2023. If we normalize the 2022 SG&A expense for these items, we expect full year 2023 SG&A expense to increase by a mid-single-digit percentage on a basis of approximately $5.1 billion in 2022. Altogether, we expect our non-GAAP operating income for 2023 to be $11 billion to $11.6 billion. Our non-GAAP effective tax rate is expected to be approximately 20% again this year. And finally, we expect our non-GAAP diluted EPS to be between $6.60 and $7 for the full year and GAAP diluted EPS to be between $5.30 and $5.70 per share. Moving to capital allocation on Slide 29. Our priorities have not changed. In 2022, we returned over $5 billion to shareholders. This included dividend payments and $1.4 billion in share repurchases. Fourth quarter share repurchases were approximately $800 million. For 2023, we have announced today a 2.7% increase in our quarterly cash dividend to $0.75 per share and remain committed to growing our dividend over time in line with earnings growth. You can also expect to see continued judicious investments in our business, both internally and externally through select partnerships and business development transactions. Finally, we will continue to use share repurchases to offset equity dilution as well as additional repurchases on an opportunistic basis. With that, I'll invite the operator to open the call up for questions.

Tyler Van Buren:

Hey, guys, thanks very much for the questions. It's great to see yet another impressive quarter of performance from the core business. At the midpoint, guidance assumes 5% year-over-year growth for product sales, excluding Veklury, yet non-GAAP EPS guidance assumes a decline of 6%. So should we expect roughly flat earnings for the next 2 to 3 years as you continue to invest aggressively in the pipeline to set up earnings growth for the second half of the decade? Or is that too conservative? And what levers do you have to increase earnings in the near to midterm?

Jacquie Ross:

Hannah, may we have our next question please?

Geoff Meacham:

Afternoon, guys. Thanks so much for the question. I will keep it just to one. When you look at lenacapavir in the U.S., just help us with maybe the expected kind of loss dynamics following the recent approval and just with consideration of the hurdles with regard to payer access. And obviously, you guys had a long history here, but wondering if the environment is different today versus sort of pre-pandemic. Thank you.

Jacquie Ross:

Hannah, may we have our next question, please?

Michael Yee:

Hey thanks for the question. Maybe a question for Merdad. On Trop-2, the competitor AstraZeneca Daiichi continues to be quite bullish and actually as a Phase III lung cancer study readout and -- the Street is quite bullish on Trop-2. Can you explain your thoughts around your differentiation? Appreciating your study readout, I think in 2024, and what we should appreciate as to how you will compete there or differentiate and maybe its safety, but maybe walk me through that and help us understand Trop-2 for versus your competitor? Thank you.

Operator:

Thank you. The next question is from Do Kim with Piper Sandler. Please proceed.

Merdad Parsey:

Yes, hi thanks, that's an excellent question. And I think we haven't really talked about the design yet. In large part, we are working through both with investigators and regulators on what the best approach is going to be in that patient population. We do think that there is an important need in a large population there. And we want to make sure that we navigate that pathway carefully. So I think as we develop that program as a protocol gets developed, we'll be able to share more detail over time.

Operator:

Thank you. The next question comes from Colin Bristow with UBS. Please proceed.

Merdad Parsey:

Yes.

Merdad Parsey:

Sure. This is Merdad again. Excellent question. Thank you for that. We -- in terms of our confidence, I think to your point, look, I think there was a lot of debate a couple of years ago. We shared in that debate, with what the preclinical data was showing. And as you know, the data they were conflicting preclinical data, including some data that suggested maybe an FC-silent may not work. But which is why we ran the studies the way we did and very importantly, why we ran ARC-7. The objective there was really to establish whether an FC-silent now would demonstrate a benefit relative to FC-active molecule. Part of the hypothesis there is what happens in the periphery and whether depleting effector cells with TIGIT could actually be harmful with FC-competent molecule relative to an FC-nonmolecule. And our confidence really comes from our ARC-7 data. I think the ARC-7 data really answered that question. We clearly show a benefit when added on to a PD-1. The PFS data exceed our bar for moving forward. And so we really think that we've answered that question in the clinic as to whether the FC-now matters.

Operator:

The next question is from Chris Schott with JPMorgan. Please proceed.

Johanna Mercier:

Sure, Chris. It's Johanna. Yes. So definitely, we've changed a little bit. Our position on this one has evolved from 2020 to where we are today, obviously. I think we do truly believe that the Veklury business is much more sustainable than we've ever seen before, let alone as we think about kind of where we're going with COVID-19, including the oral that Merdad can speak to. The one piece that we've seen is -- it's maybe a little bit different than some of the orals that you're referring to is One is Veklury has been part of a commercial model since October of 2020. So we haven't had such big inventory lows at the government level like some others have had. So really, what you see probably 85% to 90% of revenues in 2022 are truly reflecting the demand for Veklury in 2022. And so therefore, coming into 2023, we feel very strongly that Veklury, because it's still the only antiviral indicated at the hospital level at this point in time because of the fact that in many countries around the world, it is the treatment of choice when they decide to treat hospitalized patients. I think there's really an incredible continuing opportunity for us to ensure that Veklury has is accessible to all these patients. And so that's why we think the model is quite sustainable moving forward. I would also just add that our label has broadened over the last year in some. We have a very strong body of evidence, including mortality as well as we have guidelines endorsement with the NIH as well as the WHO. So all of those people all of those pieces together actually make for a strong Veklury color position in 2023, but actually and beyond. And maybe I'll just pass it over to Merdad to talk a little bit to how we're thinking about COVID-19 as a whole with the oral.

Operator:

Thank you. The next question is from Brian Abrahams with RBC. Please proceed.

Merdad Parsey:

Sure. Very briefly. The -- to your point, one is in the high-risk population, right? So I think that's important. Those are people who have risk factors, whether or not they've been vaccinated and then the standard risk, which is people without risk factors. And -- those are very different populations. The end points are different in terms of what we're looking for and the high risk we're going to be looking for the ability to prevent things like hospitalization. And the standard risk, it would be looking for things like symptom improvement. And I think, again, I'll just reiterate that I think the uncertainties in terms of those factors and importantly, the underlying event rate is real. And so we've made a number of assumptions around what that background rate will be. And we've built into the trials, checkpoints to make sure that our assumptions are correct. And we have the ability to modify our program based on what the underlying event rates are. So that sort of helps mitigate the risks and the uncertainties. So we've gone in fairly eyes open to that.

Mohit Bansal:

Great. Thanks for taking my question and congrats on the progress. Maybe if you could comment on your overall market share in HIV space and how it has been progressing. What I want to understand is that is there a scenario where your entire business growth could be better than the market growth as you gain share at this point? Thank you.

Operator:

Thank you. The next question is from Umer Raffat at Evercore. Please proceed.

Andrew Dickinson:

Hey Omar, it's Andy. Thanks for the question. maybe a couple of things. First, I'd highlight that as you'd expect, we are mindful of expenses and don't expect R&D or SG&A to grow indefinitely. That said, we're going to continue to invest thoughtfully in the pipeline, and you're already seeing, I'd highlight the tangible benefits of doing that. So that's a really important point. We started on the R&D side. As you know, we started 8 Phase III trials this year. We're going to -- as you heard, start at least another 5 in 2023. So we are in an investment cycle. Over the longer run, and maybe one other thing before I kind of talk about the long-run picture to your question, again, when you benchmark us relative to competitors, as you know, historically, for both SG&A and R&D we underspent. And it's partly why we didn't have the pipeline that would drive the top quartile sustainable growth, that we aspire to, and we think we're on track to achieve today. So we're going to continue to invest. As you've heard and especially in these late Phase III trials that have started, we'll continue to do BD not at the same pace or level that we have over the last 4 or 5 years as we've rebuilt the pipeline. But our percent, our R&D as a percent of revenue this past year was below industry averages, I think, right around 19%. Same thing is true for SG&A as a percent of revenue. And even our guide suggests, I think, reasonable spend levels relative to comps. In the longer run, to your point, so we think about things over a longer cycle, we will not -- we do not expect to grow R&D or SG&A above the rate of earnings growth. And there is a lot of leverage in the model, we expect over the long run. So we're getting to the point where you're starting to see that play through, especially at the top line and then over the coming years, we expect that you'll really see that play through on the bottom line as well. So thanks for the question.

Olivia Brayer:

Hey good afternoon guys. Thank you for the question. What's the latest thinking with respect to the regulatory path forward for magrolimab? I guess the question really is, could we see survival data from that ENHANCE interim later this year that's actually mature enough to file on? And is there anything beyond OS benefit that FDA has pointed to for a complete submission package? Thank you.

Operator:

Thank you. The next question is from Simon Baker with Redburn. Please proceed.

Christi Shaw:

Hey there Simon, it's Christi. Thank you for the question. So we think it's very important because first of all, it's the number of patients is still very similar at 450, but the process by which patients get approved, obviously should be much smoother and really giving access to -- this recommendation really helps patients get access much more quickly. And so to your point, we do think as you see this approval that this hopefully, will have an influence on other countries, just like we saw with reimbursement as we look at the reimbursement of Yescarta in over 20 countries, it was one at a time. And as certain countries starting to improve. We saw the other countries also do the same. So based on the second-line ZUMA-7 trial as well, that will be our next step, too to continue to provide the data that giving a patient a onetime treatment can really help the health care system and improve patient outcomes. So yes, we're very hopeful that it could have some influence.

Unidentified Analyst:

Good afternoon, and thanks for taking the question. This is Nicole on for Robyn. Are you seeing any safety signals in a sense for NFLSC [Ph] with Trodelvy and pembro? Like are the safety probes comparable to both populations? And if so, would this hamper uptake in the first line?

Operator:

Thank you. Our last question will be from Evan Seigerman with BMO. Please proceed.

Christi Shaw:

Sure. So that was our focus and has been our focus is really on the supply side and being able to ensure that we have the capacity to provide for patients. I think that's what you're seeing is our industry-leading manufacturing piece. And if you look at GCFO3 here in California, adding the new site to TCFO-4 in Amsterdam and in TCFO-5 in Maryland, we're really able to leverage that footprint to grow not only in the assets that we have today, but in future pipeline, especially as we look at the partnership we have now with our select to multiple myeloma. So we're very confident about our ability to supply and the capacity that we've built and today and for tomorrow. And really the next focus for us is we've had some really good gains on our margin improvements. But as we look at our operational -- our optimization of our manufacturing footprint. Yes, we need to continue to ensure the capacity, which we feel like we've really done. And now we're able to put a big focus too on the optimization piece, which we've made progress on but we have several levers there to pull as well. So I hope you're hearing from me a big confidence in our ability to deliver for patients from a capacity standpoint.

Daniel O'Day:

Great. This is Dan. I just want to do a couple of things here. First of all, thank you all for joining and your on-going interest and questions for Gilead. As usual, if we didn't get to all of your questions, please reach out to Investor Relations. As you know, we're very happy to answer those on an on-going basis. Now let me just close by emphasizing that Gilead is in a very different place than it was a few years ago, thanks to the work the team has done to transform the company. We're going into 2023 in a very strong position with our current medicines performing well and tremendous growth potential in our neuro therapies as well as those in development. So what you can expect to see next is quarter-on-quarter execution and even faster progress and greater impact in the future. Thank you very much for your time today, and we look forward to speaking to you again soon.

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 today’s call will be our Chairman and Chief Executive Officer, Daniel O’Day, our Chief Commercial Officer, Johanna Mercier, our Chief Medical Officer, Merdad Parsey, and our Chief Financial Officer, Andrew Dickinson. After that, we’ll 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 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 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 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. Now, I’ll turn the call over to Dan.

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. We’re 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% year‐over‐year, 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% year‐over‐year. Excluding the impact of both FX and the LOEs, HIV revenue grew 10% year‐over‐year. 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 quarter‐over‐quarter shifts in average realized price, government plans continue to represent approximately 60% of our U.S. HIV treatment prescriptions, including Medicare in the low‐20s. HIV revenue growth was driven by the U.S., while Europe was down year‐over‐year, due to FX and less favorable pricing dynamics, offset in part by higher demand. Quarter‐over‐quarter, 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 pre‐COVID trends. In the third quarter of 2022, the market grew 2% year‐over‐year 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% year‐over‐year 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 well‐above pre‐pandemic levels. Overall, the PrEP market grew 19% year‐over‐year and 6% sequentially. Onto slide 9. Third quarter Biktarvy sales were $2.8 billion, up 22% year‐over‐year, 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 year‐over‐year. 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, I’d 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 end‐user 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, we’re extremely proud of the portfolio we have built in HIV and excited about the way Gilead is positioned for 2023 and beyond. Specifically, Biktarvy’s 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 lenacapavir’s approval as Sunlenca for heavily treatment experienced people living with multi‐drug 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 lenacapavir‐based 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 Genvoya’s patent to 2029 in the U.S. All of this truly underpins our confidence that Gilead is well‐positioned for growth and continued leadership in the HIV market. Now onto slide 10. HCV sales for the third quarter were $524 million, up 22% year‐over‐year 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, we’re pleased to maintain HCV market share of more than 50% in both the U.S. and Europe, and third quarter share increased on a year‐over‐year basis. For HBV and HDV on slide 11, sales were up 7% year‐over‐year and 13% quarter‐over‐quarter, primarily driven by favorable inventory dynamics. Moving to Veklury on slide 12, third quarter revenues were $925 million. As expected, sales were down year‐over‐year 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, it’s clear with the sequential increase that the path of the pandemic remains difficult to predict. Nonetheless, we’re proud of the role Veklury continues to play in the fight against COVID‐19. In the U.S., Veklury is used in approximately 60% of hospitalized patients who are being treated for COVID. And outside the U.S., Veklury’s 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 three‐day 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% year‐ over‐year and 13% quarter‐over 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. We’ve 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 TROPiCS‐02 study, FDA has accepted our supplemental Biologics License Application as Priority Review and we look to a decision in February of next year. We’re 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, I’m pleased to share that Cell Therapy sales in the third quarter were $398 million, up 79% year‐over‐year and up 8% sequentially. These strong results were driven by continued growth in large B‐cell lymphoma and Kite’s ability to reliably meet customer demand. Together with our recently FDA‐approved viral vector manufacturing facility in Oceanside, Kite remains well‐positioned 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% year‐over‐year and 8% quarter‐over‐ quarter, driven by a continued successful launch in second‐line LBCL in the U.S. and partially offset by FX headwinds in Europe. Just last week, Yescarta was approved in the EU for second‐line LBCL and we look forward to launching there in the months ahead. Tecartus grew 72% year‐over‐year 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, I’ll hand the call over to Merdad for an update on our pipeline.

Andrew Dickinson:

Thank you, Merdad, and good afternoon everyone. We’re pleased to share another strong quarter of results, with sequential and year‐over‐year growth in every franchise across our core business. As shown on slide 25, product sales, excluding Veklury, grew 11% year‐over‐year, 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 year‐over‐year 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. I’ll 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. Non‐GAAP 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, non‐GAAP product gross margin was impacted by higher Biktarvy‐related royalty expense and lower Veklury sales. Non‐ GAAP product gross margin improved sequentially due to higher HIV and Veklury product sales. Non‐GAAP R&D, excluding acquired IPR&D expenses was $1.2 billion, up 10% year‐over‐year, 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. Non‐GAAP SG&A was $1.2 billion, up 3% year‐over‐year. Non‐GAAP operating margin was 47%, down year‐over‐year and driven primarily by higher Acquired IPR&D expenses and lower Veklury sales. Sequentially, non‐GAAP operating margin increased 400 basis points due to higher HIV and Veklury sales, partially offset by higher acquired IPR&D expenses. Non‐GAAP effective tax in the third quarter was 22.4%, higher than normal due to the non‐deductibility of the upfront MiroBio payment. Overall, our non‐GAAP 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 post‐tax 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 year‐to‐date, which shows total product sales excluding Veklury of $16.7 billion, up 7% year‐over‐year. If we exclude the approximately $385 million of FX headwinds year‐to‐date as compared to the same period last year, in addition to the impact of the HIV LOEs, the underlying growth year‐to‐date is 11%. Veklury, as expected, is down year‐to‐date, highlighting the lower demand for COVID‐19 treatments in this stage of the pandemic. Moving to slide 28, we are increasing our full year sales guidance to reflect our year‐to‐date 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 year‐to‐date, 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 year‐to‐date 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% year‐over year, compared to our prior range of $22.0 billion to $22.5 billion. As for the rest of the non‐GAAP 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 mid‐single-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 we’ll update our EPS guidance quarterly as needed to reflect any relevant activity during the quarter. What we have included here is the year‐to‐date acquired 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 SG•&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 full‐year, up from $11 billion to $11.6 billion previously. And finally, we now expect our non‐GAAP 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 non‐GAAP 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, I’ll invite the operator to open the Q&A. With that, I’ll invite the operator to open the Q&A.

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 you’re 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?

Johanna Mercier:

So maybe just to add to that, Chris, in light of what Merdad was just referring to, we’ve 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 they’re taking something every single day. Others don’t 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 don’t want to be reminded at all. And so those are kind of the segments we’re trying to play out. So, I do think as a long acting, there will be more of a split segment than we’ve seen in the daily oral.

Operator:

Our next question comes from Salveen Richter with Goldman Sachs.

Merdad Parsey:

Salveen, this is Merdad again. Yes, maybe I’ll start by saying that really, nothing has really changed in terms of the ARC-7 study and where we’re 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 we’ve 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, it’s unlikely that PFS is going to be informative, but it may be. And so, we’ll 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 we’ve said before, making sure that we are sharing the data at a medical conference next year. And exactly to your point, it’s really about confirming the confidence we already have in TIGIT and moving into Phase 3 with our -- with the lead programs that we’re moving with. So, I hope that answers your question.

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, I’m 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.

Merdad Parsey:

And maybe -- this is Merdad. Maybe I’ll add to that. We’re not done, right? And I think we’re excited about how much we’ve been able to achieve with Trodelvy so far, and you’ve 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 -- there’s a potential that some of them will be getting in HER2 beforehand. We don’t 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 that’s kind of where, certainly, there’s an opportunity there. The other thing I would add is that we’ve 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 that’s a very important distinction and really important to remember. And then finally, based on what we’ve seen so far and the clinical benefit we’ve brought, we certainly believe that there’s 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 that’s -- 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.

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 there’s 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 you’ve 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 that’s pretty big trying to replace chemo. So maybe comment on EVOKE-01 and EVOKE-02. Thank you.

Operator:

Our next question comes from Brian Skorney with Baird.

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, it’s 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 it’s 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, it’s 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 don’t 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 that’s what we’re looking for.

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.

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 we’re having internally and with our regulators is what’s 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 that’s how we think about it. So both combinations and treating resistance or a new surge.

Daniel O’Day:

And Matthew, this is Dan O’Day. I’ll 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, there’s 3 major things that they’re 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 it’s 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 that’s expressed in the way the U.S. government wants to work closely with us as we continue to develop this program.

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?

Jacquie Ross:

Amber, we’ll squeeze in just two more, please. Maybe go to the next caller.

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 that’s been ongoing. And then I guess my question really was there’s a very unusual amount of plaintiffs aggregated up in this case. And I’m 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 you’ve 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.

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 we’ve 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 don’t 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 -- I’m 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 that’s an important piece of it. So, it’s a very different case. Zantac, as I remember correctly was taken off the market and reformulated. So I’d 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 doesn’t mean that we don’t take it seriously. We do take it very seriously. And as I said, we have a great team that’s 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.

Operator:

Our last question comes from Geoff Meacham with Bank of America.

Merdad Parsey:

Thanks, Geoff. This is Merdad. Yes, we’re -- 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 we’re looking at every six months potentially there. So, we are pretty open and committed to finding the right partner that will achieve our goals.

Operator:

This concludes today’s Third Quarter 2022 Gilead Sciences Earnings Conference Call. Thank you for your participation. You may now disconnect your line.

Jacquie Ross:

Thank you, operator, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the second quarter of 2022. The press release, slides and supplemental data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day; our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. After that, we'll 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 forward-looking statements, including those related to the impact of the COVID-19 pandemic on Gilead's business; financial condition and results of operations; plans and expectations with respect to products, product candidates, corporate strategy, business and operations; financial projections and 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 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. Now I'll turn the call over to Dan.

Johanna Mercier:

Thanks, Dan, and good afternoon, everyone. Turning to Slide 7. We had a very strong second quarter with total product sales excluding Veklury of $5.7 billion, up 7% year-over-year, driven by HIV, cell therapy and Trodelvy and offset in part by HCV. Sequentially, total product sales excluding Veklury were up 14%, driven by the seasonal pricing and inventory dynamics we see coming out of the first quarter of every year, primarily in our HIV business, as well as higher demand across our total portfolio. On Slide 8, HIV sales were up 7% year-over-year to $4.2 billion, primarily driven by channel mix associated with lower government utilization, leading to a higher average realized price as well as higher demand for both treatment and PrEP. Excluding the impact of the loss of exclusivity of Truvada and Atripla, HIV sales increased 11%. Quarter‐over‐quarter, HIV sales were up 14%, due to demand and channel mix leading to higher average realized price as well as the favorable seasonal inventory dynamics that we typically see in the second quarter relative to the first. Year‐over‐year, the HIV treatment market grew over 4% in the U.S., and was largely flat in Europe but, sequentially grew over 2% in the U.S. and 1% in Europe. We’re encouraged to see the market recovering and, on a year‐over‐year basis, continue to expect annual treatment market growth in the 2% to 3% range. Descovy sales in the second quarter were $460 million, up 6% year‐over‐year and 23% sequentially. We are pleased to see continued PrEP market growth with broader awareness and market volumes that are well above pre‐pandemic levels. For the quarter, the overall market growth was up 25% year‐over‐year, and 5% sequentially, highlighting both robust recovery and growing adoption of PrEP. Despite generic and other market participants, Descovy share in PrEP is holding in the mid‐40 percent range. As awareness continues to grow and the overall market expands, we expect Descovy to continue to play an important role in PrEP, and really look forward to adding lenacapavir as a potential long‐ acting alternative for those seeking preventative care, as early as 2025. Onto Slide 9, Biktarvy grew 28% year‐over‐year to $2.6 billion, primarily driven by strong demand and channel mix. Biktarvy’s market share in the U.S. grew from 40% in Q2 of last year to 44% in the second quarter of 2022, and continues -- by a wide margin -- to be the leading treatment for HIV, as well as the fastest growing. In fact, Biktarvy’s differentiated clinical profile was once again reinforced this past weekend at the International AIDS Conference in Montreal. At five years, Biktarvy had zero cases of treatment failure due to resistance, as well as sustained efficacy and a demonstrated safety profile in people living with HIV. Notably, this 5‐year trial duration demonstrating zero cases of resistance is unprecedented for an HIV regimen. Share also increased sequentially, up 1% from the first quarter of 2022, contributing to 19% growth in Biktarvy revenue quarter-over-quarter in addition to the channel mix and the seasonal inventory dynamics we referenced earlier. Moving to Slide 10. HCV sales in the quarter were down 18% year-over-year due to the channel mix leading to lower average realized price and fewer patient starts, partially offset by higher volume in Eastern Europe. Sequentially, HCV was up 12%, driven by the timing of a large order in addition to higher patient start. Overall in HCV, we maintained steady market share of 50% to 60% both in the U.S. as well as Europe. For HBV and HDV on Slide 11, sales were roughly flat quarter-over-quarter and year-over-year, driven by unfavorable adjustments associated with the recent volume-based procurement updates in China and offset by higher year-over-year demand and volume growth in all other regions. Veklury revenues in the second quarter were $445 million, as shown on Slide 12. As expected, sales declined both year-over-year and quarter-over-quarter as hospitalization rates declined in most geographies. Additionally, U.S. revenue reflected inventory drawdown in the second quarter. While COVID-19 is still prevalent, the most recent subvariants have been less severe and contributed to pure hospitalized patients, although roughly 60% of hospitalized COVID-19 patients that are being treated in the U.S. are receiving Veklury. We continue to be committed to supporting patients with COVID‐19 globally. Last month, we signed our second Joint Procurement Agreement with the European Commission that enables participating countries to purchase Veklury for a period of up to 18 months. Additionally, the European Medicines Agency’s Committee for Medicinal Products for Human Use, or CHMP, adopted a positive opinion recommending Veklury receive full marketing authorization for the treatment of appropriate patients with COVID‐19. This builds on our prior, conditional authorization, and we look forward to the final decision by the European Commission later this year. We're proud of our track record of meeting global demand for Veklury since the fall of 2020, and will maintain a readiness to supply the clear where it's needed and have increased our full year guidance to reflect anticipated patient need in the second half. Turning to Oncology, and beginning with Trodelvy on Slide 13, sales of $159 million grew 79% year‐ over‐year and 9% quarter‐over‐quarter. Sequentially, Trodelvy grew 41% outside the U.S., with particularly strong growth in Germany and France due to increased awareness and adoption. Sequential 7% volume growth in the U.S. was offset by unfavorable pricing dynamics. We expect to see continued growth in the second half, driven by the impact of our expanded sales force in the U.S. as well as reimbursement approvals in the EU. We are committed to broadening access for Trodelvy and continue to work with regulators and payers around the world. We’re pleased with the recent decisions by both NCCN in the U.S. and NICE in the UK, recognizing the significant clinical benefit of Trodelvy in patients with metastatic triple‐negative breast cancer based on the Phase 3 ASCENT trial. These decisions add to the building support for Trodelvy’s use following positive Health Technology Assessments in a number of other countries. Trodelvy is the first ADC to demonstrate statistically significant and clinically meaningful overall survival benefit in this mTNBC patient population. In fact, the NCCN guidelines elevated Trodelvy to a Category 1 recommendation for second‐line and later mTNBC, its highest recommendation available. Additionally, while Trodelvy is not approved by FDA for use in the HR-positive/HER2‐negative setting, we are pleased that the NCCN has issued a Category 2A recommendation for Trodelvy’s use for these patients with advanced disease. Turning to Slide 14. I'm pleased to share some incredibly strong results on behalf of Christi and the Kite team. Cell therapy sales for the second quarter were $368 million, up 68% year-over-year and 34% sequentially, driven by a very strong U.S. second-line launch for Yescarta in relapsed or refractory LBCL, which exceeded our expectations and continued strong growth in third-line plus Yescarta. As a reminder, strong data and an NCCN recommendation, which predated the second-line approval, helped drive our impressive early uptake, especially in large volume authorized treatment centers with a high familiarity with CAR T therapies. Additionally, Yescarta second-line LBCL is already available in two other large markets

Andrew Dickinson :

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

Brian Abrahams :

Congratulations on the quarter. I recognize that the discussions around Trodelvy in HR-positive/HER2-negative population are ongoing. But I'm just wondering, broadly speaking, if you can talk about the key things that you'll be focusing on with regards to the data and if there are certain subpopulations you might expect to gear towards from either a labeling or commercial perspective.

Operator:

Our next question comes from Geoff Meacham with Bank of America.

Daniel O'Day :

Thanks, Geoff. Christi, over to you, please.

Operator:

Our next question comes from Tyler Van Buren with Cowen.

Daniel O'Day :

Yes. Thanks, Tyler. I mean I'll start. This is Dan. I mean, I think it's important for everybody on the call to note that we, as a company, and I think as an industry, are very focused on the fundamental issue in the U.S., which is reducing patient out-of-pocket costs. And there are lots of different ways to do that. Unfortunately, the current legislation falls very short of making an impact upon patients. And in particular, the negotiation part of the proposal is really a -- I think a real dangerous precedent in terms of potentially reducing forward innovation. I think in terms of how -- as you know, Tyler, the bill is still very much in discussion right now, and it's very difficult to determine the full impact. What I would say is, it's several years away, first of all, from the first impact. And of course, in the Part D area of the reform, that could have some impact on our business but also help patient out-of-pocket costs. I think when one starts to think about the negotiation aspect of the bill, it's still, I think, too premature to think about exactly how that could affect, and it is later in the decade in terms of its impact. So let's take it one step at a time, I think, to first see what happens with the current legislation, the discussions going on in Washington. Rest assured that we are actively involved in supporting what we think are patient-oriented benefits here and adjustments to the program. And then once -- and we'll see where that goes over the coming weeks and months, we'll be able to give you even more clarity on how things might impact our business. But overall, I would just emphasize the strength of our portfolio is strong. I mean we have tremendous new innovations coming out of the pipeline. We have continued growth in our HIV business and beyond. And I think the innovation cycle at Gilead is very sound.

Olivia Brayer :

Are you guys seeing any impact from monkeypox on the HIV business? Is that a headwind you're factoring into guidance at this point for second half of the year?

Operator:

Our next question comes from Umer Raffat with Evercore.

Merdad Parsey :

Yes. Thanks for the questions. So as far as the oral new program for COVID-19 goes, the Phase 1 study is in healthy volunteers. So we don't expect to see anything other than safety and PK in that study. And all I can say is I think things have gone very well with that trial so far both from a tolerability and an exposure standpoint. So we're very happy with where we are. And now we'll move into the proof-of-concept and clinical development stage. So no viral load data to share. And then in terms of the ARC-7 data, I don't think -- I guess I would suggest not overreading. We are working with Arcus, and we will -- as the data roll out, we will be sharing data Arcus, and we will be sharing data from the ARC-7 study later on this year and the data that we will have. We're not really detailing what those data are going to look like right now. But be assured that we'll work with them to show data later this year.

Matthew Harrison :

I was just hoping you could talk a little bit about Trodelvy demand in the U.S. Sort of sequentially, growth has slowed pretty significantly over the last couple of quarters here. Is that mostly a reflection that you've penetrated most of the triple-negative market and you need label expansion in that growth? Or are there other factors there from a sequential growth standpoint?

Operator:

Our next question comes from David Risinger of SVB Securities.

Daniel O'Day :

Thanks, Dave. Do you want to start with that, Johanna?

Operator:

Our next question comes from Salveen Richter with Goldman Sachs.

Johanna Mercier :

What's the last part? Can you repeat the last part of that question?

Johanna Mercier :

Yes. Thanks. You cut out a little bit. Apologies. So let me get the first part of that question, and then I'll throw it over to Merdad for the long-acting. So from an HIV screening standpoint, we're about 8% below pre-pandemic levels, so very much in line with kind of where we were pre-2019. From a diagnosis standpoint, what you're seeing is that 30% or so below pre-pandemic, but that's kind of normal. What we've seen in the past, even prior to COVID-19, we're seeing a decline of the diagnosis rate about 10% year-over-year. And so if you think about three years, that's about your 30%. So not a huge surprise there and good news, right, as you're thinking about how this HIV market is -- its evolution. What I would like to focus you on, though, is the fact that from a treatment and PrEP standpoint, we are above pre-pandemic levels from a market growth standpoint. And so we feel very confident that the market has recovered. And actually, in PrEP, it's more than recovered. It's actually higher than it's ever been before. So it's actually an expansion of the market. So I think we're in much better shape, and it's taken a little bit more time for treatment. But I think as of Q2, I can honestly say that it is really in a very good place, which is great news for patients.

Operator:

Our next question comes from Michael Yee with Jefferies.

Merdad Parsey :

Thanks, Michael. Thanks for the questions. So on Trodelvy, yes, I think nothing has changed from what we said earlier in that we are excited about the data that we generate in TROPiCS-02 and are having ongoing discussions with the agency. And I think if things continue to go well, we will discuss with them the potential for filing. We're cautiously optimistic that, that should be able to continue to go forward, and we'll be able to update you in due course. In terms of lung, the primary focus for us in lung is actually the initiation of our Phase 3 trials in lung. Whether it's the combination trials I referenced earlier with Merck or some of the other combinations that we're doing, we will have some additional data in line that will be coming -- that will be generated over time. But I think the focus should be on those Phase 3 studies that we'll be reading out. And then maybe, Andy, do you want to address the write-downs?

Operator:

Our next question comes from Steve Seedhouse with Raymond James.

Daniel O'Day :

Great. Thanks. Christi, over to you.

Operator:

Our next question comes from Carter Gould with Barclays.

Daniel O'Day :

Great. Christi, do you want to start and then we'll move to the….

Daniel O'Day :

Thanks, Christi. Over to you, Johanna.

Daniel O'Day :

I'll just add. Thanks, Carter. I know there's a lot of moving parts here, so I just want to kind of reinforce a couple of things. As you know, there are three different aspects of the bill. I mean one is, of course, the Part D reform. And here, a major difference from what occurs today, instead of 10% in the catastrophic phase, it goes to 20% in catastrophic phase. It is potentially in the second half of the [decade]. I think something -- from our perspective, that as we look at our business is quite manageable. The second thing is inflation rebate, which I think we would have a low to 0 exposure to. And then the third one is negotiation. I just want to be clear on negotiations. There's a lot of moving parts here. And to Johanna's point, it does not affect the entirety of the government business. Much of the government business is already contracted and under negotiation. And so I really think -- and I'm sure you'll find this with most companies that it's extraordinarily difficult to measure that impact. It also compressed later in the decade. And there's quite a bit of ambiguity about what's products and how and when. And there'll be a lot of discussions should this legislation be passed about the details associated with that. So again, as much as I believe this is not the right thing to do for the industry, I also believe that we've got a very robust underlying business here and that these impacts are not short term at this stage. So, yes. And just to be clear, on that 20% figure that's...

Daniel O'Day :

Sorry?

Daniel O'Day :

Right.

Operator:

Our last question comes from Mohit Bansal with Wells Fargo.

Johanna Mercier :

Sure. So let me take that one, Mohit. The -- so basically from a market share standpoint, we basically -- we lost maybe a point or so over the last year, but we're at about 44% market share for Descovy in PrEP, which I think is pretty incredible if you think about the generic competition that we've been facing. The balance of that market share right now is pretty much all Truvada, Truvada generics. There's about less than 1% if you think of aptitude as you think about new entrants in the marketplace. So it's really a mix of Descovy for PrEP as well as Truvada genericization. The -- from a pricing standpoint, what you were referring to, the -- it has stabilized, although the rebates are definitely higher than what we were doing in the past just because there's choice now. And we are really trying to ensure that Descovy is a choice for physicians when people at risk need something. And so we want to make sure that that's an option for them and making sure that we have the best on the marketplace with -- if you think about the bone and renal safety profile that Descovy can offer. So that's really why we've been playing in that field, and that's why it's come -- it's put a little bit of more pressure on the commercial fund, specifically on the rebate front. And so I think that's stabilizing, but every year is a new year as we enter negotiations, so more to come as we go into 2023. But for 2022, we're in good shape. And we're also leveraging the incredible market growth for prevention that's been playing out. So all the things are very positive things for Descovy in prevention as well as for people at risk.

Jacquie Ross :

Thanks, Dan, and thank you all for joining us today. Please do feel free to reach out to Investor Relations if you have any follow-up questions on the quarter. We appreciate your continued interest in Gilead and look forward to updating you on our progress throughout the year. Thank you.

Jacquie Ross:

Thank you, Jonathan, and good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for the first 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 today's call will be our Chairman and Chief Executive Officer, Daniel O'Day; our Chief Commercial Officer; Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. After that, we'll 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 forward-looking statements, including those related to the impact of the COVID-19 pandemic on Gilead's business, financial condition and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections and the use of capital, and 2022 financial guidance, all of which involve certain assumptions, 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. Now I'll turn the call over to Dan.

Johanna Mercier:

Thanks, Dan, and good afternoon, everyone. So turning to Slide 7. We had a solid start to the year with total product sales, excluding Veklury, of USD 5 billion for the quarter, up 2% year-over-year driven by cell therapy, Trodelvy and HIV, and offset in part by HCV pricing dynamics. Quarter-over-quarter, total product sales, excluding Veklury, were down 14% as a result of the seasonality we typically see in the first quarter of the year, primarily in our HIV business. On Slide 8, you can see that HIV sales were down 18% quarter-over-quarter to $3.7 billion, consistent with our guidance, given the seasonality we customarily experienced in the first quarter of every year. First, the channels build their inventories over the fourth quarter and then draw them down during Q1. On a dollar basis, the majority of the sequential decline was associated with inventory drawdown. Second, we realized lower net prices in part due to increased copay support, Part D discounts and other efforts to maintain access and affordability of our HIV medicines as patients' insurance plans reset. This is a customary Q1 dynamic that we expect to normalize throughout the rest of this year. Year-over-year, HIV sales were up 2% driven by market growth for both treatment and PrEP, often in part by the impact of the lost exclusivity for Truvada in 2020. The year-over-year impact of this LOE is expected to be minimal starting in this quarter, second quarter of this year. And excluding the LOE impact, HIV sales increased 5%. Overall, we're encouraged by the signs of recovery seen in the HIV treatment market despite screening and diagnosis rates still below prepandemic levels and the continued impact on market growth due to the Omicron surge in Q1. As a result, both the U.S. and European HIV treatment markets were down slightly on a sequential basis. On a year-over-year basis, the European market was roughly flat, and the U.S. market grew a little over 3%. The PrEP market grew 33% year-over-year and 3% sequentially. Notably, Descovy continues to hold approximately 45% market share, and we'll continue to engage with payers to ensure those who benefit from PrEP have access to their preferred regimen. We believe Gilead remains well positioned in PrEP. And as highlighted during our virology deep dive in February, we expect the market to double by 2030, catalyzed by the launch of long-acting regimens such as lenacapavir. Descovy sales in the first quarter were $374 million, up 4% year-over-year, driven by continued PrEP market growth and partially offset by generic competition in switches to newer treatment medicines such as Biktarvy. Turning to Slide 9. Biktarvy sales of $2.2 billion in the first quarter were up 18% year-over-year driven by U.S. market growth, and notably, continued share gains in both the U.S. and in Europe. Biktarvy remains the leading regimen for new starts and switches in the U.S. and new starts in Europe. In fact, Biktarvy share is up 4.5% year-over-year to 43% share in the U.S., almost 8x larger than the next leading promoted medicine and representing the highest share of any complete regimen for the treatment of HIV. Moving to Slide 10 in HCV. We maintained steady market share, and the 22% decline year-over-year was primarily driven by unfavorable pricing dynamics. Sequentially, HCV was up 2%, while the overall market and new patient starts continue to be impacted by the pandemic. HBV and HDV on Slide 11 were up 7% year-over-year due to higher demand for Vemlidy, namely in Asia. Sequentially, HBV and HDV declined 11% driven by the same HBV seasonal inventory and pricing dynamics impacting HIV. Hepcludex sales were $11 million for the quarter, primarily reflecting sales in Germany and France where full reimbursement has been established. Our discussions with regulatory values and other countries across Europe are ongoing. And of course, we look forward to potential approval in the U.S. in the second half of this year. Veklury revenues in the first quarter were $1.5 billion, as shown on Slide 12. The clear utilization tracks hospitalization rates, and therefore, due to the timing of Omicron surges, was lower in the U.S. after January but higher in Europe and Asia later in the quarter. We're optimistic that there will not be another surge this year in the U.S. And overall, we will maintain our readiness to support hospitalized and nonhospitalized patients. There's no change to our commitment to COVID-19 patients globally. And in that regard, we were very pleased to receive the World Health Organization's revised COVID-19 guidelines. These guidelines now conditionally recommend Veklury for the treatment of patients with nonsevere COVID-19 at highest risk of hospitalization. And earlier this week, Veklury received FDA approval for the treatment of certain pediatric patients for at least 28 days old, highlighting our ongoing commitment to extend the reach of Veklury where we can. Now turning to oncology. Trodelvy sales were up 103% year-over-year and 24% sequentially, as shown on Slide 13. We're encouraged by adoption not just in the U.S., but notably, in Germany and France, and continue to work with health authorities and reimbursement bodies to extend Trodelvy's reach to patients globally. We've completed the expansion of our field force to support the U.S. and Europe and believe we are now at right scale to support physicians and make Trodelvy available across all approved indications to patients who could benefit from it. We're extremely excited by the feedback from physicians about Trodelvy's impact on patients, both those who are prescribing Trodelvy today and those who expect to have access to it soon. With strong physician uptake and our expanded field footprint starting in April, we believe Trodelvy will benefit more than the 1 in 4 second-line metastatic TNBC patients we're reaching in the U.S. today. We look forward to sharing more updates as we progress throughout the year. Turning to Slide 14. And on behalf of Christi and the Kite team, cell therapy sales for the first quarter of 2022 were $274 million, up 43% year-over-year and 15% sequentially. For the quarter, Yescarta sales of $211 million were up 32% year-over-year and 16% sequentially driven by continued global demand in relapsed or refractory large B-cell lymphoma as well as in follicular lymphoma. This highlights the growing recognition of the durable long-term survival benefit showcased at last December's American Society of Hematology Meeting. For Tecartus, sales of $63 million were up 103% year-over-year due to strong demand in relapsed or refractory mantle cell lymphoma. We're pleased with the strong early uptake for adult acute lymphoblastic leukemia in the U.S. following approval last October, which contributed to the 11% sequential growth in Tecartus. The strong momentum we've seen across our cell therapy portfolio continued with the approval of Yescarta in second-line relapsed or refractory LBCL earlier this month as well as FDA's approval for our new Maryland manufacturing facility announced just last week. Through capacity improvements across our existing in-house CAR-T manufacturing site in addition to the new Maryland site, we expect our manufacturing capacity to increase by up to 50% and support our aspiration to serve a cumulative 25,000-plus patients by the end of 2025. Second-line orders started coming in the day after the FDA approval and have been steady ever since. It is truly heartening to see the immediate help we can provide for patients. Given the Yescarta second-line inclusion in the NCCN guidelines and robust clinical data, we expect Yescarta to shift the paradigm in the standard of care for LBCL patients. Christi is here with the team and is available to take any questions on cell therapy during our Q&A. And so with that, I will hand over the call to Merdad for an update on our clinical pipeline.

Andrew Dickinson:

Thank you, Merdad, and good afternoon, everyone. Before I get into the Q1 P&L review and the guidance update, I wanted to touch on the $2.7 billion partial in-process R&D impairment related to assets acquired from Immunomedics in 2020. This had a $1.63 per share impact on our Q1 GAAP results and on our full year GAAP EPS guidance. There is no impact to our non-GAAP EPS in Q1 or to our non-GAAP EPS guidance for the full year. With the TROPiCS-02 data readout in March, we have reassessed the value of the assets acquired. While no final decisions have been made pending discussions with regulatory authorities, as a result of the data, we have taken a $2.7 billion impairment to reflect the likelihood of a delayed launch of Trodelvy for third-line-plus HR-positive/HER2-negative breast cancer in the United States as well as Europe and the possibility of a reduced market share in late-line patients given the emerging competitive landscape. Prior to today's update, Gilead was carrying $14.7 billion for the IP R&D indefinite-lived intangible assets acquired with Immunomedics. This now values these assets at $12 billion. Recall that the carrying value of Trodelvy reflected 4 potential indications in progress at the time of the acquisition, triple-negative breast cancer and hormone receptor-positive/HER2-negative breast cancer, bladder cancer and non-small cell lung cancer. At that time, we knew that Trodelvy's potential extended beyond these indications, but for accounting purposes did not assign value for the incremental opportunities that we are exploring in prostate, endometrial and other solid tumors as well as potential combinations such as with magrolimab, venelumab and PD-1s like pembrolizumab. As you saw at our oncology deep dive earlier this month, there are 13 Trodelvy programs targeted for initiation through 2023, including a number of incremental opportunities. As a result, we remain confident Trodelvy will deliver an attractive return to our shareholders over time. Moving to Slide 24. The first quarter was a strong start to the year despite the expected seasonality observed in our HIV business and was stronger-than-expected Veklury sales. Total product sales were $6.5 billion, up 3% year-over-year, with growth in cell therapy, Veklury, Trodelvy and HIV, offset in part by lower HCV revenue. Of note, FX negatively impacted first quarter revenue by almost $100 million, net of hedges, representing approximately 160 basis points of growth. Total product sales, excluding Veklury, were up 2% from the first quarter of 2021 to $5 billion. In HIV, on a sequential basis, we were impacted, as expected, by the normal seasonality associated with Q1 inventory burn following a build in Q4 in addition to the typical first quarter pricing headwinds that improved throughout the rest of the year. With Q1 now behind us, we expect sequential growth in HIV throughout the rest of the year. Non-GAAP product gross margin was 87.4% for Q1, up 90 basis points year-over-year, primarily due to lower inventory reserve adjustment. First quarter non-GAAP operating expenses were largely consistent with our expectations as we support the expansion of our oncology business. Non-GAAP R&D was $1.2 billion, up 10% year-over-year. And non-GAAP SG&A was $1.1 billion, up 5% year-over-year, both primarily due to higher costs associated with Trodelvy. Moving to tax. Our non-GAAP effective tax rate in the first quarter was 18.4%. Overall, our non-GAAP diluted earnings per share were $2.12 in the first quarter of 2022 compared to $2.04 for the same period last year, reflecting the higher revenue and higher gross margin, offset in part by higher operating expenses. On a GAAP basis, our effective tax rate and earnings per share were impacted by the $2.7 billion impairment. We are excited about the strong start to the year. And as you can see on Slide 25, the only revision to our outlook is to our GAAP EPS, primarily to reflect the $1.63 share impact of the impairment discussed earlier. We now expect GAAP EPS in the range of $3 to $3.50 per share from $4.70 to $5.20. On Veklury, we note the strong revenue start to the year, but also, fortunately, the significant drop-off in U.S. hospitalizations during the first quarter and into the second quarter so far. With that in mind, we will monitor demand through the second quarter and evaluate our full year guidance in the middle of the year. One housekeeping item before we wrap up. Following recent guidance from the SEC, beginning in the first quarter and similar to many of our peers, Gilead will no longer exclude acquired in-process R&D expenses from non-GAAP financial measures. Prior period results have been updated to reflect this new methodology and are shared in our supplementary data posted on the Investor Relations website. As a reminder, our full year guidance does not include the impact of any future upfront payments related to the normal course of business partnerships or licensing deals. Going forward, we plan to update our guidance on a quarterly basis to reflect the impact of any new corporate development transactions closed in the prior quarter. Moving to Slide 26. You can see there is no change to our capital allocation priorities. In the first quarter, we repaid $500 million in debt. Additionally, we returned $1.3 billion to shareholders through our dividend and repurchase of shares. Finally, on M&A, there is no change to our philosophy here either. We are very comfortable with the breadth and the quality of the pipeline that we have built, acquired or partnered, and the growth that it will enable in the coming years. With that in mind, you can expect us to continue to opportunistically access high-quality assets through partnerships or make smaller acquisitions in the normal course of business. With that, I'll invite the operator to open the Q&A.

Michael Yee:

Maybe I could ask about the planned or potential Trodelvy filing. You note that it's subject to change. Maybe you could just describe what you think the conversation is with FDA. Is it combination of a modest PFS and OS trend? And is there a magnitude of OS trend that you think will be attractive and allow a green light to a filing? Maybe just talk a little bit about that and what would drive a filing.

Merdad Parsey:

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

Operator:

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

Daniel O'Day:

Thanks for the question. We'll go right to Johanna.

Operator:

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

Daniel O'Day:

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

Operator:

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

Johanna Mercier:

Sure. So both market and CABENUVA. Thanks, Simon, for your question. So let me start with the market. So if you look at the screening and diagnosis levels, they're still somewhat below prepandemic, but they're definitely catching up. I think what we saw in the first half '21 was a really depressed market and started picking back up in Q3 and Q4 of last year. What we saw in Q1 of this year despite the Omicron surge that obviously impacts, what we saw quarter-over-quarter pretty much flat in the U.S. and overall Europe as well. Year-on-year change, though, we have a 3.6% growth. And I think that's really -- that's the signal that we need to watch for and continue to focus on. And since Gilead has close to 75% market share of the total HIV market, I think it's really -- it's part of our responsibility to ensure that we get screening and diagnosis up and make sure we [end this pandemic] (ph). So more to come on that, but there's a lot of activities the team is taking on to ensure that we get people back in and screened so that we don't have full-fledge cases of AIDS which, unfortunately, we've seen in the recent past, and you've seen that anecdotally. On the prevention market, it's a little bit different. Prevention market bounces back a lot faster post this pandemic, and we've seen that time and time again after every single surge. So what we've seen quarter-over-quarter was about a 3% growth in the U.S. for prevention. So slightly modest growth, which declined a little bit, but that's because of the Omicron surge in January. Year-over-year, the growth was 33%. And so I think that's really telling in the sense of how it bounces back much faster post these surges. And that's been kind of consistent year-on-year as we've seen the different, I guess, variants. On your question around CABENUVA., specific to CABENUVA., treatment share in CABENUVA. is 0.6%. So no, we haven't seen an impact. What we see is new entrants coming into the market. You always see a little bit of switching going on, which is normal. I do think that there's an [ask] (ph) from a patient standpoint, this is the first long-acting, so it is exciting. What we're also seeing is a higher-than-usual drop-off rate with CABENUVA as well. And a lot of that share is going to Biktarvy back. So I do think it's interesting to watch. And I think the more agents on the market, the better, but definitely one that at this point in time very limited impact to the HIV market share for Gilead. Thanks for your questions.

Geoffrey Meacham:

I had an HIV question for Merdad or maybe even Dan. So you built an increasingly broad pipeline around Lenacapavir. And I know getting long-acting right is strategically very important to Gilead. So the question is, what's been the main bottleneck so far? Is it a matter of matching up the PK/PD for lena? And would you wait to go into a larger scale trial if there is a candidate that may make an optimal doublet with lenacapavir?

Merdad Parsey:

Sure. Yes. I mean maybe I'll start by saying on the PrEP side, we obviously don't need to wait for a partner molecule. And really, at this point, it's about resolving the issues with the clinical hold. Once that gets resolved, we'll be back in business with the trials and we'll move as fast as possible to get the PrEP studies completed and get our filing done. In treatment, you're absolutely right. And again, I think you're right, we've built the portfolio to provide as numerous options to then combine with lenacapavir for treatment in a long-acting mode. And that's a mix of oral approaches where we could have an oral long-acting molecule or a parenteral long-acting agent. And for parenteral, we're trying to go for longer than 2 months. And for oral, we are looking at, hopefully, getting to weekly or thereabouts. So we have a number of candidates that are progressing to show us -- essentially, you said it right, which is do they have the right properties from a PK/PD standpoint for an oral agent? And do they have the right properties parenterally, including things like injection site reactions and tolerability? So it's less about the ability to inhibit HIV replication. It's more about the molecule and the formulation characteristics that allow us to get to long-acting therapy. And I'll just say again that lenacapavir is a very unique and special molecule that enables us to do that. Finding another molecule that has those sorts of characteristics is the challenge that we're undertaking.

Guyn Kim:

I wanted to ask about Yescarta and the launch in second-line LBCL. Was hoping you could provide some first impressions of the launch and whether your sense of the demand out there is matching with your expectations.

Christi Shaw:

Thanks, Do. So we're very encouraged. First, before the approval, the NCCN guidelines that changed and now put Yescarta for LBCL second-line as category 1 which, as you may know, physicians and providers use to identify standard of care. So that happened a month before approval, which is unusual in these times. And then with the approval -- right after the approval, our manufacturing site was approved in Maryland. So we really feel like we're hitting on all cylinders in terms of really bringing this important therapy to patients. And so the second-line launch was approved on a Friday at about 3 p.m. And on Saturday, orders started to come in. So we're already manufacturing commercial product in our site in the Maryland facility. So definitely, it's really early days, obviously, but the demand was building up, I think, when the data came out at ASH in December, and we're starting to see the orders come in as soon as we get approval.

Gavin Scott:

It's Gavin, on for Cory. Just on Trodelvy label expansion opportunities and lung cancer, in particular, with the EVOQUE-02 study. It looks like there's multiple cohorts in the study. And we're just curious if, one, is there evidence of synergy with PD-1 inhibitors and you plan on sharing any of that this year? And then two, are you going to utilize a Trop-2 biomarker in any of these cohorts?

Merdad Parsey:

Sure. Yes. On the biomarker side, we continue to evaluate the role of Trop-2 expression in responses. And as we discussed, actually, for the breast cancer study in our experience so far, we are not seeing a big impact of Trop-2 expression on responsiveness. So we'll -- but we'll keep looking because lung cancer may behave differently than what we're seeing. And we do expect expression patterns to be different. So maybe there'll be a different cutoff in a different tumor type. So that remains to be seen. In terms of synergy, we are -- I think that's the nature of where we're going with the studies. And that in order to see additive benefit, we need to conduct the larger clinical trials. We do think that coming at the tumors with the 2 different approaches, we'll add. I'm always careful about using the term synergy. I think that implies a different mechanistic approach. So I do think we expect additivity of the 2 components. And yes, we do feel that we will have additivity that Trodelvy should bring additional benefit to patients over and above what the immuno-oncology agents, PD-1, PD-L1 inhibitors, bring to the treatment of those patients.

Robyn Karnauskas:

Congrats on the Yescarta data, by the way. So I just want to [indiscernible] a little bit on your comments around M&A. I think some investors believe that you have all these great programs, but we're not going to see them read out. And I think you did a good job highlighting that in the oncology day. So for near-term growth, are you thinking about -- would you be open to acquiring something that would provide some near-term growth to gap you before a lot of your Trodelvy trials and your magro trials like start reading out? How are you thinking about that as a company?

Andrew Dickinson:

Thanks, Dan. And thank you, Robyn, for the question. Look, I would just go back to start with fundamentally, we have a lot of confidence in where we are in our growth profile today. And I think it's fair to say that the market maybe underappreciates the growth. Even, Robyn, if you look at our first quarter results, especially when you adjust for the impact of LOE and FX, there's really reasonably strong growth in our business. And this is just the beginning from our perspective. So there are always things that we can do to work on our growth profile. But when you look at the strength of the HIV business, what we're seeing in our oncology business, hopefully, that gives you a sense of why we as a management team have so much confidence about not only where we are today, but where we're going. And we recognize, to your question, that the growth profile should get meaningfully better in the next couple of years as the portfolio matures in the way that Dan was describing. So while we will look at things, including commercial assets, as you know, those are far and few between. Many of them are expensive, and that's not really where our focus is. We really genuinely believe we have everything that we need today to be a leading growth company in the sector, and it's just going to take a little more time. But we're definitely seeing all the right signs that we are looking for as a management team. So you should not expect that we're going to go out chasing commercial assets or large deals. The guidance is very clear. It's ordinary course partnerships, maybe smaller commercial acquisitions. Again, we'll be opportunistic. But that's not where our focus is today. Thank you.

Operator:

It comes from the line of Umer Raffat from Evercore.

Daniel O'Day:

Yes. Umer, I'll start, and then I'll hand it over to Merdad. So first of all, I mean, just to reinforce this message for everybody on the phone, I mean, we are absolutely moving with tremendous focus and speed. And of course, we have great lessons within our organization. Remdesivir was arguably the fastest development of an antiviral that's ever occurred from standing still essentially to an approval in the United States. So -- and as you know, we've got a lot of experience from that in terms of working both property groups around accelerating trials, with the FDA around pursuing unique regulatory path. And those learnings and those lessons I just want to say are certainly being put to use now for 5 2 4 5. Having said that, we're, of course, at a very different stage of the pandemic at this stage. And therefore, both from a regulatory perspective and also our ability to recruit clinical trials, particularly with a somewhat raining pandemic in the developed world, has implications on the path we'll take. And with that, maybe I'll turn it over to Merdad on any other details he wants to add.

Operator:

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

Andrew Dickinson:

Evan, it's Andy. Thanks for the question. It's a great question. Look, it's relatively simple. And just to back up, remember, this is an accounting construct that we are required to reassess the value even before we have the discussions with the regulatory authorities. So I just want to back up and reiterate what we said when the data came out. The study was positive. This is strong data. There was a range of outcomes that we expected when we did the deal. This was within the range of outcomes, but it wasn't at the point that we had modeled specifically because we are required to when we put together the intangible indefinite-lived asset schedule after the acquisition. So it's a very simple model, too. So the key, by the way, is our valuation when we have discussions in the coming months with the FDA could change again, of course. And we'll have to continue to look at the valuation of the assets that are still sitting on the balance sheet, which is the valuation attributed to hormone receptor-positive/HER2-negative breast cancer and non-small cell lung cancer over the coming years, as you'd expect, consistent with any business combination transaction. But it's relatively simple. It's your standard probability-weighted discounted cash flow analysis where you look at the probability of approval. We are assuming, Evan -- I think this is the key for you. We took a conservative approach, and we were looking at this and assume that there is not a path forward based on the PFS data and that we need to wait for overall survival, even though we're not certain that that's the case and we will know more in the coming months. So for purposes -- for the accounting treatment, we had to make a call, and that's the call that we made, and that leads to the 2.7. The other thing I would add is we had Trodelvy-related IP R&D of $14.7 billion at the end of 2021, a little over half of that or $8.8 billion of it related to hormone receptor-positive/HER2-negative breast cancer. The remainder was non-small cell lung cancer. And again, we're already -- in the other indications that are approved, we're already amortizing that. Those are now finite-lived assets. So now we have $6.1 billion relating to the cash flows expected from third line plus -- as well as the earlier line hormone receptor positive breast cancer indication. But hopefully, that gives you a little bit of color. And again, I'd reiterate what we said on the call, which is when we did this originally, when we did the acquisition, we highlighted explicitly that we were going to explore other tumor types and combinations that were not part of our deal model. There is no need to build them into the deal model from bottoms up. So when you step back, more importantly, outside of the accounting construct, we continue to believe that there are many, many paths forward to create a lot of value for patients and for our shareholders with this. So I'm happy to take it off-line if it's helpful to give you more color.

Operator:

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

Daniel O'Day:

Thanks a lot, Tyler. So over to Merdad, please.

Operator:

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

Andrew Dickinson:

Sure. That's a great question, Mohit. I'm happy to take it. The -- look, it's relatively simple. And that you're absolutely right. And even in April, we've seen a continued deterioration of exchange rates or strengthening of the dollar, which impacts the revenues coming from our European business. So to be clear, the $100 million impact was a year-over-year comparison Q1 to Q1. Johanna and I are watching the budget impact of the exchange rates very carefully. And part of the confidence in maintaining the guidance is that, yes, there are FX headwinds. There are also, for instance -- related to your question, there's also this change in the accounting treatment of in-process R&D, which will lead to additional expenses from upfront payments that weren't previously part of how we reported non-GAAP earnings. On the flip side, there are parts of our business that are outperforming. Again, you think of the strength of Veklury that we've seen so far. So Johanna and I and the rest of the management team will look at the puts and takes of this in the middle of the year, and we'll provide a more thoughtful update. But I think the key for you is recognizing the couple of things that have changed that could impact negatively our EPS GAAP and non-GAAP EPS. There are also things that will have additional strength we expect over the course of the year that will offset that to some extent. And so we'll give you additional color later in the year, but we're very comfortable maintaining our guidance where we are today. Hopefully, that helps.

Colin Bristow:

Just a quick one, just following on, on the TIGIT and adenosine asset. The -- I just wanted to really understand where your -- what is it you're most enthused about and how you're just thinking about this strategically? Is it the TIGIT and PD-1 doublet that you really see the value, but there's some concern about market timing? Or are you absolutely excited about the triplet data? Can you just help me through that?

Merdad Parsey:

Sure. Look, I think we obviously are going to be looking across all the data across all the assets. Maybe the way I would say it is that we're seeing the TIGIT/PD-1 combination is likely to be sort of the benchmark or the basis for treatment at least in lung cancer and potentially more broadly. And as such, our hope is to have a great combination there to make sure that we then have something to which we can add other potential agents that could bring us to even better responsiveness. So whether that's adenosine or Trodelvy or something else in our pipeline, I think those are all options for us to consider. But we're seeing -- I would say the floor is being raised is our belief and that TIGIT/PD-1 combination becomes sort of the baseline that we need to aim for.

Operator:

Certainly. Our final question for today comes from the line of Salveen Richter from Goldman Sachs.

Merdad Parsey:

Well, what I would say is those milestones -- I would agree with the milestones that you've got there. And it's important to remember that those milestones will take time to play out. And we are going to make our bets without being able to look at OS for 30 months, right? We're going to have a less mature data set from which to make that decision. So you're absolutely right that we will be looking at all of those things. The driver will be to see that, again, tolerability and a benefit as far as the overall response rate is concerned and look for benefits in the depth and duration of response that we can garner from the data set at the maturity that we will have when we look at it. And there, I would just say we'll be, in a sense, watch our actions because you'll be seeing the studies will be getting underway, and that should give you a sense of our confidence in those assets.

Jacquie Ross:

Thank you all for joining us today. We do appreciate your continued interest in Gilead and look forward to updating you throughout the year, as Dan said. Have a great rest of your day.

Jacquie Ross:

Thank you, Gigi, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the fourth quarter and full year 2021. The press release, slides, and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today’s call will be our Chairman and Chief Executive Officer, Daniel O’Day, our Chief Commercial Officer, Johanna Mercier, our Chief Medical Officer, Merdad Parsey, and our Chief Financial Officer, Andrew Dickinson. After that, we’ll 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 forward-looking statements, including those related to the impact of the COVID-19 pandemic on Gilead’s business, financial condition and results of operations; plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections and the use of capital; and 2022 financial guidance, all of these 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 available on the Gilead website. With that, I’ll turn the call over to Dan.

Johanna Mercier:

Thanks, Dan. Good afternoon, everyone. As you can see on slide 7, we had a strong end to the year with Q4 total product sales, excluding Veklury, of $5.8 billion, up 7% quarter-over-quarter, driven by favorable pricing and inventory dynamics. This also represented 8% growth year-over-year, driven by continued recovery in the HIV treatment market and favorable pricing dynamics. Veklury sales were higher than expected in Q4 reflecting the start of the Omicron surge, but lower than both the prior quarter and prior year, and contributing to total product sales of $7.2 billion for the quarter. Moving to slide 8, total fourth quarter Veklury sales were $1.4 billion, bringing total sales for 2021 to $5.6 billion. Gilead is proud of the role that Veklury continues to play in this pandemic. Veklury has demonstrated activity against the Omicron variant and has helped many patients with COVID-19 in the most recent surge. Although symptoms have generally been less severe, the volume of overall cases has meaningfully increased since the emergence of Omicron, and we have seen the total number of hospitalizations increase as well. While we would all prefer to put this pandemic behind us, we expect Veklury to continue to play a critical role in 2022 and beyond. As you would expect, hospitalizations remain a key indicator for in-patient Veklury sales, and we are seeing higher hospitalizations in geographies with lower vaccination adoption, including certain parts of the U.S. as well as Eastern Europe. Additionally, I’m very pleased to highlight that the FDA recently approved the sNDA filing for the use of Veklury in the outpatient setting for patients at high risk of disease progression. This approval was based on data generated in the Phase 3 PINETREE study, further solidifying the credibility, importance and role of Veklury. Now Veklury will be available to help even more patients earlier and reduce risk of hospitalization for COVID-19. Next, as shown on slide 9, total HIV sales were $4.5 billion in the quarter, up 8% sequentially driven by favorable inventory and pricing dynamics as well as changes to our gross to net estimates in Q4 2021. For the full year, total HIV sales were $16.3 billion, down 4% year-over-year, primarily due to the Truvada and Atripla LOE, in addition to pandemic-related impacts and pricing dynamics. The expected impact from the LOEs, which amounted to $1.3 billion, was offset by continued Biktarvy growth. Excluding the sizeable LOE impact, HIV total product sales for the full year grew 4% compared to 2020 despite the ongoing pandemic headwinds. We now expect the Truvada and Atripla loss of exclusivity impact to be minimal going forward as the headwind dissipates starting in Q2 of this year. In HIV treatment, we continue to see signs of market recovery although the U.S. market declined 1% sequentially in Q4 following two quarters of sequential growth. On a year-over-year basis, the overall market in Q4 was up 1.5% in both the U.S. as well as the EU5, despite screening and diagnosis rates still below pre-pandemic levels. As you know, favorable dynamics play out in the fourth quarter of every year in HIV, and 2021 was no different with some year-end inventory stocking and favorable seasonal pricing as well as changes in our gross to net estimates in Q4 2021. As you think about 2022, I’ll remind you of the normal HIV inventory build-up in Q4 and the New Year reset for patient copays and donut hole payments. Given these factors, along with the favorable pricing dynamics I just mentioned, we expect the sequential decline in Q1 ‘22 to be greater than Q1 ‘21. Nonetheless, we expect a strong year overall in HIV and expect continued growth in subsequent quarters. Back to Q4, Biktarvy had another record quarter with sales of $2.5 billion, up 11% sequentially and 22% year-over-year. On slide 10, you can see that Biktarvy U.S. treatment market share has increased over 5 share points in 2021, reaching 42%, which is the highest share that any complete regimen has ever achieved in this market. For the full year, Biktarvy sales were $8.6 billion, growing 19% from 2020, and Biktarvy remains the leading prescribed treatment for naïve and switch patients in the U.S. as well as number 1 in naïve in EU5. Descovy revenue for the fourth quarter was $473 million, up 9% quarter-over-quarter primarily as a result of favorable seasonal pricing and inventory dynamics as well as continued demand. We expect Descovy revenue to continue to be driven by PrEP as Descovy has maintained about 45% of overall PrEP market prescriptions in the U.S. We will continue to ensure access to support physician choice, and expect growing demand and market expansion to offset the impact of increased commercial contracting. Overall, while near term growth continues to be impacted by local pandemic-related social restrictions, we are encouraged by the growing PrEP market. In Q4, the overall PrEP market grew 4% quarter-over-quarter, and 31% year-over-year. Looking forward, we believe lenacapavir, our investigational longer-acting PrEP offering, could potentially catalyze the market well beyond the 25% penetration rate in PrEP that we see today. Moving to slide 11, it’s clear that HCV continues to be the part of our portfolio most impacted by the pandemic. Although there was some slight quarter-over-quarter recovery in market starts in the EU5, U.S. market starts declined, resulting in flat total starts overall. While Gilead market share increased modestly on a sequential basis in both the U.S. and the EU, this was more than offset by unfavorable pricing dynamics, resulting in Q4 total sales of $393 million, down 8% sequentially and 7% year-over-year. As you can see on slide 12, our HBV and HDV franchise reported record quarterly revenues of $265 million, up 7% sequentially due to seasonal inventory and favorable pricing. The 9% year-over-year growth was primarily driven by Vemlidy demand. Total fiscal year sales for this franchise were $969 million, up 13% year-over-year. Hepcludex reported $12 million of sales in Q4 in Europe, with $37 million in 2021 sales since our acquisition in late first quarter. Hepcludex is currently available in Germany and France, in addition to a number of early access programs in countries such as Austria, Italy, and Greece. In 2022, and as part of our comprehensive commercialization plan, we expect to finalize reimbursement for launch in a number of major European markets. In the U.S., we filed a BLA in November and FDA granted priority review for accelerated approval, with a PDUFA date set for the third quarter and an Advisory Committee meeting that will be scheduled in the coming months. Moving to oncology, first with Trodelvy on slide 13, global sales were $118 million in the fourth quarter, up 17% sequentially and up 84% year-over-year compared to full Q4 2020 sales. This reflects growing adoption of the second line metastatic TNBC triple-negative breast cancer indication, which was noted as a preferred regimen in the NCCN Breast Guidelines updated in September. We are also starting to see stronger, unaided brand awareness which is resulting in continued market share growth. In second-line TNBC, Trodelvy now captures approximately 1 in 4 new starts in the U.S. We have expanded our oncology footprint globally, including tripling our U.S. headcount to further accelerate penetration of Trodelvy and prepare for our potential HR positive and HER2 negative launches. Additionally, EU approval for Trodelvy was granted in late November 2021 and we have already seen strong momentum in France and Germany since their launch. We plan to launch in a number of new countries following key reimbursement decisions this year. Now, on slide 14, on behalf of Christi and the Kite team, cell therapy Q4 sales of $239 million reflected 47% year-over-year growth, an 8% increase sequentially. For the quarter, Yescarta sales of $182 million were up 41% year-over-year driven by continued demand in relapsed or refractory large B-cell lymphoma and follicular lymphoma. Tecartus sales of $57 million in the quarter reflected 68% year-over-year growth based on growing global demand for relapsed or refractory mantle cell lymphoma and early contribution from adult acute lymphoblastic leukemia in the U.S. As a reminder, FDA granted Tecartus approval in adult ALL in October and in just the first few months of launch, there has already been strong demand that we expect to continue in the coming quarters given the high unmet need. Full year cell therapy sales of $871 million reflected 43% year-over-year growth driven by continued LBCL and MCL demand globally as well as the new launches. The strong growth we’ve seen with these recent launches reinforces our belief that cell therapy adoption will continue its positive momentum as more physicians understand the benefits for appropriate patients and therefore increase referral rates to treatment centers. Merdad will elaborate later, so I’ll just quickly mention the impressive data Kite presented at ASH in December, 43% overall survival rate after five years in third line LBCL patients. The Yescarta data at ASH not only highlighted the long-term real-world safety and efficacy profile in third line LBCL, but also in earlier lines of therapy. For ZUMA-7 data in second-line LBCL, FDA has set a PDUFA date of April 1st when we hope Yescarta will be granted approval. In the meantime, the Kite team is ramping up manufacturing capacity to meet the anticipated demand. Kite expects the new Maryland facility to begin commercial operations by Q2. Combined with the Amsterdam and El Segundo facilities, we expect to increase operational capacity by up to 50% by the end of this year. Christi is here with the team and available to take questions on cell therapy during our Q&A. In closing, our oncology sales were $1.25 billion in 2021 and we expect robust growth in the coming years. With that, I’ll hand it over to Merdad for pipeline updates.

Andrew Dickinson:

Thank you, Merdad, and good afternoon, everyone. It was a strong close to 2021, driven primarily by strong HIV and Veklury revenue in the fourth quarter. For the full year, and excluding the impact of the LOEs, HIV grew 4% year-over-year, driven by the continued outperformance of Biktarvy, which achieved record U.S. market share of 42%, and sales of $8.6 billion, up 19% from 2020. Oncology was another highlight from both a pipeline and revenue perspective, with full year cell therapy sales of $871 million growing 43% from 2020, and Trodelvy sales of $380 million in its first full year. By 2030, we anticipate our oncology franchise will represent at least a third of our total revenue. Before I get into the normal P&L review and 2022 guidance, I want to address the EPS results for this quarter upfront. Slide 25 highlights two sizeable expenses that occurred after we gave our last guidance in October. First, and subsequent to the exercise of Gilead’s opt-in to four Arcus assets in December, our fourth quarter results reflect a net charge of $625 million, recorded in R&D. This charge reflects our $725 million option payment recognized in Q4 less $100 million that was previously accrued. This impacted our EPS by about $0.38 in Q4 and for the full year. Second, and as part of a legal settlement with ViiV and related parties, we have agreed to make a one-time $1.25 billion payment, in addition to an ongoing 3% royalty for future sales of Biktarvy and the bictegravir component of bictegravir-containing products in the United States. This royalty extends until October 5 of 2027. The $1.25 billion payment is recorded in our fourth quarter results and reflected in our cost of goods sold. This charge constituted an approximately 17% impact to gross margin in the fourth quarter, and it impacted our EPS by $0.80 for Q4 2021 and the full year. Going forward, we expect the impact of this new royalty to be approximately 1% on our gross margin, starting in the first quarter of 2022. Excluding these items, and their combined $1.18 impact, our full year non-GAAP EPS would have exceeded the guidance range that we set back in October, helped by stronger than expected Veklury sales. Moving back to our quarterly review on slide 26, fourth quarter revenue in our base business included HIV product sales growth of 7% year-over-year and 8% sequentially. Veklury sales were higher than expected due to start of the Omicron surge. Non-GAAP product gross margin was 70.5%, impacted by the legal settlement that I referenced earlier, and non-GAAP R&D was impacted by the Arcus opt-in, resulting in non-GAAP EPS of $0.69 per share. Our non-GAAP effective tax rate for the fourth quarter was 32.2%, reflecting tax expense related to uncertain tax positions, an increase in valuation allowance, as well as the impact of discrete tax benefits related to legal settlements with tax authorities in 2020 that did not recur this year. For the full year, on slide 27, total product sales of $27 billion grew 11% driven by Veklury. Excluding Veklury, total product sales were roughly flat at $21.4 billion as growth in Biktarvy and oncology offset the $1.3 billion impact of the Truvada and Atripla LOEs in the United States. I touched on the main P&L impacts in the fourth quarter discussion, but will highlight that our non-GAAP effective tax rate for 2021 was 20.4%, despite the higher effective tax rate in the fourth quarter. Moving now to slide 28. Our 2022 guidance assumes that the recent Omicron surge represents the only major COVID-19 wave for 2022, and that our HIV business will continue to recover from the pandemic. With that in mind, we expect Product Sales in the range of $23.8 billion to $24.3 billion. Excluding Veklury, we expect product sales in the range of $21.8 billion to $22.3 billion, representing growth of 2% to 4% for our base business year-over-year. Relative to Q1, I’ll remind you to expect HIV revenue to decline sequentially. This is a normal dynamic for HIV due to inventory and seasonal pricing impacts, and you’ll recall last year HIV revenue declined 14% sequentially in Q1 ‘21 from Q4 of 2020. For Q122, we expect a larger sequential decline, given the favorable Q4 ‘21 changes to gross to net estimates that Johanna mentioned earlier. Nonetheless, we expect a strong year overall for our HIV business and continued growth in the subsequent quarters. Looking beyond Q1, we expect the impact of the Truvada and Atripla LOEs will be largely behind us starting in Q2, and we look forward to accelerating growth in our HIV business during the remainder of the year. For the full year 2022, we expect Veklury sales of approximately $2 billion. This assumes, as I previously indicated, that Omicron will represent the only major surge for the year, with Veklury revenue heavily weighted in the first quarter. That said, the pandemic continues to be dynamic, and we will update you on our Veklury expectations on a quarterly basis, consistent with our recent practice. Moving to the rest of the P&L. We expect our non-GAAP product gross margin to be approximately 85% to 86%, consistent with our historic guidance and allowing for the 3% royalty associated with the legal settlement. For non-GAAP operating expenses, we expect R&D to decrease by a mid-single digit percentage compared to 2021 levels. This decline is driven by the net $625 million charge related to the Arcus opt-in in the fourth quarter of 2021. Excluding this, we expect full year R&D expense to increase by a mid-to-high single digit percentage compared to 2021 levels. We expect SG&A to be approximately flat on a dollar basis compared to 2021. Our non-GAAP effective tax rate is expected to be approximately 20% this year. Finally, we expect our non-GAAP diluted EPS to be between $6.20 and $6.70 for the full-year, and GAAP diluted EPS to be between $4.70 and $5.20. On capital allocation, our priorities have not changed. We continued to invest in our business while, at the same time, we returned over $4 billion in 2021 to our shareholders, through dividends and share repurchases. In addition, we repaid $4.75 billion of debt in 2021. For 2022, we plan to repay $1.5 billion of debt, of which, we repaid $500 million this morning. With that, I will invite the operator to begin the Q&A. Thank you.

Geoff Meacham:

Dan or Andy, maybe a higher level strategic question. I wanted to ask about your comments regarding long-term oncology sales. And the question is, are you comfortable with the aggregate assets in the portfolio? Do you think you’ll need to be more aggressive on BD either to drive more near-term growth or looking longer term to have higher impact assets?

Andrew Dickinson:

Yes. Geoff, thank you for the question. I think it’s an important question, especially in the context of the magrolimab clinical hold that maybe underpinning the question specifically. But the answer is relatively simple. We have a very strong set of assets already. The guidance that we provided at JP Morgan does not actually include all of the assets or all the indications for all the assets. So, there’s a lot of ways for us to get there. We have complete confidence in where we’re going, and we don’t expect to change our BD strategy as a result of any of the recent developments. We’re actually really excited about where we are. And there’s a lot of upside to that of other assets, whether it’s some of the earlier Arcus assets or the Tizona or Pionyr assets, as examples, provide additional options for patients. So, when you talk about high-impact assets, I would just summarize by saying, we already think that we have a great portfolio of high-impact assets in oncology, we’re incredibly pleased with what we’ve put together and nothing that’s happened recently has changed that in any way. So, thanks for the question.

Mohit Bansal:

Maybe a question for Merdad. So, in the light of new data that are emerging in HR positive and HER2-negative breast cancer, do you have any updated thoughts on how to think about overall survival in the treatment and control arms for TROPiCS-02 vis-à-vis the expectation or the assumptions in clinical trials, which I think, if I’m not mistaken, 12 months for the control and 16.5 months for the treatment? So, how should we think about OS? Thank you.

Merdad Parsey:

Yes. Thanks, Mohit. It’s a great question. And I think as I mentioned in my call, I think we’re excited that we’re going to be able to share the first interim analysis from the OS as well when we do the readout here for the PFS. So, I do think we’ll look at both at the same time. You’re absolutely right that there are developments in the HR-positive space, but I continue to believe, and I think that the impact on both PFS -- on PFS in particular here, but also OS continues to be, I think, if we see something in the ballpark of what you just described, we’re confident that that remains incredibly clinically relevant for people suffering with HR-positive HER2-negative. It is, as you state, an increasingly competitive area, but we do think that that remains a key milestone for patients if we can achieve that.

Cory Kasimov:

I wanted to follow up as well on the TROPiCS-02 study. And maybe, Merdad, can you talk about how you see the potential significance of this convergence of events that you alluded to when thinking about both progression-free survival and overall survival? Did you see any implications from this, or is this kind of moving along the lines as you would have expected it to?

Operator:

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

Daniel O’Day:

That’s great. Thanks, Brian.

Daniel O’Day:

And Brian, we’ll keep you informed as that evolves. We have obviously a lot of patients on magrolimab that continue to be served by magrolimab. So, we have a sense of urgency in working with the agency around this.

Salveen Richter:

You referred to the Arcus portfolio. Can you just comment on what you’re most excited about outside of TIGIT and when you might start the triplet study?

Merdad Parsey:

Sure. I think in addition to the TIGIT asset, as you know, the adenosine portfolio, if you will, the 2 molecules, the 2 inhibitors of adenosine, both in terms of the synthesis inhibitor, CD73, as well as the receptor blocker are really interesting to us. They’re early programs, but we think that there is a real potential for those assets to provide significant upside to treatment, both in terms of where -- in lung cancer, where we think there’s some -- the trial that’s ongoing that is looking at the addition of adenosine inhibition to TIGIT plus PD-1 as well as in some of the indications that Arcus is evaluating with monotherapy in particular, pancreatic cancer. So, I think for us, there are a number of opportunities there and the broad potential of adenosine inhibitors to add on to immuno-oncology in general and TIGIT plus PD-1 in particular really strike us is a really great opportunity that hopefully as the data mature, we’ll be able to share more and really underpin the optimism we have around where those programs are headed.

Merdad Parsey:

And then the triplet study, yes, we’ll -- we haven’t announced that yet. We need to work through some details. Thanks for reminding me, Dan. We’re working through some approach. Really, the question here for us is how to go from the doublet, where we’re really looking at a TIGIT inhibitor being an unapproved agent, right, and then potentially bringing in a second unapproved agent. So we have to work through in a sense, the regulatory complications of how we have to sequence and stage those studies to allow us to assess the contribution of components such that we can move forward aggressively. So, we’re working really closely with our adenosine colleague -- our adenosine colleagues, our Arcus colleagues, and we’ll work through the regulatory pathways to make sure that we can get to a robust base Phase 3 trials with those. So, as we do so, we’ll certainly share the timing in the pathway.

Operator:

Our next question comes from the line of Michael Yee from Jefferies.

Daniel O’Day:

Yes. Thanks, Michael. And maybe just a suggestion, as you answer, Michael’s specific question, it might be helpful for the whole audience to hear again kind of your overall view of the potential success of this indication.

Operator:

Our next question comes from the line of Ronny Gal from Bernstein.

Daniel O’Day:

Yes. Thanks, Ronny. And as I turn it over to Christi, let me just say how many patients we’ve been able to impact with cell therapy in 2021, and that being just the beginning, I think, of our promise for the future. We certainly invested in the manufacturing capacity to anticipate demand and success in the second-line, and Christi can go into the details with you. Christi, over to you.

Daniel O’Day:

Thanks so much, Christi. And overall, Ronny, we’re expecting about a 50% increase in capacity over the course of 2022, so continued investment there.

Colin Bristow:

On magrolimab, maybe could you explain why the multiple myeloma and DLBCL trials were also on hold given they’re not in combination with aza? And then, just somewhat related to that, the $1.50 in acquisition-related expenses in the ‘22 guide, is there any component of that, that’s related to the Forty Seven acquisition.

Merdad Parsey:

Yes, it’s really important to -- I think this may have not been entirely clear. First of all, I think -- look, I think whenever there’s a safety question, the agency is going to err on the side of being cautious. And so we’ll work through with them on how to go forward. And I agree in those studies, we are not combining with azacitidine. So again, I think as we share the data and the analysis with the agency, hopefully, we can come to resolution sooner than later. And it’s important to note that for the multiple myeloma study, we actually hadn’t really started enrolling patients at that point. So I think that was one consideration. And by contrast for the DLBCL study, that is completely enrolled. So, the partial hold there actually doesn’t have much of a practical impact on that study because we’re going to continue dosing the patients who are already enrolled in that study. So, I think -- remember that the way it works is maybe the context here, the holds are placed on an IND, not on a study-by-study basis, generally. So, this was a hold to the IND. And so, that’s sort of the context to think about it. I’ll hand it off to Andy to answer the second part of the question.

Daniel O’Day:

Thanks, Colin. Happy to take that up separately, too.

Hartaj Singh:

This is just a question on Veklury. You’re starting to get a pretty consistent franchise there. I mean, unfortunately, COVID-19 is still out there. Various experts have indicated and even some of the companies we cover, we’re going from a pandemic to an endemic kind of state over this year into next year. How do we -- how do you think of Veklury going forward? I know it’s difficult to give guidance there, but you’ve got a year and a half worth of data underneath your belt. How are you thinking of hospitalizations going forward, whether that’s through breakthrough infections, or do you see as unvaccinated individuals get less and less that hospitalization will concomitantly decrease? Any thoughts there? And then, assuming the oral program gets approved, how do you see remdesivir IV and then the oral option working together going forward? And again, thanks for the questions, and a really nice quarter.

Johanna Mercier:

Thanks, Hartaj, for the question. Basically, what we’ve seen since the very beginning is how that Veklury sales truly track to the hospitalizations. And we’ve seen that most recently again with the Omicron surge. What we did see as well is the fact that -- despite the fact that Omicron seemed to may be less severe impact, unfortunately, the number of cases were much greater and therefore just the pure absolute numbers of hospitalizations went up. And so, we’ve tracked every single time pretty much in line, parallel to the hospitalization rates. And we assume that will continue. We do think the hospitalizations will get impacted by some of the oral compounds, even some of the outpatient use of Veklury, but also neutralizing antibodies as well as the oral treatments as well like the PI from Pfizer. And so, we do think that will decrease hospitalizations over time. The one thing we had assumed maybe about a year ago is we really thought the vaccination rates would continue to rise and they didn’t. They basically stabilize at around the 60%, 65% rate. And of course, there are variances across the country. So, what we’ve seen is the use of different treatments as well as the vaccinations -- the vaccination rates are really dictating a little bit kind of the hospitalizations and therefore, the Veklury usage. And yet again, in the December, January time frame, we’ve really seen Veklury play a critical role here for these hospitalizations, also having to do with the fact that many of the other previous agents that were on the market were no longer effective against the Omicron variant. And we haven’t seen any of that. We’ve seen very strong efficacy with Veklury, which has also helped that. I think most recently, the outpatient data that’s just come out in addition to the indication really plays a critical role when there are surges and hospitals are overcapacity, so that they really can look at outpatient setting with Veklury, and we think that will just kind of play hand in hand. And I would propose, as I turn it over to Merdad to address the oral piece of the puzzle, I actually think you need both. I think you need the oral setting, so more players in the oral setting is critical and you still need hospitalizations because, unfortunately, as this -- if it does become endemic, I do think you’ll see a steady rate of hospitalizations as we go through, and that’s where Veklury plays a critical role. Merdad?

Daniel O’Day:

Hartaj, just to complement what Johanna and Merdad said, I think we clearly see that as this becomes endemic that there’ll be potentially a need for multiple mechanisms in the outpatient setting. So, that’s one of the reasons why approaching it from a preliminary standpoint as well as to a protease standpoint, we think could make sense over the long term for resistance patterns. And the last thing I’ll say is I think what we’ve seen this, whether it’s pandemic or endemic, remdesivir is going to firmly trench now as a standard of care in the hospital setting. And so, as goes hospitalization, so will go remdesivir over time, and we think that’s going to be an important part of our ongoing business and our benefit to patients.

Carter Gould:

I wanted to come back to Trodelvy but a little bit more from the commercial and strategic angle and wanted to -- just sort of the decision to triple the sales force at this point, ahead of TROPiCS-02, is that decision dependent upon positive data from TROPiCS-02, or could that potentially be revisited, depending on that outcome? And then, specifically around sort of what you’re seeing in -- with the sales, it seems like the growth on an absolute basis quarter-on-quarter does seem to be sort of slowing a bit. Can you maybe just talk about how the real-world duration of use has maybe evolved, and if that’s sort of in line with what you saw in the studies -- in the pivotal studies? Thank you.

Johanna Mercier:

Sure, Carter. Thanks for the question. Just a couple of things. One is the footprint, the geographic footprint that we’ve just initiated and that ramp-up and the tripling. It has really maybe three objectives. One is to further support our initial launches of both metastatic TNBC triple-negative breast cancer as well as bladder. So, that’s definitely number one, and that is here and now. the potential to support a potential indication in HR positive, which is what you were referring to. And the third one is also setting up for the future success of our total oncology portfolio. So, assuming positive data, of course, is what we’ve decided to go for, but having said that, even if that didn’t play out, this is the right team for the future for Gilead Oncology. So that was the first part of your question. The second part of your question about the growth slowing, I actually think we’re quite pleased, actually, as we got into Q4, what we’ve seen is the share really drive up post NCCN breast guidelines update in September. And so, we had good data point of share. The last data point we have is October, and that’s the 1 in 4 that you heard me talk about earlier. And so, that’s doubling from where we were in April. So, we were at about half of that share in second line. And now we’re at about 24%, 25% share in second line. So, a real nice growth on that front and definitely more to come. I think there’s an incredible opportunity for Trodelvy in this patient setting, especially with the high unmet medical need and the incredible OS data that we have with Trodelvy. So more to come on that.

Operator:

Thank you. Our last question comes from the line of Matthew Harrison from Morgan Stanley.

Daniel O’Day:

Thanks a lot, Matthew. We’ll go to Merdad and then Johanna.