Gilead Sciences Inc (GILD) — Q4 2021 Earnings Call Transcript

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 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 available on the Gilead website. With that, I’ll turn the call over to Dan.

Thank you, Jacquie. And good afternoon, everybody. As we head into 2022, Gilead is coming off a year of positive clinical momentum and strong financial performance, mitigating the impact of the pandemic on some parts of our business. Higher sales of Veklury more than offset the impact of COVID-19 on HIV and HCV. Veklury continues to play a critical role in helping to treat people with COVID-19, with continued activity against the Omicron variant. The FDA recently expanded its use beyond the hospital for patients at high risk of disease progression. In addition, we just initiated a Phase 1 trial of GS-5245, a novel oral COVID-19 nucleoside that, once metabolized, works similarly to remdesivir. Our full year revenue for 2021 was 11% higher than the midpoint of our initial guidance in February of 2021. It was also an important year for our transformation to becoming a business based on diverse, sustainable growth. In 2021, we received 7 approvals or accelerated approvals in the U.S. and Europe and submitted an additional 6 filings. Our approvals included: three for Trodelvy, with FDA and MAA approval in second-line triple-negative breast cancer as well as an accelerated approval from FDA for metastatic bladder cancer; two for cell therapy, with Yescarta receiving accelerated approval in relapsed or refractory follicular lymphoma and Tecartus receiving full approval in adult acute lymphoblastic leukemia; and two expanded labels in virology, one for a pediatric label for Biktarvy in the U.S. and an expanded label for Veklury in the E.U. for adults not requiring supplemental oxygen. Our 2022 plans include a significant increase in clinical development studies across our novel oncology portfolio. We are planning at least 20 additional trials, including 7 Phase 3 trials for Trodelvy. And these include: the ASCENT-03 trial, which is evaluating Trodelvy in the front-line triple-negative breast cancer in the PDL1 negative population; the ASCENT-04, in collaboration with Merck, to evaluate Trodelvy and Keytruda in the front-line triple-negative breast cancer population in the PDL1 positive population; and the EVOKE-03, which will be led by Merck, to evaluate Trodelvy and Keytruda in non-small cell lung cancer. You will also see ongoing momentum in our virology portfolio as we continue to expand our leadership in antiviral therapies. We are advancing our longer-acting HIV options with lenacapavir as the foundation and look forward to potential regulatory decisions in 2022. If approved, lenacapavir would be the only HIV treatment option administered twice yearly. In addition, we’ll continue to drive progress across our broader virology portfolio, including hepatitis, COVID-19, and other emerging viruses. This is a really important time in Gilead’s transformation journey. After the consistent work to execute on our strategy and expand our portfolio over the last two years, you will increasingly start to see this play out in tangible results. We’re confident that Gilead has all the elements in place for a strong year and a strong decade. Johanna, Merdad, and Andy will now take you through the details of our progress and our plans, and let me hand first to Johanna to talk about our commercial performance in the fourth quarter and the full year. And I’ll be back to you in the Q&A. Johanna?

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 represented 8% growth year-over-year, driven by the 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, 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 the 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 loss of exclusivity, in addition to pandemic-related impacts and pricing dynamics. The expected impact from the loss of exclusivities, which amounted to $1.3 billion, was offset by continued Biktarvy growth. Excluding the sizeable loss of exclusivity 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's 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 the 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, 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 and 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, the 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, the 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. Thanks, Johanna. Good afternoon, everyone. Building on what both Johanna and Dan have said, the Gilead team rounded out a very strong 2021 with further progress across our portfolio. In 2021 alone, we began enrolling patients in 13 oncology, 13 virology, and 4 inflammation trials, and we have recently shared the initial details of the ambitious development programs we are targeting for 2022. As we look forward, we are confident that we have the foundation to continue to build a robust, diverse portfolio across our three focus therapeutic areas. First, on slide 16, Veklury continues to play a vital role in the fight against COVID-19. Veklury was the first approved treatment for patients hospitalized with COVID-19. We have received expanded indication labels in the U.S. and EU. In December, the European Commission approved a variation to the Conditional Marketing Authorization for Veklury for the treatment of COVID-19 in adults not on supplemental oxygen. And last month, based on data from the Phase 3 PINETREE study, the FDA expanded the approval of Veklury to include non-hospitalized patients at high risk for COVID-19 disease progression. These expanded indications speak to the activity of Veklury against the coronavirus variants we have seen so far, including Omicron. We believe there will continue to be a need for Veklury delivered intravenously, especially for higher risk patients. The potential for continued COVID-19 variants and infections highlight the need for more convenient oral formulations to expand the options for outpatients. As such, we have just initiated a Phase 1 trial of GS-5245, a novel oral COVID-19 nucleoside that, once metabolized, works similarly to remdesivir. Pending data, the evolving pandemic landscape, and discussions with regulatory agencies, we are hoping to initiate a registrational trial before the end of the year. Moving to HIV on slide 17, we shared an overview of some of our long-acting development activities a few weeks ago, to highlight the diversity of our portfolio and how it targets the entire HIV life cycle. We continue to believe that our investigational agent lenacapavir is a unique and foundational asset given its potential for extended dosing, in addition to the compelling efficacy and safety profile highlighted in the CAPELLA and CALIBRATE studies. Next, on slide 18, you can see our current clinical efforts with long-acting HIV therapeutics. As previously announced, the Phase 2 study evaluating the oral combination of lenacapavir with Merck’s islatravir is on partial clinical hold, and Merck remains in discussions with FDA on next steps islatravir. In the meantime, we at Gilead continue to develop a number of other potential partner agents for lenacapavir in HIV treatment and look forward to sharing some more detail on these programs at our Virology Deep Dive later this month. We remain confident and excited about lenacapavir’s future potential to deliver options for people living with HIV or those who could benefit from PrEP. I want to be very clear that the recent clinical hold for the lenacapavir trials, which the FDA initiated in December, is not associated with the lenacapavir molecule itself. Rather, the hold reflects concern about the compatibility of certain vials with the lenacapavir solution. We continue to work with the FDA to remediate the concern and to agree on a path to resume these trials. We are hopeful this can be achieved quickly. As such, we continue to expect an FDA decision for lenacapavir in heavily treatment-experienced individuals in the first half of 2022. If successful, lenacapavir will become the first available six-month, long-acting subcutaneous injection for the treatment of HIV. Next, moving to Trodelvy on slide 18, I’m pleased to confirm that we now expect to share both top-line progression-free survival data as well as the first planned interim analysis of overall survival from TROPiCS-02 in March. There’s been a convergence of events for PFS and OS such that we will be able to conduct and report a single analysis of these outcomes rather than have two analyses separated by a short interval. Gilead remains blinded to the data, and we are excited to be able to share this more complete view later this quarter. We are targeting an sBLA filing in the second half of 2022, depending, of course, on the readout. If the data are positive, we believe that Trodelvy could represent a very important treatment option for HR+/HER2- patients who are hormone refractory and have very limited options. Reflecting our confidence in Trodelvy overall, we are expanding the number of clinical programs in 2022 to evaluate effectiveness in breast, lung, and bladder cancers, with plans to initiate study start-up activities for at least 7 Phase 3 trials. Three of these are expected to enroll their first patients in 2022, including two in front-line metastatic TNBC and another in front-line non-small cell lung cancer study that will be led by Merck. Going forward, we will separately disclose trial start-up activities versus FPI milestones. Additionally, in the first half of this year, we plan to add a combination of Trodelvy with other Gilead portfolio assets as a study or an additional cohort in an existing study. We look forward to sharing more details at our upcoming Oncology Deep Dive in April. This is another example of the versatility and tremendous potential that Trodelvy, along with the growing oncology portfolio, can generate. Next slide, onto magrolimab. Early last week, the FDA placed a partial clinical hold pausing enrollment and screening in trials and cohorts in the U.S. evaluating magrolimab in combination with azacitidine following the review of a preliminary data set suggesting an apparent imbalance in investigator-reported SUSARs, or suspected unexpected serious adverse reactions, between treatment groups in our ongoing Phase 3 trial in high-risk MDS. A subsequent partial clinical hold has been placed on the Phase 2 multiple myeloma study and the fully enrolled Phase 2 DLBCL study. Importantly, patients currently enrolled in our magrolimab studies can continue treatment, and our compassionate use programs remain open. We are working with FDA to take a comprehensive look at the safety data, and we will share the outcome as quickly as we can. In the meantime, we remain committed to the magrolimab development program and believe that it has the potential to address an important unmet medical need in these seriously ill patients. As you know, the patients in our ENHANCE Phase 3 trial have a very high unmet need, with a median overall survival of only 1 to 3 years on the current standard of care. Separate and prior to the partial clinical hold, our Phase 1b single-arm study in higher-risk MDS no longer has a viable path to submission based on regulatory feedback. As such, we will remain focused on our Phase 3 ENHANCE study and look forward to sharing the 1b data at an upcoming scientific meeting. Next, moving to cell therapy on slide 21, on behalf of Christi and the Kite team, I will share a brief update on the impressive data Kite presented at ASH last December. First, as you may recall, in 2020 we shared that Yescarta had a four-year overall survival rate of 44% in third-line LBCL patients. At ASH in December, we presented five-year data from ZUMA-1 in third-line LBCL patients showing Yescarta demonstrated a remarkable and durable 43% overall survival rate, stable since our four-year update. Additionally, 92% of the patients who remained alive at five years have not needed any additional cancer treatment since their one-time infusion of Yescarta. It’s truly inspiring to see this type of durability for CAR T cell therapies. As announced yesterday, the FDA approved a label update for Yescarta to include the use of prophylactic corticosteroids across all approved indications. Adding prophylactic steroid use can improve the management of certain side effects without compromising the activity of Yescarta. For example, the FDA label now shows no grade 3 or greater cytokine release syndrome events occurred using the Cohort 6 protocol, as compared to 13% in the original label. This label update complements data published in 2021 showing 68% of patients had no CRS or neurologic events within 72 hours of Yescarta infusion. As we look to earlier lines of treatment, the landmark ZUMA-7 trial evaluating Yescarta in second-line relapsed/refractory LBCL demonstrated a greater than 4-fold increase in median event-free survival, or EFS, compared to standard of care through two years of follow-up. The sBLA was filed last quarter and we expect an FDA decision by April of this year. In terms of the first-line LBCL data, Yescarta demonstrated an 89% overall response rate in high-risk patients, and a 78% complete response with a median follow-up of 15.9 months. Given these encouraging data, the Kite team is in discussions with regulatory authorities on a potential path forward in front-line LBCL. Finally, on slide 22, we highlight key 2022 catalysts across the portfolio, many of which I have just mentioned. I’d also like to take a moment to highlight the three Arcus milestones in the second half of this year. Last quarter, Gilead opted in to the three Arcus programs, which added four assets to our portfolio: domvanalimab, an Fc silent anti-TIGIT antibody; AB308, an Fc active anti-TIGIT antibody; etrumadenant, an adenosine receptor antagonist; and quemliclustat, a small molecule CD73 inhibitor. Together with Arcus, we expect to share ARC-7 Phase 2 PFS data in the second half of 2022, which will include data for the zimberelimab monotherapy, zim and dom doublet, as well as the zim, dom and etruma triplet arm. We look forward to sharing data when available and are very excited to collaborate more closely with Arcus to accelerate future development plans. On slide 23, you can see that Gilead’s portfolio now encompasses 55 clinical stage programs, nearly doubling since 2019. Given the exciting potential of our portfolio across virology, oncology, and even early-stage inflammation assets, this is just the beginning. Our teams are committed to advancing the most promising programs that will help transform patient outcomes, and we look forward to sharing our progress with you over the coming quarters and years. With that, I’ll hand it over to Andy.

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 losses of exclusivity, 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 regular 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, 2027. The $1.25 billion payment is recorded in our fourth quarter results and reflected in our cost of goods sold. This charge constituted approximately a 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 the start of the Omicron surge. Non-GAAP product gross margin was 70.5%, impacted by the legal settlement 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 Q1 2022, 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 losses of exclusivity 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 continue 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.

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 business development either to drive more near-term growth or looking longer term to have higher impact assets?

Thanks, Geoff. Thanks for the question. I’ll start and then hand it over to Andy. So, yes, I mean, the guide that we gave at JP Morgan was that we are confident in our ability to grow and to also have oncology by 2030 be at least a third of our overall revenue on top of a solid HIV business and virology business overall. The answer to the question, Geoff, is we believe we have everything in-house to fulfill that commitment today. I mean, the number of options we have with Trodelvy, with magrolimab, with the Arcus assets and with Cell Therapy from an oncology base provides tremendous opportunity for us to look alone and in combination of that portfolio in the coming years. That specifically leads to the more than 30 clinical trials we have ongoing right now in our oncology portfolio. Our guide this year will start at least another 20 in the oncology space. So really, that’s the armamentarium behind our commitment and our growth. Of course, we’ll continue to be opportunistic around business development and look for supplemental options out there that can complement this portfolio as a course of normal business as any healthy company should. Having said that, we have enough in-house to fill up on that commitment. So, with that, Andy, I may have stolen all your thunder, but I’m sure you’ll have some additional perspectives.

Yes, Geoff, thank you for the question. I think it’s an important question, especially in the context of the magrolimab clinical hold that may be 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 business development strategy as a result of any of the recent developments. We’re actually really excited about where we are. We think we already have a great portfolio of high-impact assets in oncology, we’re incredibly pleased with what we’ve put together and nothing that has happened recently has changed that in any way. So, thanks for the question.

Maybe a question for Merdad. So, in 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.

Thanks, Mohit. Directly over to you, Merdad.

Thank you, Mohit. It's a great question. As I mentioned earlier, we're excited to share the first interim analysis for overall survival alongside the progression-free survival readout. We plan to evaluate both aspects simultaneously. You're correct that there are advancements in the HR-positive field, but I believe the impact on progression-free survival, particularly in this case, remains highly relevant for patients with HR-positive HER2-negative breast cancer. While the competition is intensifying in this area, we believe achieving our goals will be significant for patients.

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?

Yes, that's a great question, and I appreciate you asking it. I'm quite reassured and wouldn't read too much into this beyond the fact that we've been closely monitoring the progression-free survival and overall survival events. We've reached a point where these outcomes have occurred within a timeframe that allows us to examine both simultaneously. I don't believe it indicates anything specific regarding whether there are positive or negative implications. At this moment, it would be purely speculative to assume there's an underlying reason for the alignment of these endpoints. In fact, it's not entirely unexpected. It's slightly closer than we anticipated, but not significantly so. Therefore, I wouldn't overinterpret this. I'm just pleased that we'll have this opportunity as it will provide a more comprehensive analysis. As I've mentioned earlier, we believe that regulators will want to see these thorough assessments of overall survival to assist them in supporting the progression-free survival endpoint.

I wanted to better understand the potential signals from magrolimab. I think you guys have said that you haven’t observed any clear AE trend. I was curious, where is the disconnect versus what the FDA and investigator concerns are here? And maybe talk a little bit about the potential path to resolution, what additional safety data would be needed and your level of confidence you will reach a resolution? Thanks.

That’s great. Thanks, Brian.

Thank you, Cory. To clarify, there have been a few events that the agency wants to review in order to assess the overall safety profile. I don’t have access to the safety data at this moment. We are currently collecting the safety data, which we will present to the FDA and the data monitoring committee. I believe these are temporary challenges, and we intend to resolve them as swiftly as possible. I don’t think these challenges undermine our confidence in the overall portfolio, and our strategic approach remains the same. We are committed to the macro development program, which we believe has significant potential to meet an important unmet medical need. It's important to remember that these patients are generally quite ill. Given their underlying conditions, it’s prudent to proceed with caution to ensure we strike the right balance going forward. We will address these matters by evaluating the overall safety profile and ensure that we can resolve the issues with the FDA.

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.

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?

Sure. Merdad, why don’t you start on that?

Sure. In addition to the TIGIT asset, we find the adenosine portfolio, which includes two molecules that inhibit adenosine—specifically the synthesis inhibitor CD73 and the receptor blocker—quite intriguing. Though these are early-stage programs, we believe they hold significant potential for enhancing treatment, particularly in lung cancer. There is an ongoing trial examining the combination of adenosine inhibition with TIGIT and PD-1, and Arcus is also exploring monotherapy options, especially in pancreatic cancer. We see multiple opportunities in this area and believe that the broad potential of adenosine inhibitors to complement immuno-oncology, particularly the combination of TIGIT and PD-1, is a promising avenue. As the data develop, we look forward to sharing more details that will support our optimism about the direction of these programs.

Right. And I think there was a question around when to start the...

And then the triplet study, yes, 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, and then potentially bringing in a second unapproved agent. So we have to work through 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 colleagues, our Arcus colleagues, and we’ll work through the regulatory pathways to make sure that we can get to robust Phase 3 trials with those. As we do so, we’ll certainly share the timing in the pathway.

And Salveen, the only thing I’d add on top of Merdad’s eloquent response is the potential to combine this attractive portfolio for markets with other medicines that we have within Gilead, including Trodelvy and possibly magrolimab and others, so his combination of having access to a PD-1 2 TIGIT compounds to adenosine combined with Trodelvy provides a rich opportunity to look at rational-based combinations. We’ll be getting more into that as we do a deeper dive in oncology as a starting point in April. And then obviously, throughout the year, we’ll continue to update you on that. It’s one of the major reasons why opting in early was important to us because we can work really fluidly now across a very rich portfolio. With the additional expertise and colleagues from Arcus, it really expands all of our potential and clinical science and beyond.

Maybe back to Merdad on Trodelvy, appreciating that I know there’s a lot of focus on this interim OS. I would love to give you the opportunity to perhaps frame expectations at an interim. Interims have different connotations and there are different interims at different percent of events that have accrued. So, could you just explain what percent of events this interim is based on? Do you actually expect to hit significance, or do you expect just a trend of a few months? Maybe just talk to that a bit, because I think there are different implications of just an interim.

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.

Yes. Michael, it’s a great question. Thank you for asking it. So, as a reminder, I think from a PFS standpoint, the primary endpoint of the study, we believe we’re really well powered to detect a difference there. As I’ll remind folks, we did redesign the study a year ago in order to power the study adequately for OS as well. I think as excited as I am that we will be able to report out that first interim analysis, Michael, you’re absolutely right on that. I would not expect statistical significance at this first interim because it is relatively early in the time frame that we’re seeing. So, my expectation is that, pending a positive outcome, we are well powered to see a PFS improvement at a statistically significant level. The OS will be supportive data at that point that will give us directionality as to where we’re headed. Hopefully, subsequent to that as the events accrue, we’ll see where we’re headed with OS down the road. It’s a great question.

Switching over to talk a little bit about Yescarta. Can you tell us if there’s already impact, the use of Yescarta in second line, or is it still ahead of us? And you’ve mentioned you’re increasing your capacity by 50%. Are you currently capacity-constrained or demand-constrained? Essentially, will all that demand be used if it comes online?

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.

Thank you, Dan, and for the question. We are very excited about not only the second line, which is crucial for helping the most patients, but also the ongoing success of the third line along with the five-year data presented at ASH. In year four, 43% of patients were still alive, and 44% were still receiving treatment at year four, with 43% at five years, as mentioned by Merdad. Given these results and the new indications emerging, we are witnessing a significant increase in demand. We are well positioned with our manufacturing capacity, including the El Segundo site in California and the Amsterdam facility, which reached capacity by the end of last year. Additionally, our Maryland site will be operational in the first half of this year, with automation enhancements. This not only increases our capacity but also helps us lower costs. Our ability to deliver is progressing well, and we maintain a reliability rate of 97% success when reintroducing the cells to patients, which is crucial. We have resolved some transparency and scheduling issues from last year where multiple physicians requested the same appointment slots simultaneously. Those concerns have been addressed, and we are well-prepared to assist many more patients in living longer lives.

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.

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 related to the Forty Seven acquisition?

Great. So I’ll have Andy answer the second. Maybe you want to touch base on the first, Merdad, also telling about the stage of those 2 trials.

Yes, it’s really important to clarify this. Whenever there’s a safety question, the agency tends to be cautious. We will collaborate with them on the next steps. I agree that in those studies, we are not combining with azacitidine. As we present the data and analysis to the agency, I hope we can reach a resolution soon. It’s worth noting that we had not begun enrolling patients in the multiple myeloma study at that time, which was one consideration. In contrast, the DLBCL study is fully enrolled, so the partial hold does not significantly affect that study, as we will continue dosing the patients already enrolled. It's important to understand that holds are placed on an IND rather than on a study-by-study basis. This was a hold related to the IND, which provides the context for this situation.

I’m not sure I fully understood the question, but I can tell you that none of the updates we provided regarding the one-time fourth quarter expenses or our 2022 guidance are related to expenses. Perhaps we can discuss this further to clarify your specific question, but there is no connection to the Forty Seven acquisition in our fourth quarter update, year-end update, or the 2022 guidance.

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

This is a question about Veklury. It seems you're establishing a strong presence there. Unfortunately, COVID-19 remains a concern. Various experts and some of the companies we monitor have suggested that we are transitioning from a pandemic to an endemic situation over this year and into next. How do you envision Veklury's future? I realize it’s challenging to provide guidance, but you have a year and a half of data to work with. How do you anticipate hospitalizations changing in the future, considering the impact of breakthrough infections or the decrease in unvaccinated individuals and its effect on hospitalization rates? Additionally, if the oral program receives approval, how do you envision the integration of remdesivir IV with the oral option moving forward? Thank you for your responses and congratulations on a strong quarter.

Thanks, Hartaj. I think Johanna can start with some insights on the pandemic to endemic transition, and then Merdad can also share some thoughts on the forward portfolio. Please, Johanna, it's yours.

Thank you, Hartaj, for your question. From the start, we've observed that Veklury sales closely align with hospitalization rates, as demonstrated during the recent Omicron surge. Although Omicron appeared to be less severe, the increased number of cases resulted in higher absolute hospitalization figures. We have consistently tracked hospitalizations in parallel with these sales, and we expect this trend to continue. We believe that oral treatments and outpatient use of Veklury, along with neutralizing antibodies and oral therapies like Pfizer's PI, will contribute to a reduction in hospitalizations over time. About a year ago, we anticipated that vaccination rates would keep rising, but they have stabilized at around 60% to 65%, with variations across the country. The interplay of treatment usage and vaccination rates has significant implications for hospitalization figures and consequently, the demand for Veklury. Veklury has been vital in addressing hospitalizations, especially given that many previously available treatments are no longer effective against the Omicron variant. The treatment has shown strong efficacy, which has enhanced its importance. The recent outpatient data, alongside our indication, is crucial during surges when hospitals are at full capacity, allowing us to leverage Veklury in outpatient settings. As I hand it over to Merdad to discuss the oral treatment aspect, I believe it is essential to have both oral and IV options, as many players in the oral space are important. We will still require hospitalization support, especially as the disease becomes endemic, resulting in a steady rate of hospitalizations that Veklury will help address.

Yes. Thanks. I guess, I’d make two points. The first is, it’s very early days with the oral program. We just started Phase 1. So, a lot of things can happen. I would just keep that in mind. Obviously, if things go well, we’ll move as aggressively as possible. I agree with Johanna. I think that there will always be a role for both oral and IV therapies. What we’re seeing now, I think, in terms of how folks are approaching it is that as the availability of oral therapies becomes broader, they’re used relatively early in the course of the disease. Many people may progress and/or not get treated early enough and end up in the hospital. At that point, I think that’s where the hospitalized or severely ill patients is where the role of IV therapies is going to come in, Veklury in particular. I have too much to add to what Johanna said, but I do think there’ll be a role for both in the long run.

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

I wanted to return to Trodelvy from a commercial and strategic perspective and inquire about the decision to triple the sales force at this time, prior to TROPiCS-02. Is this decision contingent upon positive data from TROPiCS-02, or could it be reconsidered based on the results? Additionally, regarding the sales trends, it seems like the growth from quarter to quarter is slowing down a bit. Could you discuss how the real-world duration of use has changed and whether that aligns with what you observed in the pivotal studies? Thank you.

Thanks, Carter. Right over to Johanna, please.

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 in the tripling 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. 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. The third one is also setting up for the future success of our total oncology portfolio. Assuming positive data, of course, is what we decided to go for. Having said that, even if that didn’t play out, this is the right team for the future for Gilead Oncology. 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 share really driving up post-NCCN breast guidelines update in September. 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. We were at about half of that share in April, 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. 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.

Terrific. Thank you so much, Carter. We can take one last question, everybody. Thank you.

Just one clarification and one question. So, for Merdad, can you just clarify, it was unclear to me from your comments whether the FDA had asked for the OS data, and that’s why you were including this interim now for the filing or if that had been your plan all along. So, if you could just clarify that would be great. And then, second, any comments you can make specifically around the stocking tailwind as well as the gross to net tailwind that you have from HIV in the fourth quarter? Thanks.

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

Yes, very quickly. I think, as I mentioned, we did upsize the study last year for OS because we’ve always believed, especially in HR-positive, that having OS data are going to be important to support a filing. It’s not the primary endpoint and we think it’s going to be important supportive data to go. That didn’t really have much to do with this confluence of events here. It’s a fortuitous event in terms of timing here that will support our data. So hopefully, that answers the question. The FDA did not ask for it.

The FDA did not ask for it. We are always going to consider overall survival with the first progression-free survival data cut at this point. Instead of conducting a look followed by an interim analysis, we will perform the progression-free survival and the interim analysis simultaneously.

And Matthew, the second part of your question around the Q4 piece of the puzzle. As you well know, right, as you go into Q4, you usually have a bit of a seasonal inventory build in the subchannel play. And then, of course, that bleeds out in Q1. So, that’s one piece of the puzzle. In Q1, the other difference is, of course, you increased your co-pay support, your donut hole coverage and so all those pieces and your payer mix changes in your first quarter. Having said that, in addition to that, there was some favorability in Q4 of 2021 from a gross-to-net standpoint, which will then create an even bigger decline in Q1, and that’s what we were referring to. It’s a one-time thing in Q4. It’s just more around the comparison versus Q1 over Q4 as we get through the first quarter, and that’s what I was trying to signal.

Great, Matthew. And I just want to, before I turn it over to Jacquie, thank all of you for joining from our perspective. We are really excited about the build that we’ve had at Gilead over the past two years and the team and the people that we have on board. We’ve got a lot to do this year, and we’re really teed up for a good strong year and a strong decade ahead with this portfolio. With that, Jacquie, over to you, please.

Thank you, Dan, and thanks to our operator, Gigi, for your help today, and indeed to all of you for joining us. We appreciate your continued interest in Gilead and hope that you can join us for our Virology Deep Dive scheduled for Thursday, the 17th of February. Thank you.