Gilead Sciences Inc (GILD) — Q3 2022 Earnings Call Transcript

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.

Thank you, Jacquie, and good afternoon, everybody. We’re pleased to connect with all of you today to share the details of another very strong quarter. Thanks to strong commercial and clinical execution by our teams, the positive momentum continues to build. Total product sales excluding Veklury were $6.1 billion, growing 6% sequentially and 11% year-over-year. The total including Veklury was $7 billion. If we exclude the impact of foreign currency fluctuations and the tail-end of the loss of exclusivity for Truvada and Atripla in HIV, total product sales excluding Veklury grew 15% from the third quarter of last year. The majority of this growth was driven by HIV and over 40% of the $620 million increase in sales came from oncology. The team will share more details, but this has been a great quarter for commercial execution, including: continued share gains for Biktarvy, growing momentum for Trodelvy, another impressive quarter for cell therapy, and a strong quarter for Veklury. We also saw continued clinical momentum this quarter. Some of the highlights include: the FDA priority review granted to Trodelvy for late line HR-positive/HER2-negative metastatic breast cancer, the EU approvals for Yescarta for second line relapsed and refractory Large B-Cell Lymphoma, and Tecartus in adult Acute Lymphoblastic Lymphoma, and in virology, lenacapavir received its first regulatory approval, in Europe. Marketed as Sunlenca, it is approved for heavily-treatment experienced people living with multi-drug resistant HIV, making it the first approved capsid inhibitor and the first therapy with a six-month dosing schedule for HIV treatment. We are taking multiple important steps to advance our ambitious clinical pipeline, including: in oncology, we are expanding our lung program, with 8 trials now active, and 3 more planned to start in the coming months; we plan to resume our phase two trial investigating a once-weekly oral combination of Merck’s islatravir and our lenacapavir. This will be one of many ongoing combination studies we have for long-acting HIV treatment, in addition to our extensive program for prevention; and we continue to further strengthen our early-stage portfolio, adding a BTLA agonist for inflammation from MiroBio and an option for a bispecific antibody for oncology from MacroGenics. Moving to our clinical goals for 2022 on slide 5, we’re on track to start the 2 remaining Phase 3 trials, namely EVOKE-03 for first line non-small cell lung cancer and ZUMA-23 for first line high risk LBCL. We continue to expect another interim readout for the Phase 2 ARC-7 study in first line non-small cell lung cancer before the end of the year. Overall, this has been another very strong quarter in a very strong year for Gilead. We’re seeing impressive growth of our base business with continued share gains for Biktarvy, an excellent performance for cell therapy and growing demand for Trodelvy. On the clinical side, we’ve had the first approval for lenacapavir, a foundational asset for the future of our HIV franchise. Trodelvy is now under priority review for HR-positive/HER2-negative breast cancer in the U.S. and we’re executing on an extensive development program across virology, oncology and inflammation. Finally, the recent TAF settlement is expected to significantly extend the exclusivity of key components of our HIV franchise in the U.S. I’d like to take this opportunity to thank the Gilead and Kite teams for their outstanding clinical and commercial execution. This consistent execution of our strategy, along with a very robust portfolio has led to some terrific progress in 2022 and we look forward to building on that momentum through the rest of the year and beyond. With that, I’ll invite Johanna to share an update on our third quarter commercial performance.

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 online 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.

Thank you, Johanna. Before I start, I’d like to recognize the strong execution of our internal team and external partners across a broad range of activities that’s diversified across therapeutic area and clinical stage with milestones spanning study initiations, the sBLA submission for Trodelvy, two EC approvals in cell therapy, and our first approval for lenacapavir in the EU. On slide 16, you can see that we’ve made a lot of progress so far this year, meeting nearly all our milestones. Regarding our BLA filing for Hepcludex, we received a Complete Response Letter from FDA, citing concerns about the manufacture and delivery of Hepcludex. We will take the time to fully digest the CRL, but note that no new safety or efficacy clinical trials were requested by the FDA. We plan to resubmit as quickly as possible and will work with the agency on the path forward. We remain confident in bulevirtide and the potential benefits it can bring to people living with HDV, and will share an update on the U.S. regulatory pathway when we can. Moving onto HIV on slide 17. We’re thrilled that lenacapavir received its first marketing authorization from the European Commission as Sunlenca for people living with multi-drug resistant HIV, in combination with other antiretrovirals. Sunlenca is a first-in-class capsid inhibitor. It is the first and only twice-yearly, subcutaneous HIV treatment and adds a much-needed option for those people living with HIV with limited alternatives. We continue to expect a decision on our NDA for lenacapavir from FDA in late December of this year. In the meantime, this first regulatory approval from the EC is an important validation while we continue to progress our other lenacapavir-based treatment and prevention programs. For HIV treatment, a new clinical development plan allowing a lower dose of islatravir, Merck’s investigational NRTTI, is moving forward after FDA review. As such, we are planning to resume the Phase 2 trial investigating an oral, once-weekly lenacapavir and islatravir combination. Our internal combination programs are also ongoing, and we expect to share data next year from the Phase 1b proof-of-concept study for lenacapavir and two broadly-neutralizing antibodies, or bNAbs, directed at HIV. In prevention, our clinical development continues to progress with four in-process or planned clinical trials evaluating every six-month subcutaneous lenacapavir. Moving to slide 18, Veklury continues to be recognized as a standard of care for patients with severe COVID-19, with updated guidelines for Veklury from the World Health Organization. Additionally, the CHMP issued a positive opinion on the use of Veklury for the treatment of pediatric patients with COVID-19. Although novel treatments and vaccinations have improved the COVID-19 outlook, there is a continued need for effective and convenient oral treatment options for patients. I am pleased to share that the FDA has just granted our novel oral nucleoside, GS-5245, Fast Track Designation, which aims to expedite development of promising new medicines. We continue to be in active discussions with the FDA and other global regulators on potential clinical pathways including a Phase 3 study that we expect to start within the next several months, either globally or outside the U.S. On slide 19, we show the Phase 3 TROPiCS-02 results in patients with HR-positive/HER2-negative metastatic breast cancer that was a late-breaking presentation at ESMO in September. Trodelvy demonstrated a statistically significant and clinically meaningful 3.2-month overall survival benefit. Patients with metastatic HR-positive/HER2-negative breast cancer who have progressed on endocrine-based therapies and chemotherapy have limited options. As a reminder, the patients enrolled in TROPiCS-02 were heavily pre-treated with a median of three prior chemotherapy regimens in addition to prior CDK4/6 inhibitors. Importantly, the FDA recently accepted our sBLA for Trodelvy in HR-positive/HER2-negative metastatic breast cancer and granted it a Priority Review. The PDUFA date is currently set for February 2023. We continue to work with regulatory agencies outside the U.S. to potentially make this medicine available to eligible patients. Additionally, following the acquisition of Trodelvy’s Asian commercialization and development rights from Everest Medicines, we expect data from our Phase 3 metastatic TNBC China bridging trial in the next few months and our Phase 3 Asian HR-positive/HER2-negative metastatic breast cancer study in mid-2023. Moving to lung cancer on slide 20, you can see that we expect to have at least 9 active clinical trials in non-small cell lung cancer by the end of 2022, including 5 with Trodelvy, as well as programs with zimberelimab, domvanalimab and etruma, Merck’s Keytruda, AstraZeneca’s durvalumab, and our own magrolimab. Eight trials are already underway, including the Phase 3 EVOKE-01 study in second to third line non-small cell lung cancer and our Phase 2 EVOKE-02 study in first line non-small cell lung cancer without actionable mutations. Our partner Merck also plans to initiate the Phase 3 EVOKE-03 study later this year to evaluate the combination of Trodelvy and Keytruda in first-line patients with non-small cell lung cancer whose tumors express high levels of PD-L1. Additionally, with our partner Arcus, we’re looking forward to the fourth interim analysis of the Phase 2 ARC-7 trial evaluating zim and dom in PD-L1-high non-small cell lung cancer before the end of the year. Data from ARC-7 are expected to support our ongoing Phase 3 studies for dom-based combinations in lung cancer, including STAR-121 which just achieved first patient in. Lung cancer is a disease area with high unmet need, and we believe we have multiple promising MOAs and potential combinations that could help bring additional new treatment options to patients. To explore these opportunities, we plan to initiate two Phase 2 signal-seeking platform studies, VELOCITY and the Arcus-led EDGE-lung in the coming months. Overall, we have initiated a comprehensive evaluation of the assets in our portfolio to address the significant unmet need in lung cancer, and look forward to sharing updates in the coming years. Moving to slide 21, and on behalf of Christi and the Kite team, we are highlighting our expanding clinical pipeline as we build on the growing momentum and adoption of cell therapy based on the significant survival benefit that Yescarta and Tecartus are delivering to patients. We believe there are still opportunities to bring Yescarta and Tecartus to more patients by moving into earlier lines as well as new indications. As you can see, we have recently enrolled patients in several studies, including ZUMA-24, a Phase 2 study to evaluate Yescarta in an outpatient setting for second line LBCL, and ZUMA-22, a Phase 3 study for Yescarta in second line plus high-risk follicular lymphoma. We also expect to begin screening patients for the ZUMA-23 study of Yescarta in Q4. The decision to initiate a Phase 3 trial in first line HR LBCL was based on the encouraging data from ZUMA-12, where Yescarta demonstrated 89% ORR and 78% CR. Additional studies include an evaluation of Tecartus in rare B-cell malignancies, and KITE-363 that’s evaluating a CD19/20 bicistronic CAR T in post-CD19 third line plus LBCL. We are committed to continuously improving the safety and efficacy of our cell therapies through both internal pipeline and external partnerships. On slide 22, we turn to hematology and highlight the breadth of our programs across MDS and AML. For magrolimab, we fully enrolled our Phase 3 ENHANCE study in MDS ahead of schedule. Our discussions with the FDA and other regulators continue, and we expect to share an update in early 2023. Moreover, enrollment for the two AML trials, ENHANCE-2 and -3, is well underway and we are targeting topline data in 2024. A few weeks ago, we announced our oncology collaboration with MacroGenics to develop bispecific antibodies. This includes the exclusive option to license MGD024, a bispecific antibody that binds to CD123 and CD3, currently in Phase 1, as well as 2 additional research programs. This complements magrolimab, and furthers our work as we explore therapies that could translate into better clinical outcomes for patients with AML and MDS. Finally, we were pleased FDA granted KITE-222 orphan drug designation at the end of September. It’s the first CLL-1 targeted CAR T and is currently enrolling patients in a Phase 1 study. On slide 23, I wanted to take a moment to welcome MiroBio to Gilead. We completed the acquisition a few weeks ago and are pleased to add the MiroBio team to the Gilead research family, and bring their proprietary discovery platform and immune inhibitory receptor agonists to our portfolio. This acquisition complements our inflammatory disease cornerstones including IBD, RA and systemic lupus and opens opportunities in other indications. We are excited to continue to explore and develop these antibody agonists, which we believe have the potential to induce immunosuppressive signaling and restore tolerance in autoimmunity. Wrapping up, I’ll note that we now have 60 clinical programs underway here at Gilead, spanning a broad range of indications across virology, oncology and inflammation. We’ve accomplished a lot in 2022, and yet feel we’re really just getting started in exploring the possibilities offered by our portfolio. With that, Andy?

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.

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?

Hi Chris, this is Merdad. I want to express our excitement about the recent approval of lenacapavir for patients with extensive treatment experience. This group has few options available, and lenacapavir offers a new opportunity for them. Regarding islatravir, it is advancing well in development, currently in Phase 2, which gives us a near-term chance to launch a partner treatment for lenacapavir that can be administered in a long-acting manner. This is crucial as the market evolves, and our aim is to provide a long-acting injectable option that lasts beyond three months. We are optimistic about our capability in this regard, supported by our internal pipeline assets. Islatravir is a part of our oral program, and we see potential for various oral treatment options that could offer weekly administration for patients using lenacapavir. Currently, islatravir is one of those options, alongside other candidates in our pipeline that may reach that level. To address your last question directly, we anticipate having a lenacapavir partner, likely one that meets our therapeutic objectives in oral formulations, and potentially a different partner for injectable solutions. As we progress, we aim to make advancements that may extend lenacapavir therapy beyond six months or collaborate with a partner to enhance therapy duration using alternative molecules or formulations. Our goal is to continuously innovate and make progress over time.

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.

Amber, you ready for the next question, please?

On the TIGIT program, what is the likelihood that we’ll see PFS data at this point? And if we don’t, when could that come? And then based on the interim updates, it does seem like you already have clear benefit on ORR at least on the doublet arm versus monotherapy. So, would love to see if you could just walk us through the possible scenarios with this data readout? And if there’s any outcome that could impact the recently initiated Phase 3 studies.

Salveen, this is Merdad again. To start, I want to emphasize that the ARC-7 study is on track and nothing has changed in our direction. This will be the fourth interim analysis for the ongoing Phase 2 study, and we just completed enrollment recently over the summer. Considering this, we are looking for consistency in the combination of dom and zim for the overall response rate to support our ongoing Phase 3 program and reinforce our confidence in the TIGIT and dom combination. The data we've seen thus far should continue to support this. Regarding progression-free survival, given that enrollment concluded fairly recently, it's likely that PFS will be quite immature and may not yield informative results. This holds true for the triplet as well, where PFS may also not provide useful insights, but there's still a possibility. We plan to analyze the data and collaborate with our partners at Arcus on how to approach it. As we've mentioned before, we aim to present the data at a medical conference next year. Ultimately, this is about confirming our confidence in TIGIT and advancing into Phase 3 with the lead programs we are pursuing. I hope that answers your question.

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.

Hi Brian, it’s Johanna. Thanks for the question. Let me start by saying that Trodelvy has shown really strong performance this quarter. We’re experiencing 78% year-on-year growth and 13% quarter-over-quarter growth. Markets are being added every week, and reimbursement is progressing well. We now have over 13 countries outside the U.S. that have secured reimbursement. We are witnessing successful launches, particularly in France and Germany, along with other markets joining in. This lays a solid foundation for us. Having overall survival data in both triple-negative breast cancer and now with TROPiCS-02 in the HR-positive/HER2-negative patient population significantly supports Trodelvy's position and benefits breast cancer treatment as a whole. Regarding your specific question on our positioning, with TROPiCS-02, we are focusing on previously treated, heavily-treated lines of therapy, which is somewhat different from our competitors. We’re excited because these patients have very limited options, and with Trodelvy, there is genuine potential for overall survival among late-line patients. As we conduct our market research, we feel very confident that Trodelvy will be well positioned in the marketplace, and we will build on the success we’ve seen in triple-negative breast cancer. We anticipate continued momentum in our core business. I might have mentioned in previous calls that we’ve expanded our presence, particularly in the U.S., to prepare for the required efforts in both triple-negative breast cancer and HR-positive cases. We’re well prepared for the upcoming PDUFA date in February, ensuring our readiness for success.

This is Merdad. I want to add that we’re not finished yet. We’re excited about our achievements with Trodelvy so far, and we’ve seen consistently positive data across different tumor types. Specifically, as Johanna pointed out, in late-line therapy, there is potential for some patients to receive prior treatment with HER2. While we don’t have data on sequencing, I believe some may choose to treat patients who do not respond well to HER2 in later lines. That presents an opportunity for us. Additionally, we have strong data in triple-negative breast cancer, including the HER2-zero population, which is an important distinction to remember. Lastly, based on the clinical benefits we’ve observed, we believe there’s a chance for us to move to earlier lines of therapy in breast cancer, including triple-negative, HR-positive, and other tumor types. Our enthusiasm for Trodelvy has always been linked to its potential across various tumor types, and we are committed to advancing into earlier lines of therapy as we continue to generate positive data.

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.

Yes, thank you for the question. This ties well into the previous inquiry about our capability to examine various tumor types and earlier treatment lines. Specifically, I believe you’re highlighting our confidence in entering the initial phase of lung cancer studies. As you are aware, we've gathered encouraging data from our early Phase 1b study in lung cancer. We are currently enrolling participants and have initiated studies for both second- and third-line treatments, as well as frontline settings. Notably, we are conducting a trial combining EVOKE-03 with the PD-1 and PD-L1 high population, which is crucial for our advancement. However, regarding the timeline for data availability, it is challenging to predict; we need to monitor the enrollment process, and we are still in the early stages. Nonetheless, we are enthusiastic about the prospect of delivering a significant therapy for a population with substantial unmet needs.

Maybe perhaps for Merdad, just kind of jumping off on the long-acting HIV discussion. I noticed in the pipeline slides, long-acting bictegravir has been removed from the pipeline. Obviously, it would have been nice to have a known entity like the bictegravir part of the combo. I was just wondering maybe you could give us any insight to what happened in the Phase 1 there? Is it sort of bictegravir missing a PK threshold, or is it something that you’re seeing with the 6212 or 5894 that gives you more confidence there? Thanks.

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 subcutaneous 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 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 different 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.

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.

Hey Matthew, Dan O’Day here. So we’ll have Merdad take the first part of your question, and then Johanna can feed into the second.

Thank you, Dan. Thank you, Matthew. We began the Phase I trials for 5245 earlier this year, and they are progressing well. The pandemic has significantly altered the landscape, and you raised an important point about the challenges of identifying high-risk patients who may require hospitalization, especially with the availability of vaccines and other treatment options. Internally and with our regulators, we are discussing the optimal population to demonstrate the benefits of 5245 and how to anticipate future challenges, such as resistance to current treatments, the need for combination therapies, and new variants that could lead to increased hospitalization rates. We view 5245 as a critical tool as we advance into clinical trials, particularly if we face another surge in the pandemic, which we hope does not occur. Our focus is on addressing both resistance and potential new surges.

Yes, in line with what Merdad mentioned, I would like to add that from a commercial perspective, the absence of a boosting agent is a significant advantage. We are also considering rebound effects, which we've observed with currently marketed products, in addition to the antiviral activity. Drug-drug interactions have posed challenges with some existing agents, and without a boosting agent, we believe this will open up more options for a broader patient population to benefit. The pandemic is still ongoing; we've observed fluctuations in hospitalizations and a recent slight increase, which we are closely monitoring due to Veklury. We believe there are still opportunities to provide more options to help manage this pandemic effectively.

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.

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?

Thank you for the question, Tyler. We're very proud of Biktarvy's performance and the increased momentum we are experiencing globally. We currently hold about 45% market share with Biktarvy, reflecting a 4% gain year-on-year, and we're projecting an annual run rate exceeding $10 billion. We feel well-positioned for the future. Right now, we have nearly 60% of the naïve share with Biktarvy, establishing a benchmark for new patients entering HIV treatment. The switch share is somewhat lower since patients already on Biktarvy cannot switch to it, but we're closely monitoring this as well. We're ensuring we take advantage of opportunities to transition patients from older medications or those facing issues, as Biktarvy has a strong profile in terms of efficacy and safety. Continued growth for Biktarvy remains a priority. Additionally, the market conditions are improving, with a stabilization back to pre-pandemic levels and about 2% year-on-year growth both in the U.S. and Europe. This supports our momentum, with Biktarvy playing a key role. Our teams are collaborating closely with community partners, physicians, and advocacy groups to help bring patients back into care and screening, with numbers reflecting a return to pre-pandemic levels. We feel optimistic moving forward and are well-positioned to maintain our leadership in HIV treatment driven by Biktarvy.

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

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.

Thanks, Umer. Before I pass it over to Andy, I want to mention that we don’t discuss ongoing litigation in detail. I want to highlight our strong confidence in our overall patent portfolio. Now, I’ll let Andy address your specific questions.

Thank you, Dan. Hi Umer, I appreciate your question. I’m glad to provide some insight on this matter, particularly regarding the Zantac litigation. As you may know, like many companies operating in the U.S., we regularly handle various litigation issues, many of which we believe are without merit. Generally, we do not comment on specific cases. However, I want to highlight that we have successfully resolved three significant litigation matters over the past year on favorable terms for our company and shareholders, including the Juno Kite IP litigation, the ViiV IP litigation concerning bictegravir, and the TAF litigation with generic companies. Our legal team, both in-house and external, is exceptional. Regarding your specific inquiry, we have full confidence in our defense concerning the ongoing product liability case, which is quite different from the Zantac litigation. For example, in the Zantac cases, there were 250,000 plaintiffs, while ours only has 25,000. Importantly, our TDF-based products are crucial, life-saving therapies for HIV, and any potential side effects were clearly stated on the labels from the outset. Although the U.S. and European labels differed slightly, the potential side effects were well known and disclosed. It’s essential to recognize this difference. The Zantac product, as I recall, was removed from the market and reformulated, so we should be cautious about drawing direct parallels between the Zantac case and the companies involved. This doesn't mean we take the situation lightly; we certainly do, and we have a capable team addressing it. Lastly, a number of amicus briefs have been filed in relation to this case, which are publicly accessible. I suggest you look into the 4 or 5 amicus briefs that provide insight into the unique nature of this legal issue compared to typical cases. Finally, we have not taken a charge related to this matter, and we believe strongly in the merits of our case as we move forward with the litigation in the coming months and years. Thank you for the great question.

Amber, may we go to our last question, please?

Merdad, I want to follow up on a few questions that you’ve gotten on long-acting HIV. I know it’s been tricky to develop a doublet that has a comparable profile to lenacapavir, but is there a mechanism that you have either in-house or that you’ve seen in HIV that looks like it’s more straightforward to develop long-acting? I wasn’t sure if integrase would be better than nuke versus non-nuke, something of that category? Thank you.

Thanks, Geoff. This is Merdad. Yes, our chemistry and virology teams are inclined towards the integrase inhibitors as a class, as we believe they have a better chance of leading us to a long-acting partner for the capsid inhibitors. A significant portion of our efforts is focused on this area. However, we are open to exploring various mechanisms to achieve our objectives and consider that integrase inhibitors are more likely to succeed. I want to point out a program we have been working on regarding the broadly neutralizing antibody, which I mentioned in the script, offering another option for long-acting solutions potentially every six months. We remain open and dedicated to finding the right partner to help us achieve our goals.

Terrific. This is Dan. I want to thank everyone for joining today. I want to emphasize that our third quarter performance shows the tangible impact of executing our strategy. After establishing a strong foundation over the past three years, we’re now witnessing the positive momentum that continues to grow. It’s an exciting time for the Company as we realize our potential to do more, reach further, and assist more patients and the communities we serve. I want to take this opportunity to thank all my colleagues at Gilead and Kite, and I appreciate your interest in Gilead. If you have any additional questions, please contact our Investor Relations team. They are always happy to help. Thank you for being here today.