Gilead Sciences Inc (GILD) — Q1 2023 Earnings Call Transcript

Thank you, operator, and good afternoon, everyone. Just after the market closed today, we issued a press release with earnings results for the first quarter of 2023. The press release, slides, and supplemental data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day; our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. Before we get started, let me remind you that we will be making forward-looking statements, including those related to Gilead's business, financial condition, and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections, and the use of capital, and 2023 financial guidance, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand the company's underlying business performance. The GAAP to non-GAAP reconciliation is provided in the earnings press release, in our supplementary data sheet, as well as on the Gilead website. With that, I'll turn the call over to Dan.

Thank you, Jacquie, and good afternoon, everyone. The Gilead team continued its track record of strong commercial and clinical execution in the first quarter of 2023. Our base business grew by 15% excluding Veklury, with total product sales of $6.3 billion, reflecting outperformance across the portfolio. On a year-over-year basis, roughly two-thirds of the $735 million increase in our base business sales were driven by HIV and the other third was driven by oncology. Once again, we're seeing the tangible impact of our transformation, and the successful diversification of our business. We saw a year-over-year growth in HIV up 13%, liver disease, which includes therapies for HCV, HBV, and HDV up 6%, cell therapy up 64% and Trodelvy up 52%. As expected, Veklury revenues continued to track lower rates of COVID-19 hospitalizations. As a result, revenue of $573 million was down 63% from the first quarter of last year. On the clinical side, we received another FDA approval for Trodelvy in early February. This latest approval was for a third indication, pretreated HR positive HER-2 negative metastatic breast cancer. It's early days, but this has been a very strong commercial launch for Trodelvy in the U.S. so far. This further highlights the critical patient need that Trodelvy is addressing in this late-stage population, as well as the effectiveness of our commercial oncology team. We continue to prepare for Trodelvy's approval in pretreated HR positive HER-2 negative metastatic breast cancer in Europe in the second half of this year. Another key milestone for the quarter was the announcement of the primary overall survival data from the landmark Phase 3 ZUMA-7 study. Yescarta is now the first and only treatment in nearly 30 years to show a statistically significant improvement in overall survival for initial treatment of relapsed or refractory Large B-cell lymphoma patients versus historical standard-of-care in a curative setting. Full results will be presented at this year's ASCO. Turning to clinical progress in virology, we continue to add to the body of evidence for lenacapavir's effectiveness as part of a six-month subcutaneous therapy. At this year's CROI, the team shared positive Phase 1b data on the investigational lenacapavir and bNAb combination. The bNAb combination is, of course, just one of the eight long-acting combination options that we're exploring for lenacapavir and we are pleased with our progress so far. In the meantime, following our first approval of lenacapavir as Sunlenca for heavily treatment-experienced people living with HIV, we are seeing strong engagement from KOLs and physicians who are interested in the full potential of lenacapavir for prevention and treatment. As you know, this first approval addresses a significant unmet need for a small number of people living with HIV, who have very limited options available to them. And we look forward to making lenacapavir available to many more people, beginning with the potential approval and prevention in the 2025 timeframe. We see lenacapavir as having the most promising potential yet in the ongoing efforts to end the HIV epidemic, and we're looking forward to working with others to make it broadly available as soon as possible. With that, I'll hand over to Johanna for a review of our first quarter commercial performance.

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

Thank you, Johanna. We are off to a strong start in 2023 with our first regulatory approval of the year for Trodelvy for certain HR positive HER-2 negative metastatic breast cancer patients in the U.S. and an additional 10 trials initiated so far this year, including four Phase 3 studies. This brings our clinical pipeline to 61 ongoing clinical programs. Starting with virology on Slide 15, we presented late-breaking data among 83 abstracts at CROI in Seattle in February, highlighting Gilead's continued expertise and leadership across HIV, Viral Hepatitis and COVID-19. In HIV, we shared several data readouts from our lenacapavir based development programs in prevention and treatment. In prevention, we presented preclinical in vivo data providing further validation that a subcutaneous injection of lenacapavir can confer long-acting protection in an animal model. We believe lenacapavir as a single-agent has the potential to be the first once every six month option for HIV prevention. We are currently testing this in our pivotal Phase 3 PURPOSE trials. In treatment, we shared Phase 1b proof-of-concept data on twice yearly lenacapavir in combination with two investigational broadly neutralizing antibodies. At week-26, 90% of trial participants receiving this combination maintained virologic suppression. Further, treatment with the investigational regimen was generally well tolerated. Moving to COVID-19 on Slide 16, we also shared positive data from three retrospective real-world analysis of Veklury at CROI. These analyses showed that initiation of Veklury within the first two days of hospital admission reduced death and hospital readmission rates among all patients with COVID-19. The right hand side of the slide highlights that both of our oral Phase 3 trials evaluating GS-5245 or obeldesivir, our investigational oral COVID nucleoside in standard-risk patients and in high-risk patients are now enrolling. Given uncertainties in the global epidemiology of COVID-19, we continue to be cautious with regards to the length of time it could take to fully enroll these trials. Moving on to Slide 17. Trodelvy continues to build momentum as the cornerstone of our solid tumor portfolio. As expected, the FDA approved Trodelvy for its third indication. Trodelvy is now approved in adults with HR positive HER-2 negative metastatic breast cancer, who previously received endocrine-based therapy and at least two additional systemic therapies for metastatic disease. This FDA approval is based on the overall survival benefit seen in the Phase 3 TROPiCS-02 trial. We've already received acceptance of our European filing, and continue to expect a regulatory decision from the European Commission in the second half of this year. The Phase 3 EVOKE-01 trial evaluating the potential for Trodelvy in second line non-small cell lung cancer is ongoing. Additionally, we recently had FPI for the Phase 3 EVOKE-03 study also known as KEYNOTE-D46. This trial is being led by Merck to evaluate Trodelvy in combination with pembrolizumab in first line PD-L1 high non-small cell lung cancer. Additionally, we're excited to announce that over 30 abstracts, including an oral presentation of the updated ARC7 trial data have been accepted at ASCO this year. Not only do these data highlight elements of our investigational Trodelvy and dombinilumab programs in breast, bladder and lung cancers, the abstracts include new insights on many of our promising targets, including our cell therapy portfolio. Speaking of which, on Slide 18, I'm pleased to discuss the clinical progress we've made within cell therapy. Recently, we highlighted new overall survival data from the Phase 3 ZUMA-7 trial evaluating Yescarta for the initial treatment of adults with relapsed or refractory large B-cell lymphoma. These data will be presented as an oral late-breaker at ASCO. Yescarta is the first and only therapy of any kind to show statistically significant overall survival benefit versus standard-of-care in almost 30 years. As we work to extend our leadership in cell therapy within our current portfolio, we're also building out our earlier stage programs. As mentioned in our last earnings call, we closed our agreement to co-develop and co-commercialize Arcellx's CART-ddBCMA for the treatment of patients with relapsed or refractory multiple myeloma. Also, we closed our acquisition of Community Therapeutics in February, extending our preclinical and clinical pipeline in blood cancers and solid tumors. We are currently working to integrate the Community team with their asset into our broader innovation pipeline. Wrapping up on Slide 19, we are sharing the updated key pipeline milestones that we expect in 2023, which as you can see spans FPIs, data readouts, updates and regulatory approvals across oncology, virology and inflammation. Overall, this highlights the progress that Gilead has made on its transformation journey. The 61 clinical programs that are well-diversified across indications and stages. We have an ambitious clinical program, and I'd like to thank the Gilead team that has worked tirelessly to execute and accelerate the progress of our portfolio. We look forward to updating you as we progress through 2023. And with that, I'll hand the call over to Andy.

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

Thanks, Andy. Before we open for Q&A I'll just summarize our prepared remarks by noting that this is another quarter where we demonstrated the continued impact of our transformation. Going forward, we are committed to building on the track record of strong commercial and clinical execution that we've shown in recent quarters, thanks to the dedication of Gilead and Kite teams around the world. With this positive momentum, we look forward to delivering on our portfolio while maintaining financial discipline. With that, I'll invite the operator to open the Q&A.

Hi, this is Dennis Ding on behalf of Mike. Thanks for taking the questions. Two from us, maybe number one. What are your expectations for the competitor Trop-2 data that's coming imminently? And what would you like to see and how would you differentiate? And could you perhaps look at PFS like your competitor? And then number two, can you just talk about the progress of your long-acting oral integrase inhibitors for HIV. Are they in the clinic yet? Thank you.

Thank you for your questions. Regarding the competitor Trop-2 data, I believe it's a bit premature for us to make comparisons since we haven't seen the data yet. We are quite confident in the data we've presented, which has already led to approvals in breast cancer with overall survival benefits. The uptake of Trodelvy in the breast cancer market reflects the positive impact of our approval and OS data for patients, and we are comfortable with our current position. We will keep track of any emerging data as it becomes available. As for the long-acting orals, we have several programs in our long-acting portfolio, both oral and injectable, and have recently initiated an oral program in the clinic. We will share data as it becomes available. We are very excited about this portfolio and are committed to leveraging lenacapavir's profile for both oral long-acting and parenteral long-acting formulations. Stay tuned as the data develops, and we will be happy to share it.

Nadia, may we have our next question, please. And can I remind all our callers to please limit themselves to one question so that we get to as many folks in the queue as possible. Thanks, Nadia.

Good afternoon, and thank you for taking my question. I would like to know more about Trodelvy and its usage across different lines of therapy following the HR positive HER-2 negative approval. Additionally, as you consider advancing this treatment to earlier lines in this indication, what are your current thoughts on the trial design for ASCENT-07 to optimize patient selection for quicker enrollment and to support significant commercial growth? Thank you.

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

Thanks, Dan. So basically, we're really pleased with the early launch results that we've seen so far in HR positive HER-2 negative. And what we've been seeing is strong initial uptake, basically in fourth line plus with some share even in third line. And I think that's really important for us as we think about even earlier trials moving up lines of therapy. But I think the data with the overall survival that we've shown, in addition to the work that we've done in metastatic TNBC also showing overall survival has really helped, because we’ve had strong awareness, obviously, of Trodelvy in the community as well as in academic centers, and the extended field team work that we did last year has really helped us make sure that we solidified the launch of HR positive HER-2 negative. So still early, we only have a couple of months in. But definitely on the right track and we're really seeing physicians understand the benefits of Trodelvy and what they can bring for their patients in this setting. Merdad?

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

Nadia, may we have our next question, please.

Great. Thanks so much for the question. I just had one on OpEx, can you just talk a little bit about how we should be thinking about Gilead's operating costs going forward? It sounds like you are obviously accelerating some R&D programs and we've got this double-digit step-up in R&D this year. As we think about operating margin dynamics kind of going forward. I guess off of the 2023 levels, can we start to think about margin expansion going forward, or do we need to maybe think about another year or two of investment before we can think about margin expansion for the company? Thank you.

Hey Chris, it's Andy Dickinson. Thank you for the question. It's a great question. To provide some context, I'd like to emphasize that we have developed a large and varied portfolio that positions us for significant growth both in the short-term and long-term. As mentioned in our prepared remarks, we are making substantial investments to accelerate some of our clinical development, which is beginning to show positive results. You can also see the validation of this strategy in our commercial outcomes, as highlighted by Johanna, and the strength of our core business. So, to your point, we currently have 22 Phase 3 trials in progress this year, which is significantly more than we've historically managed as a company. This is frankly a healthy level; I noted in my comments that we are targeting a low 20s percentage of our revenue for R&D investment this year, which is a solid position. We believe this aligns with our peers, although there will be years when our expenses may exceed this target and others when they are lower. Overall, this is what we're aiming for. Regarding operating margin, we still maintain a very healthy margin. There are some comparisons that need to be considered due to the new IP R&D regulations. However, we anticipate that our operating margin will strengthen over time as we complete this wave of Phase 3 trials, which will drive additional growth beyond what we have achieved in the last 18 months, and we believe we are off to a strong start. There’s more to come; it will take a bit more time to navigate through it, but from our perspective, we are in a very good position.

Nadia, may we have our next question, please.

Good afternoon, this is [indiscernible] on for Salveen. Thanks for taking our question about the TIGIT combo data at ASCO. How do you interpret this update? Is it more of an incremental change? Additionally, regarding the Roche OS data now anticipated in the third quarter, what level of insight do you expect from that? Thank you.

Thanks. What we have indicated and what we are planning is to have an updated dataset from a more recent cut. This will include additional data compared to what we presented last year at the ASCO plenary. Therefore, there should be more mature data with a larger patient population, which should help reinforce our confidence. Regarding the Roche data, we believe in our own data as well as other public data available, indicating that TIGIT brings benefits, particularly in response rates and other parameters. In our dataset, we have observed benefits in progression-free survival. We expect that the Roche data will continue to show the advantages of adding TIGIT to PD-1 and PD-L1 inhibitors. We look forward to seeing those overall survival data, which should further boost confidence in all the TIGIT antibodies available.

Nadia, next question, please.

Great. Good afternoon, guys. Thanks so much for the question. Merdad, you guys have been very successful commercially with Kite and it looks like the pipeline has some logical next steps in terms of liquid tumors. I guess, what I wanted to ask you is, what's your appetite for leveraging the expertise to look at non-oncology indications like rare diseases or maybe towards solid tumors? And why do you think the field is mostly evaluated at the same targets and myeloma, lymphoma, leukemia, et cetera? Thank you.

Thanks, Geoff. That's a complex question, so I'll keep my answer brief. Leveraging engineered T-Cells in hematology has shown impressive efficacy and a good tolerability profile for that patient group. It's really about the therapeutic index. As we explore broader indications with different treatment options and disease states, we need to consider different aspects of the therapeutic index. We will closely monitor the appropriate therapeutic index for each patient population, whether discussing lupus or other non-oncology related matters. From our viewpoint, we believe that modulating the immune system will improve patient outcomes, whether we are activating or inhibiting it. In hematologic disorders, achieving more targeted immune blockade will ultimately benefit patients. Our approach is not limited to just cell therapy; we value our diverse portfolio, including our BTLA antibody and other assets in inflammation. We are committed to pursuing the best outcomes for patients, regardless of the modality, and cell therapy will certainly play a part in that strategy.

Nadia, next question please.

Hi, thanks so much for taking the question. Just one from me on Yescarta. I was wondering if you can give us any more color in terms of the breakdown between second-line versus third-line right now. Obviously, you're seeing some nice momentum. And then, on the manufacturing footprint, maybe just any color there in terms of total number of patients you can supply in a year. Obviously, that's been an issue for some of the other CAR-T therapies out there, but just want to understand kind of longer-term supply dynamics. Thank you.

Sure, let me start and then maybe Andy can address the manufacturing aspect. Thank you for the question, Terrence. We've observed significant growth in both the second-line and third-line areas. While growth in the second-line was initially slower, we are now experiencing positive momentum there as well. The OS data from ZUMA-7, which will be presented at ASCO, is expected to further enhance our position and distinguish us from the current standard of care. We've seen strong growth recently, both in the U.S. and Europe. I'm pleased to report that, despite receiving recent approval for the second-line in Europe late last year, we are experiencing rapid reimbursement as a result of the compelling data for patients. One notable example is the NICE approval we received today for second-line therapy using Yescarta. We are very optimistic about the future growth in the second-line area. Our team is working diligently to ensure that physicians are well-informed about the benefits and long-term survival rates for these patients. More updates will follow on this. Now, I'll hand it over to Andy for the manufacturing details.

Thanks, Johanna. It's great to talk to you again, Terrence. Regarding manufacturing, I believe it is a strong competitive advantage for Kite. We have three approved manufacturing centers worldwide—two in the United States, located on each coast, and one in the Netherlands. All facilities are fully operational, and we are progressing towards partial automation at our Maryland site, which is going well, thanks to our excellent team. We have not faced any capacity limitations in manufacturing the cells or viral vectors. We utilize both an outsourced and internal supply for viral vectors, with our own production capabilities at our Oceanside, California biologics facility. While we haven't disclosed the specifics of our manufacturing capacity, I can assure you that we have sufficient capacity to meet market demands today. Our team excels at predicting market trends and remains proactive, which we anticipate will continue. Overall, the Kite team has performed exceptionally well in manufacturing.

Nadia, may we have our next question, please.

Hi, thanks for taking my question. This is Adam speaking on behalf of Tim. Regarding Biktarvy, it doesn’t require exclusivity for the next ten years, but there’s a chance it could be affected by the IRA before that period is over. We know that certain accounts represent a small portion of Biktarvy’s volume, and I’m curious if the pricing effects could also reach commercial patients. Additionally, what other aspects of the IRA do you believe investors might be overlooking aside from the negotiation? Thanks.

I'll take that one, Adam. Yes, we believe the IRA will impact Biktarvy, likely later this decade, possibly as early as 2028. What you mentioned is accurate; it only pertains to our Medicare business, and there are many variables that could arise before then. It's still too early to fully understand how everything will unfold, especially concerning the upcoming pricing negotiations. Regarding the spillover effect you mentioned, we have experienced higher discounts in our commercial channels, but we have managed to address the needs of specific patient populations effectively. We expect to do the same again and reduce the risk of spillover. We're managing this along with the fact that Biktarvy's portfolio extends to 2033, which should continue to establish it as the standard of care for daily oral treatments. Additionally, we are expanding our portfolio with lenacapavir and exploring different combinations in treatment, along with our ongoing work in convention. More updates will follow, but we feel well-prepared to handle the situation and have a few more years to navigate the various dynamics associated with the IRA.

May we have our next question, please.

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

Umer, I'll address the first part concerning Trodelvy and our observations in TNBC and metastatic MDC. We have observed continued growth in TNBC for Trodelvy, largely due to the expansion of our field stores and ongoing data updates. The OS data in TNBC contributes to this, along with the OS we've demonstrated in HR-positive cases. The breast cancer community is gaining a better understanding of Trodelvy in this area. Currently, we have not differentiated the market, nor have physicians, between the HER2-low population. We assess each indication separately: TNBC and HR-positive/HER2-negative. In metastatic TNBC, particularly in the second line and beyond, Trodelvy has established itself as the standard of care and continues to do so. It's worth noting that in TNBC, the split between IHC 0 and IHC 1 and 2 is 65-35, meaning we are much less represented than some competitors. However, we operate across a broad spectrum, which is an important aspect to remember. This sums up the current dynamics of Trodelvy in metastatic TNBC.

Great, Umer. This is Dan O'Day too. I appreciate your question on the second one. I'll build on what Merdad mentioned earlier about the importance of therapeutic index. But before I do that, I want to highlight the significant benefit that CAR-T is offering to large B-cell lymphoma from a pharmacoeconomic perspective. The fact that we now have patients in very late-stage disease, with 50% of them surviving up to five years and a flat survival curve, indicates the advantages from both a mortality standpoint and the cost implications for the healthcare system at the current price point for large B-cell lymphoma. I believe that pricing in other therapeutic areas would be determined by the clinical benefits those treatments provide to patients. Of course, we recognize that this will not necessarily apply universally across all patient types. There will be segments where the therapeutic index matters more, and for those patients, we would assess the benefit provided to both the patient and the healthcare system and then set the price accordingly. It’s hypothetical at this point, but considering the advantages we are seeing in cancer, we would adopt a similar strategy for other disease states.

As we move to our next question just another reminder, please limit yourself to one question. We do have 10 folks still hoping to ask a question on the call, and we'd like to get to as many as possible. So with that Nadia, may we have our next question, please.

Great, thank you very much for taking the question. I guess given Legend's tremendous top line data leak in the second line, I figured I would ask for your latest thoughts on that opportunity and how you plan to differentiate in that setting with the Arcellx program.

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

Thanks, Nadia. Our next question, please.

Great, thank you. Thanks for the question. I just had a quick question on Trodelvy in non-small cell lung cancer. I know those trials are still about a year or two years from reading out. But guys, can you just remind us of the scientific rationale behind Trodelvy in non-small cell lung cancer and just to opine a little bit on just the EVOKE-01 and 03 trials? Thank you.

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

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

All right, thanks for taking my question. This is Charlie More on for Brian. I had a question about lenacapavir. So with regards to the recent data with the BmAb, it seemed like one case out of 20 experienced a viral rebound. So I was wondering how that might inform which combinations you are thinking about moving forward with regarding overcoming resistance. And kind of along that same line, what kind of expectations do you have for the size of the long-acting market in HIV? Thank you.

Yes, it's crucial to note that this breakthrough was not linked to lenacapavir resistance. BmAbs are relatively new clinical tools for exploring treatment options for people living with HIV, and they're just one of the many strategies we are pursuing. Our goal is to develop a wider range of small molecules to complement our initial efforts with BmAbs in long-acting treatments. We believe established treatment mechanisms, whether administered orally or through injections, can offer effective options with low resistance rates for those living with HIV. This is what we are currently testing. As we identify the right partners, we will advance this initiative. Therefore, the BmAb data represents an initial step toward developing long-acting treatments for individuals with HIV.

To address the second part of your question regarding the market size, let's break it down. We believe that by the end of this decade, the long-acting treatment market will likely be evenly split. There are certainly patients who prefer not to be constantly reminded of their HIV status, and they are looking for next-generation long-acting options to meet their needs. This represents a significant unmet medical need in the current landscape. We also anticipate that Biktarvy will remain the standard of care in the daily oral market, where many patients still prefer to take their medication daily to manage their HIV effectively. In terms of the prevention market, our perspective differs significantly. Based on discussions with community partners and individuals at risk for HIV, we expect the split to shift to about 70-30 by the end of the decade. This is primarily because these individuals are at risk rather than patients with HIV, and many may not want to take a daily pill for something they do not have. A treatment option every six months that aligns with physician visits could be more appealing. Additionally, according to CDC estimates, we currently reach only about 25% of at-risk individuals with medication, leaving 75% unmedicated and at risk. There is a massive opportunity here, especially with an every-six-month option, to significantly expand our impact in this market and work collectively to end this epidemic. Exciting developments are on the horizon, and we hope to have lenacapavir data and approvals in prevention within the next two years, followed shortly thereafter for treatment with our partners. It's an exciting time ahead.

Super. We’ll move to our next question please, Nadia.

Hi there, this is Ryan Deschner on for Steve Seedhouse. Thanks for the question. Just curious with the current nonhospitalized versus hospitalized usage split for the Veklury. And do you anticipate a large amount of potential cannibalization in the nonhospitalized usage coming from remdesivir if its clinical development is successful? Thanks.

Thank you. Ryan, I will address that question. Over the past year, we have observed a reduction in the severity of infections, leading to fewer hospitalizations. Consequently, we have noticed an increase in non-hospitalization cases, reflected in the numbers, as Veklury's usage is closely tied to hospitalization rates. Interestingly, even though hospitalizations have decreased compared to our expectations in Q1, Veklury's actual usage has risen. This trend can be attributed to the strong data supporting Veklury, particularly with recent guideline updates and continuous real-world data showing decreased mortality and readmissions. While Veklury's outpatient usage remains relatively small, in the single digits, it is on an upward trajectory. Importantly, Veklury is currently the only antiviral authorized for use in hospitalized COVID-19 patients, which continues to support its adoption. As we look at our oral COVID program, we are focusing more on the nonhospitalized setting, which will complement our offerings for both nonhospitalized and hospitalized patients, ensuring that those at risk have the necessary treatment options if they become infected.

Nadia, may we have our next caller, please.

Good afternoon, and thank you for your question. Have you begun considering a strategy for the commercial rollout of magrolimab, particularly as you look beyond the initial academic centers? Is there anything you can do to facilitate the initial adoption of transfusion guidelines within that community setting?

I'll take that one, Olivia. We are genuinely excited about magro and are eagerly awaiting the data readout. We have begun to think about our commercial model. A couple of important aspects include understanding the strength of the community and leveraging the capabilities that Kite brings to this effort. We're not starting from scratch; we will collaborate closely with our Kite colleagues, which will allow us to apply valuable learnings and build on the existing physician relationships we have been developing. Additionally, as we refine our commercial model, we aim to anticipate the unique challenges of these diseases, which community physicians might not encounter frequently. Our goal is to ensure that we understand the timing and circumstances involved, optimizing our approach for execution accordingly. All these elements are being considered, and while we are excited and eager for the data, we will ensure that we are prepared not only for the data but also for the necessary approvals.

Nadia, will try and squeeze in just a few more here.

Hi, this is Ting on behalf of Colin. Thank you for taking our question. Regarding magrolimab, could you clarify the total number of interim analyses planned for the ENHANCE trial? For the interim update scheduled for the latter half of the year, will there be actual data released or just a general overview? Additionally, what are your expectations for the complete response rate and overall survival in the azacitidine control arm? I've heard discussions that the other arm may have outperformed Takeda's Phase III trial, which used a more intensive dosing strategy. What are your thoughts on that? Thank you.

Sure. Regarding the interim analysis, it's important to remember that the study is designed for the final analysis. We expect to proceed to that final analysis next year. When an interim analysis is conducted, we typically do not see the data ourselves. The Data Safety Monitoring Board will advise us to either continue or discontinue the trial. If we were to discontinue, we would share that information. However, if the direction is to continue, we would proceed without any additional data, as we wouldn't have access to it. Our expectation is to complete the trial, and it would certainly be a positive outcome if we notice anything before that. As for expectations, you are correct that there are concerns regarding the efficacy of azacitidine in that patient population based on the Takeda data. We'll have to wait for the trial's conclusion to see the results. The fact that the Data Safety Monitoring Board has suggested we continue gives me some confidence that we might observe a treatment effect, although that is an indirect measure. We have structured the trial to be capable of detecting differences, so we hope to identify that.

Nadia, may be just time for one last question please.

Great. Thank you for taking my question. And maybe a question on BD at this point. I mean, how are you thinking about BD? I know in the past, you talked about there's no urgency there, and you could be thinking about tuck-in. But has anything changed at this point now that you're in a good position with the growth coming back? Is there an updated thought there?

Thank you for the question, Mohit. Nothing has changed from our recent updates. We believe that business development is a crucial part of our strategy moving forward. It's important to continue introducing new and exciting innovations and products to our portfolio over time, and we don't anticipate that will stop. However, we have made significant progress over the past four years, which we are very proud of. Given the scope of our pipeline, you should expect that we will undertake fewer initiatives in the coming years compared to the last three or four years, though we will remain active. Recently, we've emphasized that we will pursue ordinary course licensing deals, as evidenced by the Community and Arcellx deals last year, as well as the Merrell Bio deal, all of which we are very enthusiastic about. We also expect to consider small acquisitions from time to time. Our portfolio is in a strong position, and we are very excited about the growth it will drive. We will always look for opportunities to enhance it in a thoughtful manner that benefits both patients and our shareholders. That's how I would frame our approach at this time.

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