Gilead Sciences Inc (GILD) — Q2 2023 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 second quarter of 2023. The press release, slides, and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day; our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey; and our Chief Financial Officer, Andrew Dickinson. After that, we'll open the call to Q&A, where the team will be joined by Cindy Perettie, the Executive Vice President of Kite. Before we get started, let me remind you that we will be making forward-looking statements, including those related to Gilead's business, financial condition, and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections and the use of capital, and 2023 financial guidance, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Gilead and Gilead assumes no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand the Company's underlying business performance. The GAAP to non-GAAP reconciliations are provided in the earnings press release, in our supplemental data sheet, as well as on the Gilead website. With that I'll turn the call over to Dan.

Thank you, Jacquie, and good afternoon, everyone. As always, we appreciate you taking the time to catch up with Gilead in the midst of a busy earnings period. This was another very strong quarter for Gilead in terms of both business performance and clinical execution. Thank you to the Gilead teams that drove this progress with their dedication to improving the health of individuals and communities worldwide. Total product sales excluding Veklury grew 11% year-over-year and closed a very strong first half performance in the base business. As we look to the full year, we are increasing guidance for total product sales. We now expect even stronger growth in our base business of 6.5% to 8%, which is expected to more than offset our revised expectations for Veklury. As a result, our guidance for base business product sales has increased $550 million at the mid-point. In the second quarter, HIV contributed about two-thirds of the $615 million growth in our core business, growing 9% year-over-year. Oncology grew 38% year-over-year, and with product sales of $728 million in the second quarter, now has an annual run rate of approximately $3 billion. Moving to clinical progress, the second quarter was very active on the regulatory front, with approvals, positive opinions or recommendations for six of our therapies Trodelvy, Yescarta, Tecartus, Sunlenca, Hepcludex, and Veklury. This regulatory progress highlights the strength of our increasingly diverse portfolio. It also reflects the ability of our teams to successfully navigate regulatory processes across the therapeutic areas and key geographies with speed and efficiency. In addition to this progress, we shared positive pipeline updates at ASCO, which included overall survival data for Yescarta, the only large B-cell lymphoma cell therapy to demonstrate significant overall survival benefit versus standard of care in the second-line setting, promising Trodelvy data in endometrial cancer, reinforcing our belief in Trodelvy as a cornerstone asset with pan-tumor potential, an updated TIGIT data from the full study population of ARC-7, establishing domvanalimab's proof-of-concept in lung cancer. We have also shared long-term data for Hepcludex for hepatitis delta virus showing improved response rates at Week 96 compared to Week 48. These data support new guidelines recommending Hepcludex for people living with chronic HDV in the EU. With a broad portfolio of novel mechanisms and a commitment to pursuing areas of high unmet need, we know that some pipeline setbacks are to be expected. As we announced last month, we have discontinued the Phase 3 ENHANCE study in Higher-Risk MDS due to futility and a second interim analysis. As you know, MDS is one of the most intractable forms of blood cancer and we are disappointed that the study was not able to deliver new hope for patients with the disease. We will take a thorough data-driven approach regarding next steps as we carry out the ongoing analysis of magrolimab. Overall, we were executing well on our clinical commitments and our current performance speaks to the strength of our combined oncology portfolio. We have a rich pipeline of activity in the second half, including an initial look at a subset of EVOKE-02 data on Trodelvy plus pembrolizumab in first-line metastatic non-small cell lung cancer. Before, I hand over to Johanna, I'd like to welcome Cindy Perettie, our Head of Cell Therapy to her first Gilead earnings conference call. Cindy has now been with Gilead for two months and brings a wealth of oncology and leadership experience from Roche, Foundation Medicine, and the Sarah Cannon Research Institute. We're delighted to have Cindy join our Gilead leadership team and it's great to have her with us on the call today. With that, I'll hand the call over to Johanna for a discussion of our commercial results.

Thanks, Dan, and good afternoon, everyone. The second quarter was another strong quarter for Gilead with solid performance across our commercial portfolio, leading to an increase in our full-year expectations for both the base and overall business. For the second quarter of 2023, total product sales excluding Veklury grew 11% year-over-year to $6.3 billion with year-over-year growth in each of our core franchises. This represents the seventh consecutive quarter of year-over-year growth for our base business, reinforcing the strength of our Virology and Oncology portfolios. The strong growth more than offset the decline in Veklury sales, which were as expected given the lower hospitalizations. Altogether, total product sales including Veklury were $6.6 billion, up 7% year-over-year. Starting with HIV, second quarter sales of $4.6 billion were up 9% year-over-year, driven by higher average realized price in part due to channel mix and higher demand, partially offset by lower channel inventory. Quarter-over-quarter, sales were up 10%, driven by favorable pricing and inventory build following the typical first-quarter dynamics. Overall, the global HIV treatment market continues to grow in line with our expectations of 2% to 3% annually. Specifically in the US, the market overall grew more than 2% in the first half of the year compared to the first half of 2022, reflecting growth in the non-retail channels more than offsetting a roughly flat retail market. HIV product sales grew 11% in the first half of 2023 compared to the first half of 2022, helped by favorable pricing dynamics, including the phasing of certain government purchases and channel mix. Looking forward, we expect HIV product sales growth to more closely mirror market growth in the second half. Therefore, we are increasing our full-year expectations for HIV and now expect full-year HIV product growth for 2023 to be modestly higher than the 5% we reported in 2022. Moving to our liver disease portfolio, sales were up 4% year-over-year and 5% quarter-over-quarter to $711 million. We remain committed to eliminating HCV globally with our market-leading portfolio of medicines and our efforts to increase awareness contributed to higher patient starts in the US, Europe, and Asia in the second quarter. HBV and HDV also contributed to growth in the liver disease portfolio, driven by higher demand. Liver disease remains an important part of our portfolio, benefiting hundreds of thousands of patients. We received full marketing authorization for Hepcludex in HDV in Europe, a further recognition of the benefit this medicine brings to patients who have very limited therapeutic options. Across our portfolio of HCV, HBV, and HDV products, the liver disease contribution to our commercial performance continues to stabilize overall to a run rate of more than $2.5 billion in sales a year. On to Veklury sales, they declined in the second quarter as expected, reflecting lower hospitalization rates, with sales of $256 million, down 43% year-over-year. For those patients hospitalized and treated for COVID-19, a majority continued to receive Veklury, a testament to Veklury's robust clinical profile. Recently, this has included decisions by the USFDA and the European Commission to expand Veklury's indication to reach patients with renal impairment, including those on dialysis. Moving to Oncology, it is remarkable to observe that in less than five years, our oncology business has grown from less than $300 million and is now approaching an annualized run rate of $3 billion, with tens of thousands of patients treated with Gilead and Kite oncology therapies to date. Beyond our well-established leadership in cell therapy, we have the only TROP2-directed ADC on the market with Trodelvy, and combined, our oncology portfolio extends the options for patients in eight indications. Looking in more detail at Trodelvy, sales were up 63% year-over-year and 17% sequentially to $260 million, representing an annual run rate that exceeds $1 billion. We continue to be very pleased with the launch in pre-treated HR+/HER2- metastatic breast cancer, with strong awareness of our approval in the US. We look forward to reaching even more patients in Europe following last week's marketing authorization from the European Commission. Additionally, we're beginning discussions with health authorities in Japan, with plans to file for approval in metastatic triple-negative breast cancer later this year. With a strong field force in place and robust datasets across multiple tumor types, Trodelvy remains well-positioned to maintain and expand its reach, and Gilead continues to build on our experience in breast and bladder cancers with a view to other indications over time as the development program evolves. Wrapping up the second quarter, I'd like to acknowledge the commercial teams and our partners across Gilead and Kite that once again delivered an extremely strong performance, reflecting both solid execution and a compelling portfolio of Gilead products that positively impacts millions of people around the world. And with that, I'll hand the call over to Merdad for an update on our pipeline.

Thank you, Johanna. I'm pleased to highlight the ongoing progress our teams have made with 64 ongoing clinical programs and 21 Phase 3 trials. Notably, we presented multiple positive data readouts at medical conferences in the second quarter, such as updated overall survival data for Trodelvy in pre-treated HR+/HER2- metastatic breast cancer, OS data for Yescarta in second-line relapsed or refractory large B-cell lymphoma, and long-term data from blabber tied in HDV. As we move into the second half of 2023, we remain focused on execution, investing in capabilities to increase our productivity and portfolio prioritization. We also look forward to sharing an update on Trodelvy in non-small cell lung cancer, including EVOKE-02 data at the World Conference on Lung Cancer in September. Turning first to Virology, we are proud of the role Gilead has played in transforming HIV care. We continue to innovate based on our commitment to both the HIV community and to those who could benefit from prevention regimens with our ongoing work to do over new effective and convenient options. The unique profile of lenacapavir, our first-in-class capsid inhibitor enables the eight prevention and treatment clinical programs, we're focused on. In HIV treatment, the ARTISTRY-1 trial evaluating oral once-daily bictegravir and lenacapavir your combination regimen is progressing well. We expect to provide an update on the Phase 2 portion of the study later this year. This novel regimen aims to provide an effective and simpler regimen for the 6% to 8% of biologically suppressed individuals who are currently on complex multi-tablet regimens to manage their HIV. We continue to advance our goal of providing longer-acting HIV treatment options through the development of lenacapavir combination regimens with integrase inhibitors, NRTIs, and NNRTIs, as well as the Phase 2 study of our two broadly neutralizing antibodies. In HIV prevention, recruitment for our Phase 3 PURPOSE-1/-2 clinical trials evaluating every six months single-agent subcutaneous lenacapavir continues to exceed our expectations in the second quarter. We look forward to potentially providing a data update in the late 2024 to early 2025 timeframe as we target approval in late 2025. Moving on to HDV, I'm pleased to note that the European Association for the Study of the Liver or EASL has updated its HDV guidelines to recommend that all patients in the EU with chronic HDV infection should be considered for antiviral treatments. Recently, Hepcludex was granted full approval by the European Commission, remaining the only approved therapy for chronic HDV infection in the EU. The updated guidelines were supported by Hepcludex's 48-week data, which were published in the New England Journal of Medicine in June. Gilead also presented data demonstrating that 96 weeks of treatment with bulevirtide improved biologic and biochemical responses with no evidence of treatment-emergent resistance, including those who were previously non- or partial responders. These data reinforce our confidence in bulevirtide and its potentially longer-term benefit for patients with HDV. As a reminder, bulevirtide is not yet approved in the US. Turning to Oncology, Trodelvy remains the first and only approved TROP2-directed ADC with indications across three tumor types. It's also the only TROP2-directed ADC to show overall survival benefit versus chemotherapy in two tumor types. We've now treated over 20,000 patients and evaluated more than 2300 patients in our clinical trials. Trodelvy's robust dataset informs a well-characterized safety profile with low discontinuation rates observed across multiple indications and no increasing monitoring required for severe interstitial lung disease. At ASCO, we presented additional data demonstrating Trodelvy's potential, including in pre-treated HR+/HER2- metastatic breast cancer. We presented the final analysis from our Phase 3 TROPiCS-02 trial supporting the marketing authorization we just received from the European Commission last week. In bladder cancer, we shared an analysis of TROPHY-U-01 supporting Trodelvy's efficacy in post-platinum post-IO metastatic urothelial cancer across a range of TROP-2 expression. With our accelerated approval in bladder cancer, we hope to provide a data update from the ongoing confirmatory Phase 3 TROPiCS-04 trial and initiate global filings for Trodelvy in metastatic urothelial cancer by the end of next year. In heavily pre-treated endometrial cancer, we presented promising efficacy data from our Phase 2 TROPiCS-03 Basket trial, demonstrating the expanding pan-tumor potential of Trodelvy. Moving to our comprehensive clinical development program in non-small cell lung cancer, we are aware that non-small cell lung cancer is not only an area of significant unmet need, as the number-one cause of cancer-related death, but also an area we believe Trodelvy has the potential to transform standard-of-care as a combination partner to an IO backbone in the first-line setting, as well as a single agent in the post-IO setting. We're excited about the growing number of lung-related catalysts and we've added a new milestone with a preliminary readout from our Phase 2 EVOKE-02 trial at the World Conference on Lung Cancer. This study is evaluating Trodelvy plus pembrolizumab, with or without chemotherapy in first-line non-small cell lung cancer. We will be sharing data from the first two cohorts evaluating Trodelvy in combination with pembrolizumab in PD-L1 high and PD-L1 low patients. The abstract, expected to be released later in August, will be an initial subset of a small number of patients. Our presentation scheduled for Sunday, September 10th at World Lung will include data from a later cut-off date with more patients. Turning to domvanalimab, we presented data from the last interim analysis of the full 150 patients enrolled in the Phase 2 ARC-7 study at ASCO in June. The data continued to show consistent and clinically meaningful improvement in progression-free survival in first-line PD-L1 high non-small cell lung cancer when dom, our Fc-silent anti-TIGIT is combined with an investigational anti-PD1 agent as compared to the PD1 inhibitor alone. These data form the basis for our dom program encompassing Phase 3 trials in first-line non-small cell lung cancer and upper GI cancers. Moving to cell therapy, Yescarta continues to strengthen its position as a cell therapy of choice for large B-cell lymphoma. At ASCO in June, we presented overall survival data from the landmark Phase 3 ZUMA-7 trial of Yescarta in second-line relapsed or refractory large B-cell lymphoma. At a median follow-up of four years, a one-time treatment with Yescarta demonstrated a statistically significant longer overall survival compared to standard-of-care with a 27% reduction in risk of death, representing a 38% relative improvement. Moreover, the majority of the patients in the standard-of-care arm eventually received a cell therapy off protocol, and of those, 77% received Yescarta. Overall, Yescarta is the first treatment in nearly 30 years to demonstrate a significant improvement in survival for this patient population, and these data add to the growing body of evidence that positions cell therapy as potentially curative in some populations. With a strong pipeline of six ongoing Phase 2 and 3 trials across lines of therapy, new tumor types, and earlier-stage assets, Kite continues to innovate and execute on expanding the potential benefit of cell therapies to new patients, both through internal or acquired innovation and through collaborations.

Thank you, Merdad, and good afternoon, everyone. Turning to the financial results, our base business continued to perform very well in the second quarter, with total product sales excluding Veklury up 11% year-over-year, driven by growth across all of our product families. FX was still a headwind, albeit more modest, impacting growth by approximately one percentage point. Total product sales were $6.6 billion, up 7% year-over-year, as strong execution in our base business more than offset the lower Veklury sales, as well as FX impact of $82 million. Moving to the rest of the P&L, on a non-GAAP basis, product gross margin was 86.9%, up 131 basis points from last year. R&D was $1.4 billion, up 25% year-over-year, due to higher expenses associated with our broad clinical pipeline, including the acceleration of certain late-stage clinical studies. As a reminder, we have 21 ongoing Phase 3 trials, highlighting the investments we continue to make in Gilead's near and long-term growth profile. As mentioned earlier this year, we will continue to manage expenses carefully. In R&D, with a number of significant mid to late-stage trials ongoing, we'll continue to follow the science, pivoting investment if and when the data warrants. Acquired IPR&D was $236 million, reflecting the XinThera acquisition and the expansion of the Arcus collaboration into inflammation, in addition to milestone payments associated with ongoing partnerships. SG&A was $1.8 billion, up 45% year-over-year, including a $525 million legal accrual for settlements with certain plaintiffs in the HIV antitrust litigation, as well as increased commercial activities in oncology and HIV. Excluding the legal settlement accrual, non-GAAP SG&A expense was $1.3 billion, up 4% year-over-year. Our effective tax rate in the second quarter was 21%. Our non-GAAP diluted earnings per share was $1.34 in the second quarter of 2023, including approximately $0.32 of expense associated with the legal settlement accrual, partially offset by higher product sales. This compared to $1.58 of earnings for the same period last year. Overall, we had a very strong first half. We are delighted to report that with solid performance in each of our core franchises across virology and oncology, driving 13% year-over-year growth excluding Veklury. Given these strong first half results, we have updated our full-year sales guidance. We now expect total product sales in the range of $26.3 billion to $26.7 billion, up from $26 billion to $26.5 billion previously. We expect total product sales excluding Veklury in the range of $24.6 billion to $25 billion, up from $24 billion to $24.5 billion previously. This new range represents growth of 6.5% to 8% for our base business year-over-year, compared to 4% to 6% previously. On Veklury, the second quarter and first half were below our internal expectations. Based on COVID-19 infections and hospitalizations to date, we have lowered our guidance for the full year to approximately $1.7 billion to bring second half expectations more in line with our first half experience. As a reminder, Veklury is highly correlated with COVID-related hospitalizations and as such, its utilization remains variable. We will share another update with you on our third-quarter call. Moving to the rest of the P&L. We continue to expect non-GAAP gross margin to be approximately 86%. There is also no change to our non-GAAP R&D guidance, where we expect expenses to increase by a low-double-digit percent compared to 2022. Reflecting the one-time legal settlement accrual of $525 million in the second quarter, we now expect non-GAAP SG&A expense to increase by a high-single-digit percent compared to 2022. Excluding this legal settlement accrual, non-GAAP SG&A expense for 2023 is expected to be down low-single-digit percentage compared to 2022, consistent with our prior guidance. Non-GAAP acquired IPR&D has been updated to reflect the XinThera acquisition and expanded Arcus collaboration, adding about $200 million or $0.17 per share. For 2023, we now expect acquired IPR&D to be approximately $900 million, reflecting previously committed acquired IPR&D amounts, as well as known milestone payments from existing collaborations. Similar to prior quarters, we will continue to include expected acquired IPR&D expenses if we announce additional transactions over the course of the year. We now expect non-GAAP operating income in the range of $10.4 billion to $10.9 billion, or roughly $650 million lower at the mid-point due to the $525 million one-time legal settlement accrual and $200 million in additional acquired IPR&D expense, neither of which were reflected in our previous full-year guidance. Moving to tax, we now expect our non-GAAP effective tax rate to be approximately 17%, reflecting an expected decrease in our tax reserves for the second half of the year. Altogether, we now expect non-GAAP diluted EPS in the range of $6.45 and $6.80 per share, down from $6.60 and $7 previously. On a GAAP basis, we expect diluted EPS to be in the range of $4.50 and $4.85. Moving to capital allocation priorities, we returned $1.1 billion to shareholders in the second quarter through our dividend and repurchase of shares. We believe we have built a strong pipeline that will enable Gilead to deliver near and long-term growth. And of course, we'll continue to remain opportunistic as we look to access high-quality assets through partnerships or make smaller acquisitions in the normal course of business. We remain committed to growing our dividend and to using share repurchases, primarily to offset equity dilution, although we will also be opportunistic from time to time. With that, I'll invite the operator to open the Q&A.

Guys thanks so much for the question. Just maybe a quick one for Dan or for Andy, you guys have had an aspiration to have about a third of total revenue from hematology, oncology. I wasn't sure how big of a role magrolimab played in those assumptions. And if it was a small amount, where do you see opportunities in the pipeline that you think the street perhaps is underappreciating? Thank you very much.

Hey Geoff, I'll start and then turn it over to Andy. Thank you for the question. I want to make it clear that we are on track to achieve our goal of having oncology represent one-third of our revenues by 2030, in addition to a growing HIV business. I want to remind everyone that our portfolio has expanded significantly. It has more than doubled in quantity over the past few years and has improved greatly in quality on a risk-adjusted basis as well. We have developed novel mechanisms, technologies, and approaches across various indications to account for the fact that not every clinical trial will yield favorable results. Andy, please feel free to add to that regarding our initial assumptions about achieving the one-third goal.

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

Yes. May we have our next question?

On Trodelvy and the EVOKE-02 data, can you just help set some expectations for the profile that we'll see from that at World Lung? I guess specifically, would just be interested in your thoughts on what we should anticipate in terms of the ILD profile in this setting, as well as your thoughts on a potential TROP-2 expression biomarker-driven approach that your competitor has alluded to post their data. Thanks so much.

Thanks, Chris. Over to Merdad, please.

Yes, we look forward to sharing that data. However, since we're under embargo, I can't share too many details until the presentation is released, and the abstract will be available around mid-August, which is soon. This initial abstract will present a relatively small dataset from EVOKE-02, with more data available during the presentation in mid-September. Regarding ILD, across our programs and clinical trials, we have not observed any ILD to date. We do not screen for ILD in our clinical trials or in clinical practice, so we have not observed any ILD issues. As for TROP-2 expression, we measure it in all our trials and look for correlations between TROP-2 expression and efficacy. So far, we have not found a correlation, although we have seen strong efficacy across various TROP-2 expression levels in the tumors we've studied to this point. This could change with different tumor types, but currently, we have not seen a correlation with TROP-2 expression. We remain optimistic and will continue our work. However, I do not expect to see TROP-2 data in the upcoming dataset, as this is an early dataset and TROP-2 expression data typically lags behind the clinical trials.

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

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

Great, Tyler. Yes, over to Johanna, please.

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

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

Hi, thank you for taking my question. This is for Johanna. I read that CMS might consider extending Medicare coverage to include PrEP. I'm curious if you have any insights on the likelihood and timing of this, and could you help us understand the potential size of that population? Thank you.

Thank you for the question. I believe you are asking about the National Coverage Determination related to PrEP. Currently, it only covers oral medications, but there is an opportunity to include injectable drugs, which we have requested from CMS. We fully support their proposal because we believe it is crucial to ending the HIV epidemic. We hope to see some updates in the coming quarters, but I don't have specific details. However, I believe this will enhance our efforts in HIV prevention and align with our plans for the potential launch of lenacapavir in 2025.

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

Hi, this is Bill Jahangiri on for Robyn. Thanks for taking our question, and congrats on all the progress. I had a question about TIGIT, and since you began the ARC studies, have you learned anything by way of expression of TIGIT CD155 or any other potential prognostic biomarkers in the tumor microenvironment, that would warrant further development of dom in the upper GI indications, even if SKY1 would fail?

Thank you for the question. I believe you're asking about predictors of response in the upper GI setting. We are indeed monitoring biomarkers. Specifically, with TROP2, we are searching for biomarkers that could indicate responsiveness to TIGIT. Our focus on the upper GI area is primarily due to the levels of TIGIT expression in tumor samples, informed by clinical data we've gathered and observed regarding the efficacy of TIGIT in upper GI tumors. We will be exploring any possible markers for predictive response across our programs.

And may we have our next question, please?

Hi there. Thanks for taking my question and congrats on the quarter. Maybe a question on magrolimab. Do you have any preliminary thoughts on why the trial in high-risk MDS was not successful, just given the encouraging early data and I guess what indications are you most optimistic that the drug could still be successful in going forward? Thanks.

Thanks, Brian. Well, I mean I think you can imagine, we are looking thoroughly at the data and the trigger for this was a futility analysis centered on overall survival. We will of course update as we generate data and look at all those, we'll make that information publicly available. To your point, we're fairly far along in our AML trials. As you know, we have some studies going on in solid tumors, and we believe that there are a number of factors that could determine success or failure in these various settings, and each of these settings is represented slightly in different biological experiments. So we are going to continue to look broadly at what we've learned from the initial data. We're going to continue to talk with the regulators and the IRBs in the near term and then we'll update you as we proceed down that path with where we're going to go, but we continue our efforts right now, hoping that magrolimab could have an effect in other diseases outside of MDS. MDS is a uniquely challenging indication and we were hoping we could bring a benefit to those patients and we're disappointed that we can't do that.

May we have our next question, please?

Great. Good afternoon. Thank you for taking the question. As you talked about sort of the hematology portfolio, one thing you guys didn't talk on much today is sort of the ddBCMA and it being a clinical hold, your partner has talked about investigator conduct and bridging therapy being issues, are you sort of in agreement with that characterization and to what extent your sort of timely addressing of the clinical hold, critical to your underlying thesis behind the product? Thank you.

Thanks a lot, Carter, for the question. I think, first, it might be helpful if I can provide a little context associated with the clinical hold. On June 16th, the FDA did notify Arcellx that it was placing the CAR-T ddBCMA IND on clinical hold. That was following a patient death. The patient was treated with the ddBCMA CAR-T and despite becoming ineligible for treatment under the trial protocol, due to the fact that they developed a secondary malignancy before the time of infusion, so they would have not been allowed technically to be on protocol. After infusing that patient, they subsequently mismanaged, I would say, the manner in which the protocol specified treatment of adverse events. We are continuing to partner with Arcellx on this. We are very confident in the molecule. We're confident in the IMAGINE-1 study design and we're looking at ways in which we can partner with Arcellx to enhance protocol adherence. All of the clinical sites to date have been retrained, so that we can again ensure that protocol adherence. Additionally, the FDA has allowed Arcellx to dose patients who had gone through lymphodepletion while on clinical hold. So again, we remain confident that the therapeutic profile of ddBCMA CAR-T and the IMAGINE-1 trial is going to be successful based on the data demonstrated to date. So, our commitment to delivering that therapy to patients globally is still there for multiple myeloma.

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

Hi, this is Salveen Richter with Goldman Sachs. Could you guys just share what you're focused on from a competitive standpoint? And then in terms of read-through to Trodelvy?

Sure. Our program is quite extensive and making progress in lung cancer as well. We'll be presenting preliminary frontline data from the EVOKE-02 study, which should provide a benchmark for how Trodelvy is performing in that context. We believe that patients in the second line are typically sicker and more challenging to manage, which impacts outcomes. We are optimistic that we will observe improvements in these patients, especially regarding progression-free survival and overall survival. We'll keep you updated on the progress of the EVOKE-01 study in the second line as well. We are confident we will achieve our goals. Our fundamental hypothesis remains that we will achieve comparable efficacy and a better tolerability profile with Trodelvy, and we feel good about our direction.

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

Hey, good afternoon, and congrats on the quarter. So the trial is expected to read out in the near-term. I'm just curious to get your thoughts really on how you view this from a sort of competitive threat standpoint?

So, maybe I'll pick it up. We have been expecting that data. We're very pleased with what we've seen thus far with Trodelvy, and I think that's the piece that's important here. Trodelvy's positioning in the marketplace both in metastatic triple-negative breast cancer and second-line as the standard-of-care in that setting is very well established with an opportunity to continue to make sure people move up the lines of therapy because they still use it in the third and fourth line setting when there is still an opportunity to displace chemotherapies. I think as we've seen with other ADCs in the breast cancer market, it's really healthy awareness of the benefits of ADCs. And with Trodelvy, its overall survival, both in triple-negative breast cancer as well as in HR+/HER2-, I do think it sets up Trodelvy incredibly well. We've also seen ADC sequencing either from in HER2 to Trodelvy or Trodelvy to in HER2. I think as a third ADC comes to market, it might be a little bit more challenging in light of some of the positioning that's already there, but for patients, this is a great thing. The safety profile that we mentioned earlier is also something to consider when you think about a safety profile with Trodelvy where you're looking at neutropenia and diarrhea, which are very much in line with other chemotherapies already on the market, so the physicians are very confident in how to treat versus bringing in something like ILD being a little bit more concerning. More to come, and I guess we'll wait to see the data, but today in the field, Trodelvy is definitely making a difference for the patients.

Thank you. May we have our last question, Tia?

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

Yes, Andy, do you want to start with it?

Sure. We continue to be very active in BD as you'd expect across both Gilead and Kite. And that's across all of our areas of focus. So, again, oncology, inflammation, and virology. As we've said before, there are fewer virology opportunities externally. We're building out our research groups at Kite and at Gilead in oncology and inflammation. We're excited about the progress that we're making there. We're still going to be active on the outside. That being said, you should expect over the next five years that our focus is predominantly on ordinary course partnerships and smaller acquisitions. Again, we will be opportunistic, we will look for ways to build our franchise and to create value for shareholders, but that's the base-case expectation.

Thank you. May we have our next question?

Hi, everybody. Thanks so much for taking my question. I had a question on the XinThera acquisition and just wondering if you could share your thoughts around the plans and timelines for their PARP-1 selective inhibitor and whether in the future, there is opportunity to potentially combine it with Trodelvy given some preclinical data that supports that approach?

Yes, I believe you've accurately captured the situation. We are making significant progress, though I’m not certain if we have shared the timelines yet. We are diligently working to transition that program into clinical trials. As you mentioned, combining that PARP inhibitor with Trodelvy shows great potential for improving patient outcomes. We will provide updates as we proceed. Overall, things are advancing very well in that area.

Tia, next question please?

Thank you for taking my question and congratulations, Cindy, on your new role. I would like to ask Andy about the clinical trials in oncology. How should we view the evolution of the operating margin from here? If I exclude one-time items and IPR&D, it appears to be around 45% in the first half of the year. Is that a reliable figure to use, or how should we consider it in the coming years?

Hi, Mohit, thanks. This is an important point. What we said and we continue to believe is, we have an exceptionally strong business with a lot of leverage, a highly efficient structure, a lot of leverage in our model. We've historically had industry-leading operating margins and we certainly expect to have that in the future. We also have said and acknowledged that we're in a unique point in time as we've built-out both our R&D portfolio and our sales and marketing team with the move into oncology, where our expenses have increased in the short-run and we expect over the coming year for the expense increases to moderate and we expect that you'll continue to see the strong growth that you've seen in our base business the last couple of years. So again, this is kind of our strategy playing out, where you see the extraordinary progress in the base business growth last year, certainly through this year, you see that with the raised guidance for the base business. We expect to carry that momentum going forward.

Thank you. I think we have time for one last question.

Thanks for taking my question. With respect to recent developments within the CAR-T space in non-oncology indications such as lupus. I was just interested to know what your perspectives are on the strategic clinical and commercial opportunities for cell therapy outside oncology.

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

Terrific. So, this is Dan. I just want to close this call by thanking you all for joining. The business is performing well on a consistent basis. This is our seventh consecutive quarter of year-on-year growth for our business excluding Veklury. Secondly, we're much further ahead than we expected to be with our pipeline delivery. Now, we are now at 64 ongoing clinical programs, 21 in Phase 3. Finally, we have a lot to look forward to in the second half of the year and beyond. We're particularly excited about the potential to transform beyond the diseases that we're helping patients with today in lung cancer and continuing to help with the epidemic for HIV. Thank you, everybody, and thanks for joining today.