Gilead Sciences - Q1 2023

Transcript

Operator (participant)

Hello everyone, and welcome to the 2023 Gilead Sciences Earnings Conference Call. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press Star followed by 1 on your telephone keypad. I will now hand over to your host, Jacquie Ross, Vice President, Investor Relations, to begin. JJacqi please go ahead.

Jacquie Ross (VP, Investor Relations)

Thank you, operator. Good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the 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.

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.

Daniel O'Day (Chairman and CEO)

Thank you, Jacquie, good afternoon, everyone. The Gilead team continued its track record of strong commercial and clinical execution in the of 2023. Our base business grew at 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 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 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, HER2-negative metastatic breast cancer. It's early days, This has been a very strong commercial launch for Trodelvy in the US 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, HER2-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 6-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 8 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 the 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 in 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 commercial performance. Johanna?

Johanna Mercier (CCO)

Thanks, Dan. 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 . As a reminder, at the start of the year, patient co-pays and deductibles reset, which have an impact on average realized prices and market growth. We expect these pricing impacts to normalize through the remainder of the year.

We also see typically a buildup in inventory in the Q4, followed by meaningful inventory drawdowns in the . 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. sales of $4 million were 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're 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 US and almost 4% in Europe, tracking in line with our expectations for annual growth of 2%-3%. 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 a therapy of choice for people living with HIV, now capturing a treatment market share of 46% in the US, up 3% year-over-year, and representing a growth rate that has impressively outpaced new and existing regimens.

Biktarvy has maintained its leading position for new starts across the US, 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 remains strong, up 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 US. We continue to expect HCV starts to trend down over time, given the curative nature of therapy, with some offset from HBV and HDV. In the meantime, we're pleased to observe solid and stable market shares across all of our liver portfolio. On to slide 11, 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 Q4 and lasting only through the beginning of Q1.

As Veklury's use tracks hospitalizations, 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 US and Europe. Following US approval in early February, we're off to a strong start with Trodelvy in pretreated HR-positive, HER2-negative metastatic breast cancer as some clinicians move 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. Our efforts here are underpinned by the successes and learnings in metastatic triple-negative breast cancer or TNBC. From our expansion of the field force last year and the 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, HER2-negative metastatic breast cancer, regardless of HER2-negative status. On to slide 13. Cell therapy sales in the 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 class share. We believe that compelling data, including ZUMA-7's recent positive overall survival results, in addition to peer data sets 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. With that, I'll hand the call over to Merdad for an update on our pipeline. Merdad?

Merdad Parsey (CMO)

Thank you, Johanna. We were off to a strong start in 2023 with our first regulatory approval of the year for Trodelvy for certain HR positive, HER2-negative metastatic breast cancer patients in the US and an additional 10 trials initiated so far this year, including 4 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 6-month option for HIV prevention. We're 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 analyses 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-19 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, HER2-negative metastatic breast cancer who previously received endocrine-based therapy and at least 2 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. 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. We're excited to announce that over 30 abstracts, including an oral presentation of the updated ARC-7 trial data, have been accepted at ASCO this year. Not only do these data highlight elements of our investigational Trodelvy and domvanalimab 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 a statistically significant overall survival benefit versus standard of care in almost 30 years. We work to extend our leadership in cell therapy within our current portfolio, we're also building out our earlier-stage programs. 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.

We closed our acquisition of Tmunity Therapeutics in February, extending our preclinical and clinical pipeline in blood cancers and solid tumors. We're currently working to integrate the Tmunity team with their assets into our broader innovation pipeline. Wrapping up on slide 19, we're sharing the updated key pipeline milestones that we expect in 2023, which as you can see, span FPIs, data readouts, updates, and regulatory approvals across oncology, virology, and inflammation. This highlights the progress that Gilead has made on its transformation journey. The 61 clinical programs that are well-diversified across indication and stage. 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. With that, I'll hand the call over to Andy. Andy?

Andrew Dickinson (CFO)

Thank you, Merdad. Good afternoon, everyone. Starting on slide 21, the 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 total product sales by $106 million, representing approximately 160 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 of 2022 and product mix, partially offset by inventory benefits. Moving to OpEx, expenses were higher than we anticipated in the 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. 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 . 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 IPR&D was $481 million, primarily driven by expenses related to our acquisition of Tmunity, as well as upfront and milestone payments associated with the Arcellx and Nurix collaboration. 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 was 18.9%, lower than expected, driven by discrete tax benefits recorded in the . Our non-GAAP diluted earnings per share was $1.37 in the 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-$26.5 billion, and we continue to expect total product sales excluding Veklury in the range of $24 billion-$24.5 billion, representing growth of 4%-6% for our base business year-over-year.

On Veklury, the 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 results in an overall R&D investment for the full-year in the low twenties 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 IPR&D to be approximately $700 million, reflecting previously committed acquired IPR&D amounts. Similar to prior quarters, we will continue to include expected acquired IPR&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 % compared to 2022. 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-$11.6 billion.

There is no change to our tax guidance, and we continue to target a non-GAAP effective tax rate of approximately 20%. 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. 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-$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 through our dividend and repurchase of shares. Finally, on business development, there's 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. Now I'll hand it over to Dan for some closing remarks.

Daniel O'Day (Chairman and CEO)

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 the 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.

Operator (participant)

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. We ask you please limit yourselves to one question per person. Our first question today goes to Michael Yee of Jefferies. Michael, please go ahead. Your line is open.

Dennis Ding (Analyst)

Hi, this is Dennis sitting on for Mike. Thanks for taking the questions. 2 from us. Maybe number 1, what are your expectations for the competitor Trop-2 data that's coming imminently? You know, what would you like to see and how would you differentiate? Could you perhaps look at PFS like your competitor? Number 2, can you just talk about the progress of your long-acting oral integrase inhibitors for HIV? Are they in the clinic yet? Thank you.

Daniel O'Day (Chairman and CEO)

Thanks for those questions. In terms of the competitor Trop-2 data, I think it's a little early for us to be doing comparisons across data we haven't seen yet. We're really comfortable with the data we've already shown and have certainly led to approvals in breast cancer with OS benefits. You know, you can see from the uptake of Trodelvy in the breast cancer market that being approved and having those OS data has had an impact for patients, and we're very comfortable with where we are. Of course, we'll keep an eye on those emerging data as they become available in every indication.

Then in terms of the long-acting orals, as you know, we have a number of programs in the clinic for our long-acting portfolio, both oral and injectable. We've moved several of them, including an oral program, into the clinic, and we'll be sharing those data as they become available. Very excited about that portfolio. We remain committed to and really excited about our long-acting portfolio to do to leverage lenacapavir's unique profile, to go into both oral long-acting as well as parenteral long-acting formulations. Stay tuned. As those data develop, we'll gladly share.

Jacquie Ross (VP, Investor Relations)

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

Operator (participant)

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

Brian Abrahams (Analyst)

Hey, good afternoon. Thanks so much for taking my question. Regarding Trodelvy, I was wondering if you could talk a little bit about what you're seeing with regards to its use across the different lines of therapy, post HR-positive, HER2-negative approval. I guess along those lines as you think about moving this to earlier lines in this indication, what's your latest thoughts on the potential trial design for ASCENT 07 to optimize, in terms of optimizing the right patient population to expedite trial enrollment and support a meaningful commercial expansion? Thanks.

Andrew Dickinson (CFO)

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

Johanna Mercier (CCO)

Thanks, Brian. Basically we're really pleased with the early launch results that we've seen so far in HR-positive, HER2-negative. What we've been seeing is strong initial uptake basically in fourth line plus, with some share even in third line. I think that's really important for us as we think about even earlier trials moving up lines of therapy. 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. The expanded field team work that we did last year has really helped us make sure that we solidify the launch of HR-positive, HER2-negative.

Still early, we only have a couple of months in, but definitely on the right track. We're really seeing physicians understand the benefits of Trodelvy and what they can, what they can bring for their patients in this, in this setting. Merdad.

Daniel O'Day (Chairman and CEO)

Yeah. In terms of ASCENT 07, look, as we design and move into earlier lines of therapy, in that study, as you know, we're gonna be looking at the chemo-naive population. We do anticipate that study getting started the 2nd half of this year. 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 T's and dotting the I's right now in terms of that final protocol. You'll see that posted and available in short order.

Jacquie Ross (VP, Investor Relations)

Nadia, may we have our next question, please?

Operator (participant)

Thank you. The next question goes to Chris Schott of JPMorgan. Chris, please go ahead. Your line is open.

Chris Schott (Analyst)

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're obviously accelerating some R&D programs, and you've got this double-digit step up in R&D this year. As we think about operating margin dynamics kinda 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.

Andrew Dickinson (CFO)

Hey, Chris. It's Andy Dickinson. Thanks for the question. It's a great question. Maybe just stepping back again to highlight and reinforce that we've built a large and diverse portfolio that really positions us for significant growth, both in the short term as well as in the long run. As you heard in our prepared remarks, we're really investing and kind of leaning into that. We had a accelerated or significant focused efforts to accelerate some of our clinical development, which is starting to pay dividends. You're also seeing the validation of this approach in our commercial results that Johanna highlighted and the strength across our base business. To your point, we are now this year, I think we already have 22 phase 3 trials underway, which is significantly more than we have as a company historically. It's actually, frankly, a healthy level.

I highlighted in my comments that this year we're targeting kind of low 20s percentage point of revenue for our R&D investment. That's a reasonably good place to be. We believe it's online with peers. Over the long run, there will be years when we have expenses that are greater than that and years lower. Over the cycle, I think that's kind of what we're targeting. Maybe to your question on operating margin, we still have a very healthy operating margin, as you know. Again, there's apples and oranges comparisons with the new IPR&D rules. We do expect to see our operating margin strengthen again over time as we get through this bolus of phase 3 trials that we have underway.

That drives, you know, growth above and beyond what you've already seen in the last 18 months, which we think is off to a great start. More to come. It's gonna take a little more time to get through it, to your point, but we're in a very good spot from our perspective.

Jacquie Ross (VP, Investor Relations)

Nadia, may we have the next question, please?

Operator (participant)

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

Anami Don (Analyst)

Good afternoon. This is Anami Don for Salveen Richter. Thanks for taking our question. Just on the TIGIT combo data at ASCO, how do you view this update? Is it more incremental? Just on the Roche OS data, which is now expected in 3Q, how much read-through do you anticipate on that front? Thank you.

Daniel O'Day (Chairman and CEO)

Yeah, thanks. What we have said, and I think what we're planning is we'll have an updated dataset from a more recent cut. There'll be additional data compared with what was presented, what we talked about last year at the ASCO plenary. There should be more mature data with a larger patient population. That should reinforce our confidence. In terms of the Roche data, I think it's a great question. Look, I think we believe in our own data as well as all of the other public data that are out there in terms of TIGIT bringing benefit certainly in terms of response rates and other parameters. Certainly in our data set, we've seen those PFS benefits.

Our expectation is that the Roche data will continue to demonstrate benefit of TIGIT, adding TIGITs to PD-1 inhibitors, so PD-L1 inhibitors in their case. We will be looking forward to seeing those OS data, and I think that should help to provide additional confidence to all the TIGIT antibodies out there.

Jacquie Ross (VP, Investor Relations)

Nadia, next question please.

Operator (participant)

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

Geoff Meacham (Analyst)

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

Daniel O'Day (Chairman and CEO)

Thanks, Geoff. Yeah, it's a very complicated question. I'll try to give a very brief answer. Look, I think that leveraging the engineered T-cells so far in hematology has demonstrated really great efficacy and a reasonable tolerability profile for that patient population. I think it's all about therapeutic index. As you start to go into broader indications where treatment options are different and the disease state is different, I think there are different considerations for therapeutic index. As we look into different populations, we're gonna keep a very close eye on the appropriate therapeutic index for a given patient, whether you're talking about lupus or anything else outside of oncology related to your question.

From our perspective, maybe, the broader perspective that I would offer is that we do believe that modulating the immune system will lead to better outcomes in patients, whether you're talking about agonizing or antagonizing. In immunologic disorders, we do believe that getting to better and more targeted immune blockade is going to be better for patients. From our perspective, there is not only cell therapy in play, and I think that's what we like about our portfolio is that we're not modality restricted. You've seen the deals we've done. We have our BTLA antibody and the rest of our portfolio in inflammation.

We are gonna be pursuing the best outcome for patients regardless of modality, and certainly cell therapy will be one of those.

Jacquie Ross (VP, Investor Relations)

Nadia, next question please.

Operator (participant)

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

Terence Flynn (Managing Director, Senior Equity Research Analyst – Pharma & Biotech)

Hi. Thanks so much for taking the question. Just one for 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. 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 wanna understand kind of longer term supply dynamics. Thank you.

Johanna Mercier (CCO)

Sure. Let me start, and then maybe Andy can touch on the manufacturing piece of the puzzle. Thanks for your question, Terence. I think what we've seen is really strong growth across second line and third line, and obviously a little slower coming into second line, but we're seeing nice momentum into second line as well. I think the OS data from ZUMA-7 coming through that will be presented at ASCO will only help continue that and really differentiate it versus current standard of care. What we have seen is growth that has really picked up quite nicely, and you're seeing it both in the US as well as Europe.

Really happy to say actually although we just got recent approval for second line in Europe late last year, we're getting a lot of markets coming in from reimbursement, accelerating reimbursement because of the importance of this data for patients. Actually one example of that is actually just today with the NICE approval for second line therapy with Yescarta. We're very excited about where this is going. There's still a lot of growth opportunity in second line, and obviously the team is really working diligently to make sure that physicians are well educated to make sure that they understand the benefits and the overall survival over long term for these patients. More to come on that. With that, I'll just turn it over to Andy for manufacturing.

Andrew Dickinson (CFO)

Yeah. Thanks, Shawna. Hey, Terence, nice to talk to you again. On manufacturing, what I would say is that it's a real area of competitive strength for Kite and for us. As you know, we have

Three approved manufacturing centers globally, two in the United States, one on each coast, the one in the Netherlands. All of them are fully operational. We're already moving in our Maryland facility to partial automation of our manufacturing process, which is a rough to a great start, and we just have an outstanding team. We have not had capacity constraints either on the manufacturing of the cells or on the viral vector. Remember, we have both an outsourced and an internal viral vector supply. We manufacture our own viral vector at our Oceanside California biologics facility. I don't think, Terence, we've shared specifically the capacity of our manufacturing footprint, but rest assured we have adequate capacity to serve the market today. Our team does a great job of forecasting where the market's going.

We're always one or two steps ahead and we don't expect that to change. You know, from a manufacturing standpoint, the Kite team has just really done an outstanding job.

Jacquie Ross (VP, Investor Relations)

Nadia, may we have our next question, please?

Operator (participant)

Thank you. The next question goes to Tim Anderson of Wolfe Research. Tim, please go ahead. Your line is open.

Tim Anderson (Analyst)

Hi. Thanks for taking our question. This is Adam on behalf of Tim. On Biktarvy, it doesn't lose exclusivity until the next decade, but it's possible it gets targeted by the IRA before then. We know that Medicare only accounts for a limited portion of Biktarvy's volume. Is it possible that the pricing impact extends to commercial patients? Are there other aspects of the IRA that you think investors are discounting beyond the negotiation piece? Thanks.

Johanna Mercier (CCO)

I'll take that one, Adam. Yes, we do believe that the IRA will have an impact on Biktarvy, although we do believe it'll be later this decade and probably the earliest could be 2028 or so. Again, what you said is absolutely true. It is only on our Medicare business, and obviously there's a lot of things that can happen between now and then. It's still early in understanding exactly how it's gonna play out, including the pricing negotiations that will happen. As to the spillover effect that you mentioned, we believe that we've had situations obviously in other channels today where we have higher discounts than in our commercial channels, and we've been able to manage that specific to the patient populations within those channels.

We believe we'll be able to do that again and mitigate the risk of spillover. Yeah. I think that that's kind of what we're managing in addition to the fact that our portfolio, as much as Biktarvy is out to 2033, and that will, I think really continue to be the standard of care for daily orals. We're also expanding our portfolio as you think about where we're going with lenacapavir, with different combinations in treatment and obviously with our prevention work. More to come on that, but, I think we're more than prepared to manage the situation and, have a couple more years to figure out some of the different dynamics within the IRA.

Jacquie Ross (VP, Investor Relations)

May we have our next question, please?

Operator (participant)

Thank you. The next question goes to Umer Raffat of Evercore. Umer, please go ahead. Your line is open.

Umer Raffat (Senior Managing DIrector)

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 1 patient share in HER2 low and growing. I'm just curious how that's shaking out because I know you got a new indication this quarter. Secondly, also, there's a lot of renewed interest in CAR T, especially as it relates to immunology. As I think of immunology and the price points, maybe 3x Humira, that'll be $150K, but conversely, I would imagine each cell therapy dose would be at least $100K. How do you think about economics as you head into potentially immunology indications? Thank you very much.

Johanna Mercier (CCO)

Umar, I'll take the first part of that specific to Trodelvy and what we're seeing in TNBC and metastatic TNBC. What we've seen is actually continued growth in TNBC for Trodelvy, and really that has a lot to do with the expansion of our field course, but also the continued data that comes through, right? The OS data in TNBC is one piece of the puzzle. The other piece is obviously the OS that we've shown also in HR positive. Really the breast cancer community understanding Trodelvy better in that space. We haven't split the market and neither have physicians at this point really split the market between, you know, HER2 low kind of population. What we look at is each indication, TNBC and HR positive, HER2 negative.

What we're seeing in metastatic TNBC in the lines of therapy that is 2nd line plus is really Trodelvy established itself as the standard of care in this setting, and it continues to do that. I do think, just remembering in TNBC, the split between IHC 0 and IHC 1 and 2 is 65-35, so much more represented. Less represented by maybe some of our competitors. Having said that, we work across the spectrum, which I think is really important to remember. That's the Trodelvy dynamics right now in metastatic TNBC.

Andrew Dickinson (CFO)

Great, Umar. This is Dan O'Day too. I think appreciate your question on the second one. I'll dovetail onto what Murad said before about the importance of therapeutic index. Before I do that, let me just articulate, you know, the tremendous benefit that CAR T is providing in large B-cell lymphoma from a pharma economic standpoint. The fact that we now have patients in very late stage disease, 50% of them surviving out to 5 years, and essentially a flatline survival curve. You can imagine the benefit from both a mortality perspective and cost to the system of the current price point in large B-cell lymphoma. I think any price point in other therapeutic areas.

Daniel O'Day (Chairman and CEO)

Would be based upon the clinical benefits that brings to those particular patients. Of course, we understand that, you know, this wouldn't necessarily be a broad-scale use across all different types of patients. There will be patient segments where the therapeutic index is more important. For those patients, you know, we would look at the level of benefit that brings both to the patient and to the healthcare system, and then price it accordingly, of course. I think it's hypothetical at this stage, but given the benefit that we're seeing in cancer, we would take the same approach to other disease states.

Jacquie Ross (VP, Investor Relations)

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

Operator (participant)

Of course. The next question goes to Tyler Van Buren of TD Cowen. Tyler, please go ahead. Your line is open.

Tyler Van Buren (Managing Director, Senior Biotechnology Research Analyst)

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.

Daniel O'Day (Chairman and CEO)

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. We continue to believe that Arcellx and now Kite have a very interesting program that has the potential to, you know, to be very competitive in that area to get, you know, on par or better potentially than the J&J Legend product. 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.

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 potential opportunity for the Arcellx and Kite team. Look forward to seeing more on the data. Look forward to carrying our program forward together with the Arcellx team and updating you over time. Certainly, certainly, looked like a fantastic data set and great for patients.

Jacquie Ross (VP, Investor Relations)

Thanks. Nadia, our next question, please.

Operator (participant)

Our next question goes to Hartaj Singh of Oppenheimer and Co. Hartaj, please go ahead. Your line is open.

Hartaj Singh (Managing Director, Senior Biotechnology Analyst)

Great. Thank you. Thanks for the question. You know, I just had a quick question, on Trodelvy in non-small cell lung cancer. I know those trials are still about a year, 2 years from reading out. Matt, can you just remind us of the scientific rationale behind, you know, Trodelvy in non-small cell lung cancer and just opine a little bit on just the EVOKE-01 and EVOKE-03 trials? Thank you.

Daniel O'Day (Chairman and CEO)

Sure. Hartaj. Yeah, I think there are several things that we give us a lot of confidence in terms of moving forward in non-small cell lung cancer. Certainly, the distribution of Trop-2 has demonstrated, you know, broad expression in non-small cell lung cancer, not too dissimilar from breast cancer. I think that gives us a lot of incentive to believe that the expression of Trop-2 in those tumors is gonna 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.

Our approach, which has been broad and we're very excited about, 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's 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. 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.

Jacquie Ross (VP, Investor Relations)

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

Operator (participant)

Our next question goes to Brian Skorney of Robert W. Baird & Co. Brian, please go ahead. Your line is open.

Charlie Moore (Research Associate, Biotechnology)

Hi. Thanks for taking our question. This is Charlie Moore for Brian. I had a question about lenacapavir. With regards to the recent data with the bNAbs, it seemed like 1 case out of 20 experienced a viral rebound. 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.

Daniel O'Day (Chairman and CEO)

Yeah. Very important that that breakthrough was not associated with lenacapavir resistance, right? I think that's really important to keep in mind. Look, bNAbs are relatively, you know, new clinical tools to look for options for people in terms of treating HIV, and it's one of the many approaches we're taking. Our approach has been to move a broader portfolio of small molecules to complement that early foray into long acting with the bNAbs. Where we believe that, you know, the tried and true mechanisms that we have used, again, both orally or parenterally, should provide us with an opportunity to bring treatment options to people living with HIV that will be associated with low resistance rates and high efficacy. That's what we're testing out.

As we find the ideal partners, and I use the plural intentionally, we'll be moving that forward. I would look at those, the bNAb data as early, an early first approach, to a long-acting treatment for people living with HIV.

Johanna Mercier (CCO)

Maybe just to cover, Charlie, the second part of your question around the size of the market. I'm gonna split it out. When you think about the market from a treatment standpoint, we do believe that the long-acting market probably by the end of this decade will look about 50-50 or so. We think that there are definitely patients out there that are looking for not to be reminded that they have HIV and an opportunity to think about the next generation long-acting to really bring to patients what they're looking for. I think that's the kind of a last unmet medical need in this space at this point in time.

I also think Biktarvy will continue to be the standard of care in the daily oral market, where there's still a lot of patients that actually do wanna take their medicine every single day to make sure that they know that they're taking something to put at bay their HIV. Just to touch on the expansion from a PrEP standpoint, I just find it the prevention market very different, in our view. From discussions we've had with community partners and people that are at risk of HIV, what we're seeing here is probably the split is different, but the market expansion is also very different. The split is probably gonna go towards 70-30 by the end of this decade, is what we assume.

That has a lot to do with the fact that these are not patients, these are people at risk, and they don't necessarily wanna take a pill a day for something they don't have. That makes a lot of sense. Something every 6 months aligned with physician visits could be an ideal scenario in this setting. From an expansion standpoint, you know, as you well know, we've talked about this a lot. You know, if you look at the CDC assumptions around the number of people that are at risk in the US, we've only kinda captured about 25% of those folks that are currently under medication. Unfortunately, there's still 75% that are not and that are at risk.

There's an incredible opportunity, especially with something every six months, to really expand in this marketplace and make sure that we truly work together to end this epidemic. Very exciting times to come. Within the next two years, hopefully we'll have lenacapavir as the data reads out, and approvals in prevention, and then just a bit after that in treatment with different partners that Meret was mentioning. Very exciting time.

Jacquie Ross (VP, Investor Relations)

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

Operator (participant)

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

Ryan Deschner (Biotechnology Research Analyst.)

Hi there. This is Ryan Deschner on for Steve Seedhouse. Thanks for the question. Just curious what the current non-hospitalized versus hospitalized usage split for Veklury is, and, do you anticipate a large amount of potential cannibalization in the non-hospitalized usage coming from obeldesivir if its clinical development is successful? Thanks.

Johanna Mercier (CCO)

Thanks. Ryan, I'll take that question. What we have seen in the last year or so is somewhat of a lessening of the severity of infections and therefore from hospitalization standpoint, obviously less hospitalizations as well. you know, we've seen a couple of different things. obviously much more non-hospitalizations of late, and we've seen that obviously in the numbers because as you well know, Veklury tracks very closely to hospitalizations. What we've seen is that despite the fact that hospitalizations have come down versus our expectations in Q1, the actual usage of Veklury has gone up.

That's super interesting, and a lot of that has to do with the strength of the data that keeps delivering for Veklury around, you know, the updates of guidelines, the strength of our data, real world data that's come out continuously showing reduction in mortality and reduction in readmissions to hospitalizations. Very powerful data, but definitely a bit of a play there. You know, our outpatient use with Veklury is still quite small, in the single digit or so. Having said that, it is growing. It's really the only antiviral that is approved in hospitalized settings for COVID-19. That continues to drive.

I think as we think about our oral COVID program, I think we are thinking more the non-hospitalized setting, which I think would then complement what we have in our portfolio that works really nicely both in the non-hospitalized setting and the hospitalized setting to make sure that patients at risk have what they need if they do get infected.

Jacquie Ross (VP, Investor Relations)

Nadia, may we have our next caller please?

Operator (participant)

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

Olivia Brayer (Analyst)

Hey, good afternoon, and thank you for the question. Have you guys started to think through a commercial rollout strategy for magrolimab, especially when you look beyond the initial academic centers? Is there anything you can do to help drive initial adoption for, you know, of transfusion guidelines in that community setting specifically?

Johanna Mercier (CCO)

I'll take that one, Olivia. As we think about magrolimab, we are excited. Obviously, we're waiting for the data to read out, we are excited, we have started thinking about our commercial model for sure. I think a couple of pieces to that one. One is the strength of the community and making sure we understand kind of what that looks like, also the strength that Kite brings in this play as well. We're not starting from scratch, right? We partner very closely with our Kite colleagues to make sure that there's a lot of learnings there that I think we can apply and a lot of overlap from a physician standpoint that also that we've been working through. A lot of those pieces are in play.

The last piece I would say, just to add to the commercial model in our thinking, also has to do with the fact that we're also trying to get ahead of the game and better understanding, right? These are diseases that sometimes community physicians will not see on a regular basis, and how do we make sure that we understand the when and where and making sure that the commercial model supports that timing as well and being a little bit smarter in our approach from an execution standpoint. All those pieces are coming into play. Obviously we're excited and anxious for the data. We will be sure that we are ready for not only the data, but the approvals as well.

Jacquie Ross (VP, Investor Relations)

Nadia, we'll try and squeeze in, just a few more here.

Operator (participant)

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

Speaker 20

Hi. This is Ting for Colin. Thanks for taking our question. On grelinob, can you specify how many interims were planned in total for the ENHANCE trial and for the interim update in the back half of the year? Will there be actual data disclosure or just a high-level update? What's your expectation on the CR and overall survival for the azacitidine control arm? There was some chatters around if azacitidine arm outperformed in Takeda's Phase III trial where they used a more intensive dosing regimen. What's your thought over this? Thank you.

Daniel O'Day (Chairman and CEO)

Sure. Thanks for the question. In terms of the interim analyses, it's a good reminder that the study is powered for the final analysis. Our expectation for any study that has interim analyses is that we run to the final analysis, which, I think we've guided to, occurring next year. When an interim analysis occurs, we generally will not see the data. Generally, what happens is that, the DSMB will tell us to either continue or potentially discontinue. If obviously we discontinue, we'd share that, but if it's just continue, we would, continue the trial, and there will be nothing other than that to share because we don't have any data to share, since we won't have seen it. Our expectation is that we run to the end of the trial.

It would certainly be upside if we saw something earlier than that. Then, I think in terms of, the expectations, you're absolutely right. I think everyone has looked at the Takeda data and are wary as to the efficacy of azacitidine in performing in that patient population. So, we're gonna have to wait and see what that looks like at the end of the trial. I guess, buttressed by the fact that we have you know, the DSMB has told us to continue the trial, gives me a little bit of more confidence that we are going to see a treatment effect. That's a very indirect assessment, so we're gonna have to see.

We've made some assumptions in terms of how we power the trial, so hopefully we'll be able to detect a difference between the two.

Jacquie Ross (VP, Investor Relations)

Nadia, maybe, just time for one last question, please.

Operator (participant)

Thank you. Our final question goes to Mohit Bansal of Wells Fargo. Mohit, please go ahead. Your line is open.

Mohit Bansal (Senior Managing Director, Equity Research)

Great. Thank you for taking my question. Maybe, 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, there's no urgency there, and you could be thinking about tucking, 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?

Daniel O'Day (Chairman and CEO)

Hi, Mohit. It's Andy. Thank you for the question. Nothing's changed from our recent updates. I mean, we think that BD is an important part of the puzzle for us going forward. It's important to continue to bring new and exciting innovation and products into our portfolio over time. We don't expect that to stop. That said, and to your point, we have made extraordinary progress over the last 4 years that we're really proud of. The breadth given the breadth and depth of our pipeline, you should expect that we will do less over the coming years than we did over the last 3 or 4 years. We will still be active. What we said recently, and I'd reinforce, is that we will do ordinary course licensing deals.

Obviously, you saw the Tmunity and Arcellx deals last year. We've talked about the MiroBio deal, all of which we're very excited about. We expect from time to time to do small acquisitions. You know, our portfolio, to your point, is in a great spot. We're very excited about what that's gonna do to drive growth, and we will always look for opportunities to add to it if we can in a thoughtful way that we think will benefit patients and our shareholders. That's the way I would think about it at this point.

Operator (participant)

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

Daniel O'Day (Chairman and CEO)

Thank you so much. I just wanna thank you all for joining today, for your continued interest in Gilead. You know, look, bottom line is we've had a very strong start to the year, building on the momentum from 2022. You know, 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.

Operator (participant)

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