Gilead Sciences, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the second quarter 2020 Gilead Sciences Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star, then 1 on your telephone keypad. Please be advised that today's conference may be recorded. If you require any further assistance, please press star, then 0 to reach an operator. I'd now like to hand the conference over to your host today, Mr. Douglas Maffei. Senior Director of Investor Relations. Please go ahead.

Thank you, Liz, and good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for the first half and second quarter of 2020. The press release and detailed slides are available on the investor section of the Gilead website. The speakers on today's call will be Daniel O'Day, Chairman and Chief Executive Officer, Joanna Mercier, Chief Commercial Officer, Murdad Parsi, Chief Medical Officer, and Andrew Dickinson, Chief Financial Officer. Also on the call and available for Q&A will be Christy Shaw, Chief Executive Officer of KITE, and Diana Brainard, SVP and Head of our Virology Therapeutic Area. Before we begin with our prepared remarks, let me remind you that we will be making forward-looking statements. including risks and uncertainties related to the impact of the COVID-19 pandemic on Gilead's business, financial condition, and the results of operations, plans and expectations with respect to products, product candidates, corporate strategy, financial projections, and the use of capital, and 2020 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 gap to non-gap reconciliations are provided in the earnings press release as well as on the Gilead website. I will now turn the call over to Dan.

Thank you, Doug, and good afternoon, everyone. I'd like to start by thanking our Gilead employees worldwide who, along with our partners, continue to go above and beyond to meet our many responsibilities at this time. Those responsibilities include advancing Remdesivir, supporting work across our other medicines that are helping patients today, and building our pipeline of future therapies. We'll cover each of those during today's call. I'm pleased to have the team with me here to provide an overview, and we all look forward to answering your questions. I'll start things off with some of my perspectives. The first thing I want to comment on is the continued strength and durability of our core HIV business. We've grown market share even as we navigated the expected impact of the COVID-19 pandemic, and we're already seeing early signs of recovery from that impact in some markets. We are confident in our long-term leadership in HIV. People living with HIV depend on innovative therapies that meet their needs, and Gilead is and has always been focused on meeting those needs. Victarvy has become the gold standard in HIV treatment, and we're on track with our conversion to the SCOBY for PrEP treatment. The principles that have driven our HRV growth to date still apply and will continue to drive our growth in the future. The second area I want to comment on is our role in fighting the pandemic with remdesivir. There's a growing body of clinical and real-world data that continues to shape our understanding of the medicine. The data tell a consistent story of clinical benefit for patients suffering from COVID-19 across our simple studies, the NIAID data, the compassionate use data, and more recently, the comparative analysis that use real-world data. I'd also like to highlight some details in our efforts to ensure broad access to remdesivir in the second half of the year and beyond. As we discussed last time, we feel the full weight of our responsibilities with remdesivir And that applies to the price we set following the donation period. We priced Remdesivir well below the value it provides to enable access at this critical time and ensure that we continue to meet our responsibilities in the future with further investment in Remdesivir and in research that will help us to prepare for any future pandemics. The extensive clinical development work continues. on remdesivir so that we can potentially extend the treatment to many more patient groups. We've begun clinical work on an inhaled solution that could be used outside the hospital, and we'll also conduct clinical trials using the intravenous formulation in the outpatient setting, such as nursing homes. Murdad will talk more about the development program later. As you know, we've agreed to the U.S. government request following discussions about the significant rise of COVID-19 infections in the United States that U.S. patients will receive 500 million treatment courses of our supply until the end of September when we expect to have enough remdesivir to meet real-time global demand. As announced yesterday, we're pleased to have reached an agreement with the European Commission where they will centrally purchase remdesivir for patients in the European Union and the U.K. The European Commission will be responsible for all decisions regarding allocation among member states. The remaining supply of remdesivir will be allocated to other countries with significant rates of COVID-19 infection. We will see a significant increase in supplies in October as expected. The third theme I want to touch on is the progress we're making in shaping Gilead's growth story. You may recall that we previously shared a framework outlining the three pillars that will shape Gilead's next chapter. And you'll see these in the slides on our website today as well. I've already touched on the first pillar, which is our durable core business. And Joanna will describe our achievements on this front in more detail in a moment. Pillar two is our pipeline. And we made important progress across several potentially transformational assets in a relatively short period of time. with a balance of both internal innovation and acquired investigational compounds. Pillar three is our strategy to drive future growth by accessing the highest quality external innovation in order to serve more patients. The pace of our corporate development activities has not slowed down a bit during this pandemic time. I'd like to highlight the progress we made this year on executing on our immuno-oncology strategy. Our goal is to grow our immuno-oncology pipeline and our expertise, both through external opportunities and by advancing our internal efforts. The range of immuno-oncology deals we've announced this year represent significant progress towards this goal. These deals bring complementary scientific approaches and provide access to clinical and preclinical assets with a view to both mid- and long-term growth. Before I hand over to the team for the detailed comments on our progress, I want to briefly mention something that we see as another key area of responsibility for the company, the work against racial injustice. We are passionately committed to using Gilead's platform for what we see as a global issue that calls on everyone to play a role. The leadership team and I have spent the past weeks listening carefully to black employees as they've started to share with us how they, their families, and their communities experience racial injustice in various forms. Gillian is committed to both immediate and long-term actions that will have a lasting impact for our employees and the communities that we serve. Let me now hand the call off to Joanna, who will walk us through some of the key details related to our business performance. Over to you, Joanna.

Thanks, Dan, and good afternoon, everyone. Let me start by saying that despite the anticipated impact of the pandemic, our business is solid and remains resilient. While COVID-19 has had an impact on parts of our business this past quarter, we're built to withstand this kind of challenge and we remain confident in the strength of our core business. No one can actually predict the progression of this pandemic, but we do see signs of recovery and partial return to normal in Europe, as well as some parts of Asia. And we're confident that this will also play out in the US once the incident stabilizes. Turning now to the specifics of Q2 in the first half for business performance, starting with HIV. Our HIV franchise is strong and durable. In both treatment and prevention, we have a patient-focused history of innovation and believe both will continue to be important drivers for the company over the next decade. In June, we hit our stated year-end goal of conversion to task-based regimens on the treatment side and are now at 90% of our total portfolio. Biktarvy uptake continues to remain strong across geographies and is the number one HIV treatment regimen across the U.S., EU5, and other key global markets in both Naive and Switch. For PrEP, we achieved our goal of 40% to 45% Dyscovy conversion with 43% at the end of June. We continue to believe that physicians and patients are benefiting from choice and are increasingly seeing Biktarvy for treatment and Dyscovy for PrEP as the preferred option for their patients. The quarter overall was down year-on-year 1% and quarter-over-quarter by 3%. The impact on our HIV revenue, including Biktarvy, was primarily driven by inventory dynamics. In Q2, we saw a reversal of the pandemic-related stocking that happened in March during the onset of COVID across US and Europe. Also on the treatment side, as expected, We're seeing reduced switches due to the decline in patient visits and physicians not wanting to initiate new therapies during a pandemic. We're also seeing an unfavorable shift in payer mix from commercial to government segments. Despite this, our overall demand remained robust with both the overall Gilead portfolio and Bictarvy gaining share quarter-over-quarter and year-on-year. The pandemic impacted PrEP demand as expected, and we saw reduced initiations and therapy discontinuations due to fewer people seeing their healthcare providers and social dynamics. We're starting to see gradual recovery across our markets, including in the U.S., where we saw improving PrEP trends in June. Strong Bictarvy uptake and Dyscovy for PrEP conversion during the quarter underscores the confidence we have in our core HIV business, as we expect to recover from the pandemic over the remainder of the year and going into 2021. If we look at our HIV business comparing the first half of revenues this year versus 2019, we see the robust underlying business with 6% growth. The half-year view normalizes the inventory dynamics associated with the pandemic. So now if we turn to HCV. Our HCV business, which is more like an acute business, was down 47% from Q2 in 2019 and down 39% from Q1 this year. As we discussed during the Q1 call, reduced or delayed physician visits naturally decreased both diagnosis and patient starts. USHCV starts were down 42% quarter over quarter. However, overall USHCV share has held strong at about 60% across segments, which is up 11 points from Q2 2019. Similarly, we are seeing strong and consistent share in Europe as well. As other markets start to reopen, similar to what we saw in June and July across Europe, it's likely we will see many patients return throughout the rest of the year and into 2021. As an example of this in Italy, which was heavily impacted by COVID earlier this year, we saw recovery in June as more patients, especially the higher risk patients, started to return to their physicians and begin treatment. Before I close, just let me highlight for you a range of commercial opportunities on the horizon that make us all so excited to be part of the Gilead team. In the near term, we're pleased with the significant volume growth we're seeing in China, despite the impacts of COVID as we received foreign RDL approvals at the end of 2019. This also serves as the basis for expanding HPV business, which we expect to hit 1 billion globally by the end of 2022. We're preparing to launch Volgotnib and RA in the coming months and are excited about the recent CHMP positive opinions. As we look to the mid to long term, we're accelerating our efforts to build our portfolio and expertise in immuno-oncology. We see strong potential for Megrolimab, where we recently highlighted T-Data at ASCO. Megrolimab could be a very important therapy for MDS patients. And lastly, on HIV and Lenacapavir, we believe that long actings will play a role in the future HIV market and see the potential for this compound to best meet patient needs. Murdad will share more on the clinical progress on Lenacapavir in a moment. So let me end where I started. Our core business is durable. The fundamental demand drivers of our HIV treatment and prevention businesses remain real, and we're optimistic heading into the second half of the year. We have an incredible core portfolio driven by HIV, and we're building a compelling set of opportunities as we continue on our journey. And lastly, I just want to thank all 12,000 of our colleagues who have demonstrated that they can continue to deliver for patients who need our medicines, both in our base business and more recently with Remdesivir. It's the first time in my career I've seen a company go from an investigational compound to a launch product, serving hundreds of thousands of patients in a matter of months. But it just reinforces for me Gilead's history and commitment to patient-focused innovation. I'm very proud to be part of this team. Murgat, turn it over to you.

Thanks, Joanna, and good afternoon, everyone. I'm excited to be here and share with you some of the perspectives on our pipeline that continues to both progress and to grow despite these challenging times. As you've seen, our pipeline expansion continued during this period, driven by the strategy that Dan referenced earlier. Of course, remdesivir is an important part of this story. And while managing the added responsibility of working as diligently as possible on remdesivir, we're also able to make great strides across the rest of the pipeline. Let me share some of those highlights with you. We look at a pipeline for three key things. We'd like to see that the level of diversification across the different therapeutic areas is good. the balance across the phases of development, and the quality of the assets we have in development, along with their associated risk. That's where I'd like to turn now. We continue to build in each of our therapeutic areas, as reflected in another exciting set of clinical data readouts and presentations at scientific meetings during this quarter. This includes data that further validate our belief in some of our key assets, including the Rolimab, lenacapravir, and, of course, remdesivir. Let me share a few specific highlights in each of our strategic areas. In HIV, we continue to make progress on the next chapter of our commitment to people living with HIV by working on a long-acting option. Lenacaprovir, our investigational capsid inhibitor, continues to show promise as a potential agent, both for long-acting treatment and for prevention. The Phase 2-3 study that has continued to enroll during the pandemic, and we look forward to data from this trial for highly treatment-experienced people with HIV who often have few, if any, other options. People living with HIV tell us that the most desirable long-acting regimens are either a weekly oral or in every three to six-month subcutaneous injection, preferably they can be self-administered. The profile of lenacaprovir gives it the potential to achieve both of these options and, therefore, the potential to be a key therapeutic component for both treatment and prevention. Now turning to remdesivir, a lot of data have been generated over the past six months that all inform us about the profile of remdesivir. As Dan pointed out, the thing that stands out is the consistency across these data. And I'd like to take a step back and highlight a few key pieces of the story. One piece is that we see that recovery time for patients in the hospital is shortened. Another is that the five-day course of treatment is appropriate for most patients. And finally, it's the drug's general locality. We've now published data that demonstrate a benefit in mortality compared with standard of care using a comparative analysis of real-world data. As you know, there was a trend towards benefit and mortality at day 14 in the NIAID study, and we now await the final day 28 data from that trial as well. We also continue to pursue other ways to expand the utility of remdesivir, including new formulations and exploring how combinations could be more effective. We've begun a phase one study on an inhaled version of remdesivir that uses commercially available nebulizers. Beyond that, We're working on the feasibility of a dry powder formulation for inhalation and a subcutaneous formulation. We're also supporting several clinical trials exploring potential combinations. In each of those studies, remdesivir is being used as a backbone standard of care agent. We're really proud of the role remdesivir has played in this pandemic, and I couldn't be prouder of the team that's worked so hard on this. As a reminder, Diana Brainard, who leads our virology team, is here with us today, and she'll be happy to share additional insights during the Q&A. Moving on to filgotinib, we continue to believe that this selective JAK inhibitor has the potential to provide a new option for patients suffering from a variety of inflammatory diseases. I'd like to update you on recent discussions with regulators on rheumatoid arthritis. In Europe, we're pleased to receive the positive CHMP opinion for the treatment of adults with moderate to severe rheumatoid arthritis. The opinion includes both 100 and 200 milligram doses. and indicates use is appropriate as monotherapy and in combination with methotrexate. As a reminder, this opinion is a scientific recommendation to the European Commission to grant marketing authorization in Europe. We continue to have ongoing dialogue with the FDA. We've been informed that there will not be an advisory committee meeting and that the due date remains unchanged. Moving on to oncology, we made strides during the quarter and throughout the first half of the year in advancing our pipeline and accelerating our efforts to build our portfolio and expertise in immuno-oncology with several key transactions. First, we completed the acquisition of 47 that we announced during the first quarter. This brings early matter into our pipeline and investment compound currently being developed for ENDS and ANAL. as well as much of the impressive 47 team who now complement our internal team. We're also very excited about the AHRQ partnership, which reflects our ability to have tailored interactions that work both for us and our partners. This partnership brings us a potentially differentiated digit compound, as well as an investigational anti-PD1 monoclonal antibody. We're also excited to work with the excellent, experienced clinical team at AHRQ for the development of these programs. This partnership gives us an option on everything in their pipeline and allows the Arcus team to continue to pursue groundbreaking science. Tizona and Pioneer are deals that give us options targeting other immuno-oncology approaches, and in each of these transactions, we have the option to acquire the entire company based on clinical data. These new programs build on our existing partnerships and our internal pipeline. In cell therapy, we all congratulate Christy Shaw and our colleagues at Kite for the recent approval of carcass for the Lasser Factory MCL. Kite and Gilead are now the first companies to have multiple approved cell therapy products that will bring benefit to even more patients with difficult-to-treat cancers. The Kite team also reached a major milestone with a successful approval and launch in June of the MCL manufacturing site with the end-to-end production that expands the ability to treat more patients. Christy is with us here today and happy to share more thoughts during the Q&A. Materials we've provided, we've shared a summary of important upcoming milestones across the pipeline. In closing, our senior R&D team continues to build with the addition of leaders in data science, clinical biomarkers, pharmacology, clinical operations, portfolio management, inflammation, and oncology. All of these leaders bring added expertise to an already world-class team, and we're excited to have them join us. Let me turn the call now over to Andy.

Thanks, Mirdad, and good afternoon, everyone. I'd like to cover three topics to round out our commentary before turning to Q&A. First, I'll provide a summary of our financial highlights for the quarter and the first half of 2020. Second, I will provide some additional color on the potential implications of COVID on the second half of 2020 based on updated assumptions drawn from external experts and outside thinking. Finally, I'd like to pull all this together and review our revised 2020 financial guidance. As a reminder, the earnings materials posted on our website contain additional information, including the details of our 2020 revised financial guidance. Turning now to our financial highlights. Total revenues for the second quarter were $5.1 billion with non-GAAP diluted earnings per share of $1.11. As noted in the earnings press release, on a GAAP basis, we recorded a diluted loss per share of $2.66, primarily due to a $4.5 billion in-process research and development charge related to our acquisition of 47. This compares to revenue of $5.7 billion with non-GAAP diluted earnings per share of $1.72 for the same period last year. Product sales for the second quarter were $5.1 billion, down 7 percent sequentially and down 10 percent year over year. As anticipated, the second quarter product revenues were unfavorably impacted by COVID-19. The year-over-year quarterly decline was also impacted by approximately 160 million of favorable adjustments recorded in the second quarter of 2019 for statutory rebates primarily to HCV and HIV prior year sales in Europe. This decline was partially offset by HIV growth driven by Bactarvy in the United States. As Joanna mentioned, the quarter-over-quarter decreases in HIV revenues was primarily driven by the reversal of the Q1 increased buying patterns due to the pandemic, as well as lower U.S. prep demand and unfavorable U.S. payer mix. Sequentially, the decrease was partially offset by treatment growth and seasonable higher net price in the U.S. and inventory patterns. The decrease in HCV revenues sequentially and year-over-year primarily reflects lower volume due to lower diagnoses and patient starts due to the pandemic. Yes, target revenues grew sequentially and year-over-year, primarily driven by the continued patient uptake in Europe. Overall product sales for the first half of the year were $10.5 billion compared to our $10.8 billion for 2019. Excluding recent LOE products for Nexen and Lateris, our business grew year-over-year despite the impact of the pandemic. If we compare the first half of 2020 versus the same time period in 2019, the HIV inventory dynamics associated with COVID-19 are normalized, and our first half results demonstrate strong underlying HIV demand growth, with the business up 6% over 2019. This reflects a strong and encouraging start to the year in our core HIV franchise, despite the impact of COVID-19. You can find more information, including the geographic breakdown of revenues, in the materials we have posted. Now turning to expenses. Non-GAAP R&D expense was $1.2 billion for the quarter, up 19% compared to the same period last year, and up 18% sequentially primarily due to our investment in Remdesivir, including clinical trials and manufacturing scale-up costs. Non-GAAP SG&A expense was $1.2 billion, up 6% compared to the same period last year, and up 8% sequentially primarily due to a $97 million accrual related to a previously disclosed Department of Justice investigation. From a liquidity standpoint, we continue to be very well positioned. During the quarter, we generated $2.6 billion in cash from operations, and we ended the quarter with $21.2 billion in cash and marketable debt securities. We completed our acquisition of 47 this quarter for $4.7 billion net of cash acquired. We paid cash dividends of $856 million, and we repurchased 700,000 shares of stock for $54 million. Our strong balance sheet investment portfolio are built to withstand macroeconomic events like COVID-19, and our capital allocation priorities remain unchanged. We will continue to focus on investment to augment internal and external innovation in support of continued pipeline expansions. In addition, we intend to support and grow our dividend over time, provided that any dividend increases, of course, subject to approval from our board. Finally, as it relates to repurchase of shares in 2020, we're on track relative to the directional guidance we provided in our fourth quarter 2019 and year-end earnings call in February. Turning now to the COVID-19 impact on our revised guidance. Importantly, as you heard earlier in the call, the fundamentals and durability of our long-term outlook remain very strong. We expect that our core business will gradually recover starting in Q3, following peak pandemic impact on underlying treatment initiations and switch dynamics that we observed in the second quarter. We continue to expect minimal impact on our HIV treatment business over time with maintenance of high market share. In HCV, we expect patient starts to regain momentum in the third quarter and beyond. In addition, since our first quarter earnings call, we have established global pricing for remdesivir, and we have refined our expectations for remdesivir for the year. As you would expect, there are still many uncertainties concerning the shape and duration of the recovery in the second half of the year, as well as the availability and uptake of remdesivir. With that as context, let me summarize the details of our revised full-year guidance. Our revised top-line revenue range, including expected sales of remdesivir in 2020, is $23 billion to $25 billion U.S. dollars. We're increasing our 2020 R&D and SG&A expense expectations. Our guidance on expected product gross margin and effective tax rate for 2020 remained unchanged. Our updated operating income range is $10.7 billion to $13 billion. And finally, our updated non-GAAP EPS range is $6.25 to $7.65. I'd like to highlight a few additional points that will give you more color on the assumptions that drove this updated guidance. On the expense side, R&D and SG&A guidance increased to reflect expected expenses for Remdesivir 47 and the litigation accrual that I mentioned earlier. On Remdesivir, as we've previously stated, we expect to manufacture 2 million or more treatment courses cumulatively in 2020. Our revenue guidance reflects that we expect to sell 1 to 1.5 million treatment courses of Remdesivir this year. We expect that Remdesivir demand will be skewed towards the U.S. in the third quarter and that the proportion of ex-U.S. sales will increase in the fourth quarter and beyond. That said, the progression of the pandemic, the global economic backdrop, our supply expectations, the potential uptake of Remdesivir and related matters continue to be dynamic and uncertain. We expect to learn more over the coming months and we'll update you on our latest thinking on our Q3 earnings call. Before I hand the call off for Q&A, I'd like to express my gratitude as well to our 12,000 Gillette employees globally. Without their spirit, dedication, and resilience, nothing we strive to achieve for patients would be possible. Now I'd like to open the call for questions. Liz?

Ladies and gentlemen, if you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Our first question comes from Tyler Van Buren with Piper Sandler. Your line is now open.

Hey, guys. Thanks for taking the question. I guess with respect to the HCV and HIV share increases that you saw during the pandemic, you talked about coming out of the pandemic stronger. So could you just provide a little bit more color on that?

Sure, Tyler. I'll turn right over to Joanna. Okay.

Thanks, Tyler. Yeah, so for example, in HIV, when you think about Bictarvy and Dyscovy, which are two lead brands both for treatment and prevention, Bictarvy grew share. So it's been growing share year on year, but even quarter over quarter. So we grew share to 33% in Q2 for Bictarvy. And then when you think about on a very large basis, you can appreciate, so that's just about a 1% share increase. And then when you think about Dyscovy, we closed the quarter Q1 at about 37% share in the PrEP market, and we ended up at the end of June at 43%. So I do think that despite some of the dynamics because of COVID-19 and some of the decrease in patient visits and screening, I still do think that the brands are solid because of their portfolio, because of what they offer for patients. And one of the things You know, both of those brands are actually brands that, in a COVID-19 environment, are actually probably the best choice for patients. You know, if you think about Bictarvy and you think about no monitoring, no HLA testing, et cetera, those are really – the rapid start with Bictarvy is critical for patients. And I think that that's also helping to support Bictarvy throughout this transition with the pandemic.

And just as a quick follow-up, with respect to the Bictarvy share gains, are – Are those share gains or switches, are they different during the pandemic as they were prior to the pandemic? Are they coming from regimens that they're taking share?

Yeah, the sourcing of business is actually about the same. The only difference I would say is the switch in treatment is obviously a little bit slower than what we've seen in the past just because physicians don't want to switch. There's actually guidelines that suggest no switching during the pandemic. from drug to drug. So it's more the naive patient population that's feeding Biktarvy right now versus the switched population. And older compounds are keeping share. So since Gilead has about 75% within HIV, basically what you're seeing is some of our older brands are keeping higher share versus them switching over to newer compounds like Biktarvy.

Great. Thanks for taking the questions. Thanks, Tyler.

Our next question comes from Jeffrey Porges with SVB Lyric. Your line is now open.

Thank you very much. So maybe a couple of questions on Remdesivir. Andy, you indicated, I think, that you're going to sell 1 to 1.5 million courses, but it sounds as though you're supplying half a million courses just in Q3. So could you give us a sense of what your upside is capacity is, given the capacity initiatives that you have in place for the year, and secondly, how you see the demand beyond those 500,000 courses in Q3. Are you on an allocated basis already in Q4, or is there some uncertainty about the demand? And then could you just give us a sense of how you've incorporated that into your guidance? There must be there's a huge range in your operating income. So I presume that's being driven by Remdesivir. But could you kind of give us more color on that?

Maybe I'll start with the final point and ask Joanna. Oh, go ahead, Dan. I'm sorry.

Perfect. No, that's great. Thank you.

Maybe I'll ask Joanna to comment on the upside of the supply and the demand in Q3 and Q4. The demand You know, there is a wide range, and it is driven by our remdesivir expectations. So Joanna mentioned, you know, we're learning more week by week. We just started commercializing recently. So we do expect that we'll be able to narrow our thinking and give you an update in the third quarter, Jeff, as you'd expect. Joanna, do you want to touch base on the supply and demand question?

Yeah, sure. So I maybe just add to what Andy was saying for Q4 specifically. I think the uncertainties are multiple, and it's not just, Our supply actually is less of an uncertainty because I think we have a pretty good idea, and the ramp-up has been impressive. The team has done an incredible job ramping up, and you really see that ramp-up come through in Q4. We feel that, and I think Dan mentioned this, we feel that by early October we should be in a place, assuming somewhat, I don't know if stable is the right word, but some stability within this pandemic globally, where across across the numbers we we should be in a situation where global supply meets global demand and that's a great place to be and we're we can't wait because it's been challenging thus far the um in q4 the uncertainties are more around the pandemic itself and and not really understanding um does it you know does it stabilize does it come to an all-time low like we've seen in europe um we really don't know and so that's why it's a little bit tougher to manage on that front as as Mentioned before, from a supply standpoint, by the end of December of this year, we should be in a position to have cumulatively over 2 million treatment courses. And some of those obviously were used during the donation, and some are being used in Q3. So the balance of that will be in play for Q4. And we're just working with all the different governments, not just the U.S., but governments around the world, to better understand what they think their real-time need is. And that's really our focus right now is the real-time need. Okay.

Thanks very much.

Jeff, and we'll update you and everybody else in quarter three, obviously. So this is our best estimate at this stage.

Okay. Thank you.

Thank you.

Our next question comes from Michael Yee with Jefferies. Your line is now open.

Hey, thanks. Good afternoon. Following up on remdesivir, two questions. One is maybe you could make a comment about thinking about the actual demand and sales that you've actually done versus actually utilization. We've done some math around actual utilization, and it sounds like a lot of this could actually be a form of stockpiling. So maybe you could just comment on that type of dynamic. That would help us think about future use. And then the second is, you know, just looking forward even a little bit, you've made some comments about injectable and inhaled. Is this just a PK question? You know, what do you have to look for in phase one data, and what are the challenges and Would you have this data and know this by, say, fourth quarter? Thanks.

Sure. I'll start, and then, Johanna, you add, and then we'll go to Murdad on the injectable. So, first of all, Michael, I think really the vast majority of the remdesivir that we have today is being used. You know, the allocation process with the U.S. governments, has gotten better over time, and they really are allocating basically at least twice a month, sometimes more frequently, to where the hotspots are in the United States, and that's the vast majority of the supply. So we think there's probably very little demand that is not being utilized at this stage. Of course, it's not completely efficient, and there are some pockets where you might have some hospitals that have more remdesivir than patients, but right now, given the tremendous human need in the United States in particular and a variety of other countries we're working with. We're really just working on the real-time demand right now, so that's being utilized. Joanna, do you have anything else you want to add to that?

Yeah, maybe, Dan, just to add to that. Michael, I would just add the fact that it's also based on incidents in epidemiology. Everything we are doing, working with the U.S. government, working with ex-U.S. governments as well, governments around the world, It's really based on the incidence. And what we've seen so far is that because of the way we're managing it with the HHS, some hospitals have actually said, no, thank you. Give it to somebody who needs it. We don't need it right now. So I do think that people are coming together to work through this, understanding that there is a shortage of supply and understanding that it really needs to go to patients in need. And the worst thing that could ever happen is products sitting idle somewhere. So we're being very, very careful. careful to make sure that doesn't happen anywhere in the world.

I think the earliest is October, Michael, that we would start to see actual demand and utilization perhaps be different and perhaps the opportunity for stockpiling, but not before October. Murdad, over to you on Michael's question.

Yeah. Yeah. So what I'd say is, you know, as I mentioned, we're working on both the inhaled and the sub-Q. The inhaled's ahead. And as I mentioned, in phase one right now, in the dose escalation phase, the hypothesis here is that, you know, the virus in many patients, especially early, is primarily in the lung. And so the question is, for an outpatient, can we treat an outpatient with an inhaled version or potentially even an inpatient with an inhaled version? get to where it needs to be, narrowing the lung, and whether that would have a benefit for those patients. So that's the extent we're going to be running with the inhaled version. As far as subcutaneous, we'll continue to work on that. That currently is not in the clinic, and as I mentioned, we're looking at feasibility and other parameters of bringing that online. Thank you.

Michael, good. Thanks.

Our next question comes from Terrence Flynn with Goldman Sachs. Your line is now open.

Hi. Thanks for taking the question, and thank you for all the work on the COVID front. I was wondering, first, just on the financials, if you could try to quantify the impact from COVID on a dollar basis that you saw in the quarter. And then I was wondering, as you think about CAPSID, obviously an important long-term opportunity for you guys, just conceptually, are you focused on finding a partner for that internally to continue to dominate the market in terms of share, or are you open to looking for an external partner and as a result splitting the economics on the future market? Thank you.

Great. So why don't, Andy, you take the financials, and we'll have Diana take the capsid question.

Yeah, thanks, Dan, and hi, Terrence. Thanks for the question. As you know, we don't provide specific – we didn't provide a specific – guidance in terms of the COVID impact, I would say at a high level, it impacted our business exactly in the ways that we expected. So it hit predominantly, as you heard from Joanna, in the HCV treatment and HIV prep business. The impact was substantially less than half a billion dollars on a top line revenue in the first half. So rather than thinking about it on a quarterly basis, Terrence, I think it's easier to think about it on the first half basis, as you've heard from other companies as well, given the pull forward of inventory at the end of the first quarter. Hopefully that's helpful.

Great. And I can speak to our capsid inhibitor and our vision of our long-acting HIV franchise. And there what I would say is we're looking at our past success and And it's really been driven by focusing on trying to meet the needs of patients and doing that agnostic to where we come up with the compounds or the regimens. And so in the past, that's been through acquisitions, it's been through partnerships, and it's, of course, been through internal discovery. And we really do have unparalleled excellence in terms of our internal discovery, and we're doing a lot of work there to try to find a partner for CAPSID. But we're also open and always looking externally as well with the idea that we will be successful if we create the best regimen for patients.

Thanks, Terrence, for the question. Okay, can we go to the next one, please?

Our next question comes from Brian Abrahams with RBC Capital Markets. Your line is now open.

Hi there. Thanks very much for taking my question. Question on filgotinib. With the PDUFA upcoming and the current state of the pandemic, I'm curious your latest thoughts on launch approach and potential for differentiation through the label or otherwise, how that shapes your commercial strategy. And then I'm also wondering if there's any reason why the CHMP recommendations on dosing and indication wouldn't necessarily be illustrative of global positioning for the product. Do you think FDA and EMA are still looking at the JAK benefit-risk profiles differently? Thanks.

Thanks.

Maybe we can start. Yeah, go ahead, Joanna. Why don't you start? And my dad wants to add anything as well, but go ahead, please.

Okay. Thanks, Brian, for the question. So, yeah, so obviously pleased with the recent positive CHMP opinion, and we are working, we've been working diligently with the teams around the world to prepare for launch with filgotinib. We are looking at the COVID situation and assessing the situation. To be honest with you, maybe a couple of months back we were thinking about virtual, not virtual, but I think in light of kind of where we're seeing the dynamics of the market, I think virtual is the way to go. And so we're looking at how we do this and the best approach. So more to come on that front. A lot of work going on to make sure that we do this as competitively as possible. From a differentiation standpoint, it's in line with what we've talked about before. We believe in the profile of filgotinib and the differentiation that it offers And so, therefore, that's really an opportunity medically to make sure that through our medical teams that conversation, that education happens with physicians. Murdad, do you want to comment on the regulatory piece?

I think Murdad is having a bit of an audio issue, so I'll feed in here, Brian. So, you know, I think it's kind of premature to anticipate exactly what's going to happen in different regulatory authorities around the world. We continue to have discussions with all regulatory authorities. Obviously, Europe was the first one out of the gates. We're pleased with that. And as soon as we have some additional information, we'll let you know. But, you know, difficult to speculate. Thanks. Thank you.

Our next question comes from Alethea Young with Cantor Fitzgerald. Your line is now open.

Hey, guys. Thanks for taking my question. And congrats on everything that you guys have been doing here. It's incredible. I guess I just want you to kind of maybe talk big picture about, like, of course, you know, there's from Desevere, which could have some earlier, you know, kind of utility beyond, you know, in the treatment cycle, but just where we are with vaccines as well and kind of how you think about positioning it from Desevere maybe perhaps over the next couple years, even though I know I'm asking you to look at Crystal Ball. Thank you.

You're a great cheerleader for us. Thank you very much, Alicia. So, yeah, obviously, you know, I think our general position on this is, you that you will always need effective therapeutics and effective vaccines to control any type of a viral outbreak of any type, and certainly one in a pandemic. So I think we're firmly committed to working to expand Remdesivir's impact. We're really pleased that every piece of data in our hands or in other people's hands has been consistent, consistent about the effect in terms of reduction in hospital stays, consistent around the ability to use it earlier in hospital stays and get, you know, even bigger impacts. And I think that will continue regardless of vaccination. And our hope obviously is, like you have with the normal influenza, that with an effective vaccine appropriately administered to as many patients as will take a vaccine around the globe, that you can reduce the number of patients that ever have to enter the hospital. But, you know, as we know, vaccines are never 100 percent effective. They're never 100 percent utilized. So there will always be patients that need therapeutics. And what we're excited about in terms of the potency of Remdesivir is the ability to use it earlier on patients to get them out of the hospital faster and also to make sure that the types of work we're doing now that using remdesivir outside the hospital could prevent patients from ever having to go in. Of course, that's all to be determined. So I think it'll be hand in glove with vaccines. And obviously, we're looking forward also to the work that's going on in terms of looking at antiviral, a potent antiviral that's been proven like remdesivir in patients to be used perhaps in combination with other therapeutics to get an even stronger treatment effect. But That continues to be, I think, our view, and we're hoping and really proud to be working in this industry at this stage because my colleagues around the industry I know are doing everything possible, including the collaboration that they have with us in Remdesivir, to bring new therapeutics and vaccines to patients, and so we're excited about that. So thank you very much for the question. What do you think?

Our next question comes from Corey Kasimov with JP Morgan. Your line is now open.

Hey, guys. Thanks for taking my question. This is Matthew for Corey. So just to go back to Vic Tarvey, are you able to quantify how much of the 2Q weakness was due to inventory pull-through versus other factors that you mentioned? And should we expect these other factors, such as a shift in pair mix and slowdown in patient switches, to persist for the remainder of 2020?

Thanks. Over to you, Joanna. Thanks, Matthew.

Thanks, Matthew, for the question. So if I understood it, sorry, you broke up a little bit. But if I understood it correctly, it was specific to Biktarvy and the shift and what's driving it. And it's really the inventory fluctuations. That's what's driving the shift from Q1 to Q2. And you can appreciate Q4 always a little bit higher. It plays out in Q1. It bleeds out in Q1. But then we saw the uptake because of COVID-19 in late March. And we saw that bleed out in Q2. So it's really what's driving the Biktarvy piece. We have seen a payer mix shift in the last two quarters where due to unemployment, we're seeing a shift from commercial payers to government channels, specifically PHS and Medicaid. But at this point in time, that's really not impacting or modestly impacting our business overall. So it's really inventory driven.

Great. Thank you.

Hopefully I answered your question.

Yep.

Our next question comes from Jeff Meacham with Bank of America. Your line is now open.

Hey, guys. Thanks for the question. I had a strategic one for Dan or even Andy. Dan, when you took over, the narrative for Gilead was a return to growth as Hep C was stabilizing. And, of course, I get the headwinds from COVID, but, you know, sustainable growth has still been a basis. So the question is, do you invest here as the product that anchors your long-term growth or do you feel like you need other assets? Obviously, I recognize that PhilGo and Kite are also in growth mode, but do you need other assets to help drive sustainable, more long-term growth? Thank you very much.

You're on mute.

Oh, sorry about that, Jeff. I was chatting away there. Let me say it's certainly the latter to your question, Jeff, and that is that as happy as we are that we can have an impact on patients in the COVID crisis with remdesivir, we completely understand that hopefully, by the way, for the world, that we'll get to a stage where the pandemic is much more predictable and remdesivir is playing a role in but not what we're relying upon for our mid- to long-term growth in the company. So we believe that rather the continued emphasis on our core business to make sure that we not only continue to lead with HIV today, but also tomorrow with the next generation of medicines, combined with what we have in our internal pipeline, and then growing our overall immuno-oncology business, both kite and outside of kite. And I think that's what you see as we think about now outside of virology, moving into inflammation, moving more deeply into oncology, particularly outside of kite. You're going to continue to see, I think, more of what you've seen in the first half of this year, which is an ability to both optimize our current portfolio in-house and continue to do smart, targeted deals that allow us to bring transformational medicine innovation into our house at different stages of development. And obviously, that goes along with different risk profiles, right? And that's, I think, where the BD team under Andy's leadership has done a really good job of making sure we're doing fit-for-purpose transactions where we're when we're going after first or best in class and there's risk associated with it, we're trying to be prudent about how much capital we deploy up front, particularly in the earlier stage assets, and kind of pay for success over that period of time. And there are others where we've seen the late-stage data, like 47, where we feel quite confident and bullish about bringing that in, and using the breadth and depth of Gilead to look at expansive lifecycle management on a medicine like Megrolimab that has a leading position in a competitive environment to allow us to think about multiple different indications in hematologic malignancies and possibly also looking at solid tumors. So that type of a strategy is absolutely fundamental to grounding us and continuing to build on our mid- to long-term growth story. Andy, anything that you'd like to add from your side? No, I think you said it well. That captures it. Thanks. Thanks, Dan. Thanks, Jeff.

Our next question comes from Evan Segruman with Credit Suisse. Your line is now open.

Thank you so much for taking the question. I actually have one for Christy. I know you haven't spoken much on the call. Congrats on your very recent approval of Tecardis. Can you help us better understand kind of how you view the commercial potential for this asset? And have you seen any reversal in trends around CAR T use this month versus, say, June or May? And how should we think about the trajectory over the course of the year?

Thanks for the question, making sure I'm wide awake and listening. So we're so pleased about being the first company to be able to deliver for mantle cell lymphoma patients this Picardis that has a curative intent. And so although it's not a huge opportunity relative to DLBCL or some of our other studies that will be coming up like Second Line, it really is a differentiator for us in the marketplace to continue to demonstrate our leadership Just like with Yaskarta, our manufacturing footprint, we're gearing up. We have a ready-to-go in seven days. Authorized sites will all be authorized for the new product within 30 days. So we're very hopeful that all of these patients that have nothing else to keep them alive actually have something that can help them with such great efficacy. When we look at what happened in Q2, I'd say we were – maybe pleasantly surprised that more patients were treated than we thought would be based on COVID. I will say that with what's happening now with the states in the U.S., we continue to see, you know, slowdown versus what we saw in the Q1 in terms of registrations. So I do think we're not going to see huge uplift in Q3, and we could be flat, and I don't know if we'll maybe lose some growth. But right now it's too early to tell, but not as optimistic about Q3, and hopefully when we come out of this situation it will get better. And I'm really proud of the KITE team because, as you can imagine, with all of the flights being canceled early on and with having to figure out which ATCs to bring T cells back to where you didn't originate, being able to hold T cells where we haven't before, the team hasn't missed a beat and hasn't missed a delivery. So as I look at the whole of KITE and we look at the whole of the opportunity, it's really multiple indications in a very short period of time with mantle cell lymphoma, non-Hodgkin's indolent non-Hodgkin's lymphoma by the end of this year being submitted. We have ALL being submitted and with priority review next year being approved. And we also have the big indication of second-line DLBCL to be submitted next year. So as you look at that combination, I do think it gives us the best opportunity for growth and to potentially cure more patients of their cancer.

Thank you so much.

Thanks, Evan, and we're looking forward to hearing more from Christy as that kite business develops. We have more air time here. Thanks, Evan.

Our next question comes from Matthew Harrison with Morgan Stanley. Your line is now open.

Great. Good evening. Thanks for taking my question. I just want to ask a little bit more about Silgotinib and Manta. So it sounds like you've finished enrollment, and I think it's either about three months when you take the primary endpoint there. So I'm just wondering – how the timing of getting the data from Manta, which it sounds like could come towards the end of this year, versus the approval timeline for Filgotinib, how those two work and your ability to get that data to the FDA or how that influences the application. Thanks. Hey, thanks, Matthew.

We'll turn it right over to Murdad.

Hi, Matthew. It's Murdad. I hope everybody can hear me. Sorry, I got disconnected earlier. So you're right in some regards, Matthew, that the patients are all enrolled. You know, I don't, we don't anticipate that the three months is going to be the duration necessarily that will be sufficient for the regulators in terms of looking at both onset and recovery. So while that first three months is a critical period, we think that that's the blinded period. There's probably longer to be that's necessary. So we're looking at probably late in this year, early next year for us to have the data and then for us to submit it to the agency in the first half of next year. Those are the kind of timelines we're looking at.

Okay, thanks very much. Is that your question? Thanks, Matthew. Yeah, no, that's it. Thanks, Dan. Thanks. Next, please.

Our next question comes from Robin Karnaskis with SunTrust. Your line is now open. Hi, guys.

Thank you for taking my question. First one, Dan, any thoughts on what you think about the executive orders being implemented and how you might run the business if they were to do so going forward, especially on business development? And for Christy, what would you like to augment Your CAR-T portfolio has done a lot of deals in I.O. What else do you think you might need to be competitive in the space with the bispecifics and other things moving forward? Thank you.

Yeah, thanks, Robin. I mean, first of all, let me just take a big step back from the executive orders. I mean, I know that we all agree, you know, at Gilead, that the current system in the U.S. needs to change. And we're leaning into that in a variety of different fronts, have been now for a couple of years. What's really important is that when we look at changes in the U.S. system, that it's done in a way that ensures that patients are the ones to benefit, and at the same time that we maintain the U.S. innovation model. So, you know, the types of things that we've been working with, you know, the different packages within the Congress and the Senate have all reflected that. And now as we look at these executive orders, we'll be looking forward to engaging with the White House and with others to have the very principles that I just mentioned, you know, articulated. And, you know, that's where we'll go. In terms of how that impacts how we think about the future business, I would say that, you know, we have so many healthcare systems around the world, right, that we're working with. Of course, the U.S. is disproportionately important to us. But our belief firmly is that if you hold the bar high enough on transformational medicine, in other words, if you really think hard about first-in-class, best-in-class, and keep the bar high, because remember, our cycle time is so long, our capital investment is a decade, that we can't be pivoting to one or the other particular governmental action. The bottom line is we keep that bar high enough under any system, under any scenario, I think we'll do, first of all, well for patients, and we'll do well for shareholders as a result of that. So that's my firm belief. Christy, over to you on Robin's question, please.

Thanks, Robin. So I'd say in the short term, we're looking at how do we cure those patients that aren't getting the effects of CAR-T cell that we'd like. You know, Yescard is the only CAR-T that's been able to show the longest duration of over three years with almost 50% of patients. being alive and how do we help the other 50% of the patients? So as you look at some of the portfolio that Gilead's building and being able to actually combine in the future other therapies, non-cell therapies with cell therapies would be one of our strategies to build on the strengths of both of the companies together. And then as we look at the mid to longer term, we've got three studies that are in solid tumor that have INDs, phase one, And that would be our biggest long-term bets in terms of being able to really penetrate the solid tumor area. And there's specific areas that are kind of the low-hanging fruit where the science is a little bit easier and others where it's very complex and the bar is just too high compared to standard of care. So those two areas in terms of launching success today, being able to get more efficacy and lead in hematological malignancies, and then moving to solid tumor areas. I will tell you in addition, though, that we're not keeping our eyes closed or our head in the sand as we look at possible disruptors with allogeneic iPSC technology, NK cells, and that's what you see a lot of the business development deals that we did, some of them Kite Alone with cell therapy and some of them with Gilead where we can both partake in the potential positive outcomes that could come from that. So as we look at different ways off the shelf that we're the first movers in that arena both internally and as we look at some of our partners externally. Thank you. Sure.

Thank you, Robin. So I know that we're kind of at time. If there is one more question, we could take that out of respect for everybody's time. Liz?

Our last question comes from Uma Rafat with Evercore ISI. Your line is now open.

Hi, guys. Thanks for squeezing me in. I have two, if I may. First, Mirdad, curious what the feedback is from your team on the lung exposure of remdesivir with the IV form, and how many fold higher can you get with the inhaled form at the highest dose? I'd be very curious. And secondly, I know there's this Phase II trial coming up in the multidrug-resistant patients in HIV for your capsid inhibitor. My question is, if that hits, why shouldn't it form the basis for an accelerated filing, given the unmet need in multidrug-resistant patients? Thank you very much.

Terrific. Murdad, I'll decide if, you know, you decide if you or Diana want to feed on this. That's great. Thanks.

Sure. Well, I'll do the lung exposure. Diana, you can talk about capsid. So we are targeting to get, with the inhaled version, as good as it, and hopefully the greater exposure in the lung than we'd get with the IV. We think we get, obviously, great exposure with the IV version, and we think we can do at least that good, if not better, depending on how high you can go and what the lung deposition is. That's a very empiric thing. We need to see how the trials go, but that's our goal. Diana, you want to talk about the CAPSID?

Yeah, that would be great. So, Omar, in terms of that study in highly treatment-experienced patients, It's actually a phase two slash three. Because of the urgent unmet need in that patient population, the agency granted us breakthrough designation, and they agreed that we could move directly from phase 1B to a registrational trial in that population. And so the study that's ongoing right now, should the results pan out, will form the basis for an application for approval in the highly treatment-experienced patients with linacapavir dosed every six months.

Thank you so much.

That concludes today's question and answer session. I'd like to turn the call back to Douglas Maffei for closing remarks.

Thank you, Liz, and thank you all for joining us today. We appreciate your continued interest in Gilead, and the team here looks forward to providing you with updates on our future progress.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.