Gilead Sciences, Inc.

Good day, and thank you for standing by. Welcome to the Gilead fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jackie Roth, VP of Investor Relations. Please go ahead.

Thank you, Gigi, and good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for the fourth quarter and full year 2021. 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, Joanna Mercier, our Chief Medical Officer, Murdad Parsi, and our Chief Financial Officer, Andrew Dickinson. After that, we'll open up the call to Q&A, where the team will be joined by Christy Shaw, the Chief Executive Officer of TITE. Before we get started, let me remind you that we will be making forward-looking statements, including those related to the impact of the COVID-19 pandemic on Gilead's business, financial condition, and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections, and the use of capital, and 2022 financial guidance. All of these involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand the company's underlying business performance. The GAAP to non-GAAP reconciliations are provided in the earnings press release available on the Gilead website. With that, I'll turn the call over to Dan.

Thank you, Jackie, and good afternoon, everybody. As we head into 2022, Gilead's coming off a year of positive clinical momentum and strong financial performance, mitigating the impact of the pandemic on some parts of our business. Higher sales of VicGlory more than offset the impact of COVID-19 on HIV and HCV. VicGlory continues to play a critical role in helping to treat people with COVID-19 with continued activity against the Omicron variant. The FDA recently expanded its use beyond the hospital for patients at high risk of disease progression. In addition, we just initiated a phase one trial of GS5245, a novel oral COVID-19 nucleoside that once metabolized works in the same way as remdesivir. Our full year revenue for 2021 was 11% higher than the midpoint of our initial guidance in February of 2021. It was also an important year for our transformation to becoming a business that is based on diverse, sustainable growth. In 2021, we received seven approvals, or accelerated approvals, in the U.S. and Europe, and submitted an additional six filings. Our approvals included three for Tredelvi, with the FDA and MA approval in second-line triple negative breast cancer, as well as an accelerated approval from FDA for metastatic bladder cancer, two for self-therapy, with Yaskarta receiving accelerated approval in relapsed or refractory follicular lymphoma and Ticardis receiving full approval in adult acute lymphoblastic leukemia, and two expanded labels in virology, one for a pediatric label for Bictarvia in the U.S., and an expanded label for Bicluria in the EU for adults not requiring supplemental oxygen. Our 2022 plans include a significant increase in clinical development studies across our novel oncology portfolios. We are planning at least 20 additional trials, including seven phase three trials for Tredelvi. And these include the ASCENT-3 trial, which is evaluating Tredelvi in the frontline AAA breast cancer in the PD-L1 negative population. The ASCENT-4 trial, in collaboration with Merck, to evaluate Tredelvi and Keytruda in the frontline AAA breast cancer population in the PD-L1 positive population. and the EVOKE-3 trial, which will be led by Merck to evaluate Trodelvian, Contruda, and non-small-cell lung cancer. You will also see ongoing momentum in our virology portfolio as we continue to expand our leadership in antiviral therapies. We are advancing our longer-acting HIV options with lanacapavir as the foundation and look forward to potential regulatory decisions in 2022. If approved, Lenacapivir would be the only HIV treatment option administered twice yearly. In addition, we'll continue to drive progress across our broader virology portfolio, including hepatitis, COVID-19, and other emerging viruses. This is a really important time in Gilead's transformation journey. After the consistent work to execute on our strategy and expand our portfolio over the last two years, you will increasingly start to see this play out in tangible results. We're confident that Gilead has all the elements in place for a strong year and a strong decade. Joanna, Murdad, and Andy will now take you through the details of our progress and our plans. And let me hand first over to Joanna to talk about our commercial performance in the fourth quarter and the full year, and I'll be back to you in the Q&A. Joanna?

Thanks, Dan. Good afternoon, everyone. As you can see on slide seven, we had a strong end to the year with Q4 total product sales, excluding Vicklery, of 5.8 billion, up 7% quarter over quarter, driven by favorable pricing and inventory dynamics. This also represented 8% growth year over year, driven by continued recovery in the HIV treatment market and favorable pricing dynamics. Vicklery sales were higher than expected in Q4, reflecting the start of the Omicron surge, but lower than both the prior quarter and prior year, and contributing to total product sales of $7.2 billion for the quarter. Moving to slide eight, total fourth quarter VicLurie sales were $1.4 billion, bringing total sales for 2021 to $5.6 billion. Gilead is proud of the role that VicLurie continues to play in this pandemic. VicLurie has demonstrated activity against the Omicron variant and has helped many patients with COVID-19 in the most recent surge. Although symptoms have generally been less severe, the volume of overall cases has meaningfully increased since the emergence of Omicron, and we have seen the total number of hospitalizations increase as well. While we would all prefer to put this pandemic behind us, we expect Vecluri to continue to play a critical role in 2022 and beyond. As you'd expect, hospitalizations remain a key indicator for inpatient Vecluri sales, and we're seeing higher hospitalizations in geographies with lower vaccination adoption, including certain parts of the US as well as Eastern Europe. Additionally, I'm very pleased to highlight that the FDA recently approved the SMDA filing for the use of Viclory in the outpatient setting for patients at high risk of disease progression. This approval was based on data generated in the phase three pine tree study, further solidifying the credibility, importance, and role of Viclory. Now, Viclory will be able to help even more patients earlier and reduce risk of hospitalization for COVID-19. Next, as shown on slide nine, total HIV sales were 4.5 billion in the corner, up 8% sequentially driven by favorable inventory and pricing dynamics, as well as changes to our gross-to-net estimates in Q4 2021. For the full year, total HIV sales were $16.3 billion, down 4% year-over-year, primarily due to the Truvada and Atripla LOE, in addition to pandemic-related impacts and pricing dynamics. The expected impact from the LOEs, which amounted to $1.3 billion, was offset by continued Victarvy growth. Excluding the sizable impact LOE impact, HIV total product sales for the full year grew 4% compared to 2020, despite the ongoing pandemic headwinds. We now expect the Trivada and Tripla loss of exclusivity impact to be minimal going forward as the headwind dissipates starting in Q2 of this year. In HIV treatment, we continue to see signs of market recovery, although the U.S. market declined 1% sequentially in Q4, following two quarters of sequential growth. On a year-over-year basis, the overall market in Q4 was up 1.5% in both the US as well as EU5, despite screening and diagnosis rates still below pre-pandemic levels. As you know, favorable dynamics play out in the fourth quarter of every year in HIV, and 2021 was no different, with some year-end inventory stocking and favorable seasonal pricing, as well as changes in our gross-to-net estimates in Q4 2021. As you think about 2022, I'll remind you of the normal HIV inventory buildup in Q4 and the new year reset for patient copays and donut hole payments. Given these factors, along with the favorable pricing dynamics I just mentioned, we expect the sequential decline in Q122 to be greater than Q121. Nonetheless, we expect a strong year overall in HIV and expect continued growth in subsequent quarters. Back to Q4, Bictarvy had another record quarter with sales of $2.5 billion, up 11% sequentially and 22% year-over-year. On slide 10, you can see that Bictarvy U.S. treatment market share has increased over five share points in 2021, reaching 42%, which is the highest share that any complete regimen has ever achieved in this market. For the full year, Bictarvy's sales were $8.6 billion, growing 19% from 2020, and Bactari remains the leading prescribed treatment for naive and switch patients in the U.S., as well as number one in naive in the EU5. Discovery revenue for the fourth quarter was $473 million, up 9% quarter over quarter, primarily as a result of favorable seasonal pricing and inventory dynamics, as well as continued demand. We expect Discovery revenue to continue to be driven by PrEP, as Discovery has maintained about 45% of overall PrEP market prescriptions in the U.S. We'll continue to ensure access to support physician choice, and expect growing demand and market expansion to offset the impact of increased commercial contracting. Overall, while near-term growth continues to be impacted by local pandemic-related social restrictions, we're encouraged by the growing prep market. In Q4, the overall prep market grew 4% quarter-over-quarter and 31% year-over-year. Looking forward, we believe Elena Capovir, our investigational longer-acting prep offering, could potentially catalyze this market well beyond the 25% penetration rate in prep that we see today. Moving to slide 11, it's clear that HCV continues to be part of our portfolio most impacted by the pandemic. Although there was some slight quarter-over-quarter recovery in market starts in the EU5, US market starts declined, resulting in flat total starts overall. While Gilead market share increased modestly on a sequential basis in both the US and the EU, this was more than offset by unfavorable pricing dynamics, resulting in Q4 total sales of 393 million down 8% sequentially, and 7% year-over-year. As you can see on slide 12, our HPV and HDV franchise reported record quarterly revenues of $265 million, up 7% sequentially due to seasonal inventory and favorable pricing. The 9% year-over-year growth was primarily driven by VAMLIDI demand. Total fiscal year sales for this franchise were $969 million, up 13% year-over-year. HEPCLUDEX reported 12 million of sales in Q4 in Europe, with 37 million and 21 sales since our acquisition in late first quarter. Hepcludex is currently available in Germany and France, in addition to a number of early access program in countries such as Austria, Italy, and Greece. In 2022, and as part of our comprehensive commercialization plan, we expect to finalize reimbursement for launch in a number of major European markets. In the U.S., we filed a BLA in November and FDA-granted priority review for accelerated approval with a PDUFA date set for the third quarter. as well as an advisory committee meeting that will be scheduled in the coming months. Moving to oncology, first with Tredelvi on slide 13, global sales were $118 million in the fourth quarter, up 17% sequentially, and up 84% year-over-year compared to full Q4 2020 sales. This reflects growing adoption of the second-line metastatic TNBC indication, which was noted as a preferred regimen in the NCCN breast guidelines updated in September. We're also starting to see stronger unaided brand awareness, which is resulting in continued market share growth. In second-line TNBC, Tridelvi now captures approximately one in four new starts in the U.S. We've expanded our oncology footprint globally, including tripling our U.S. headcount to further accelerate penetration of Tridelvi and prepare for our potential HR-positive and HER2-negative launches. Additionally, EU approval for Tridelvi was granted in late November 2021, and we've already seen strong momentum in France and Germany since their launch. We plan to launch a number of new countries following key reimbursement decisions this year. Now, on slide 14, on behalf of Christy and the KITE team, cell therapy Q4 sales of $239 million reflected 47% year-over-year growth and 8% increase sequentially. For the quarter, Yescardia sales of $182 million were up 41% year-over-year, driven by continued demand in relapse or refractory large B-cell lymphoma, and follicular lymphoma. Ticardis sales of $57 million in the quarter reflected 68% year-over-year growth based on growing global demand for relapse or refractory mantle cell lymphoma and early contribution for adult acute lymphoblastic leukemia in the U.S. As a reminder, FDA granted Ticardis approval in adult ALL in October. In just the first few months of launch, there has already been strong demand that we expect to continue in the coming quarters given the high unmet need. Full-year cell therapy sales of 871 million reflected 43% year-over-year growth driven by continued LBCL and MCL demand globally as well as the new launches. The strong growth we've seen with these recent launches reinforces our belief that cell therapy adoption will continue its positive momentum as more physicians understand the benefits for appropriate patients and therefore increase referral rates to treatment centers. Murdad will elaborate later, so I'll just quickly mention the impressive data Kite presented at ASH in December. 43% overall survival rate after five years in third-line LBCL patients. The Yaskarta data at ASH not only highlighted the long-term real-world safety and efficacy profile in third-line LBCL, but also in earlier lines of therapy. For Zuma 7 data in second-line LBCL, FDA has set a producer date of April 1st, when we hope Yaskarta will be granted approval. In the meantime, the Kite team is ramping up manufacturing capacity to meet the anticipated demand. Kite expects the new Maryland facility to begin commercial operations by Q2. Combined with the Amsterdam and El Secundo facilities, we expect increased operational capacity by up to 50% by the end of this year. Christy is here with the team and available to take questions on cell therapy during our Q&A. In closing, our oncology sales were $1.25 billion in 2021, and we expect robust growth in the coming years. And so with that, I'll hand it over to Murdad for pipeline updates.

Thanks, Joanna, and good afternoon, everyone. Building on what both Johanna and Dan have said, the Gilead team rounded out a very strong 2021 with further progress across our portfolio. In 2021 alone, we began enrolling patients in 13 oncology, 13 virology, and four inflammation trials. And we have recently shared the initial details of the ambitious development programs we're targeting for 2022. As we look forward, we're confident that we have the foundation to continue to build a robust, diverse portfolio across our three focused therapeutic areas. First, on slide 16, Vicluri continues to play a vital role in the fight against COVID-19. Vicluri was the first approved treatment for patients hospitalized with COVID-19, and we recently expanded indication labels in the U.S. and EU. In December, the European Commission approved a variation to the Conditional Marketing Authorization for Vicluri for the treatment of COVID-19 in adults not on supplemental oxygen. And last month, based on the data from the Phase III Pine Tree Study, the FDA expanded the approval of VicLurie to include non-hospitalized patients at high risk for COVID-19 disease progression. These expanded indications speak to the activity of VicLurie against the coronavirus variants we've seen so far, including Omicron. We believe there will continue to be a need for VicLurie delivered intravenously, especially for higher-risk patients. The potential for continued COVID-19 variants and infections highlight the need for more convenient oral formulations to expand the options for outpatients. As such, we've just initiated a phase one trial of GS5245, a novel oral COVID-19 nucleoside that, once metabolized, works in the same way as remdesivir. Pending data, the evolving pandemic landscape, and discussions with regulatory agencies, we're hoping to initiate a registrational trial before the end of the year. Moving to HIV on slide 17, we shared an overview of some of our long-acting development activities a few weeks ago. to highlight the diversity of our portfolio and how it targets the entire HIV life cycle. We continue to believe that our investigational agent, Lenacavivir, is a unique and foundational asset, given its potential for extended dosing in addition to the compelling efficacy and safety profile highlighted in the Capella and Calibrate studies. Next, on slide 18, you can see our current clinical efforts with long-acting HIV therapeutics. As previously announced, The Phase II study evaluating the oral combination of lenacapivir with Merck's islatravir is on partial clinical hold, and Merck remains in discussions with the FDA on next steps for islatravir. In the meantime, we at Gilead continue to develop a number of other potential partner agents for lenacapivir in HIV treatment and look forward to sharing some more detail on these programs at our virology deep dive later this month. remain confident and excited about lenacapivir's future potential to deliver options for people living with HIV or those who could benefit from PrEP. I want to be very clear that the recent clinical hold for the lenacapivir trials, which the FDA initiated in December, is not associated with the lenacapivir molecule itself. Rather, the hold reflects concern about the compatibility of certain vials with the lenacapivir solution. We continue to work with the FDA to remediate the concern and to agree on a path to resume these trials. We're hopeful this can be achieved quickly. As such, we continue to expect an FDA decision for lenacapivir in heavily treatment-experienced individuals in the first half of 2022. If successful, lenacapivir will become the first available six-month long-acting subcutaneous injection for the treatment of HIV. Next, moving to Tredelvi on slide 18, I'm pleased to confirm that we now expect to share both top-line progression-free survival data as well as the first planned interim analysis of our overall survival from Tropics 02 in March. There's been a convergence of events for PFS and OS, such that we'll be able to conduct and report a single analysis of these outcomes rather than have two analyses separated by a short interval. Gilead remains blinded to the data, and we're excited to be able to share this more complete view later this quarter. We are targeting an SBLA filing in the second half of 2022, depending, of course, on the readout. If the data are positive, we believe that Trodelvi could represent a very important treatment option for HR-positive HER2-negative patients who are hormone refractory and have very limited options. Reflecting our confidence in Trodelvi overall, we're expanding the number of clinical programs in 2022 to evaluate effectiveness in breast, lung, and bladder cancers, with plans to initiate study startup activities for at least seven phase three trials. Three of these are expected to enroll their first patients in 2022, including two in frontline metastatic TMBC and another in frontline non-small cell lung cancer study that will be led by Merck. Going forward, we will separately disclose trial startup activities versus FPI milestones. Additionally, in the first half of this year, we plan to add a combination of Tredelvi with other Gilead portfolio assets as a study or an additional cohort in an existing study. We look forward to sharing more details at our upcoming oncology deep dive in April. This is another example of the versatility and tremendous potential that Tredelvi, along with the growing oncology portfolio, can generate. Next slide, on to Megrolamab. Early last week, the FDA placed a partial clinical hold, pausing enrollment and screening in trials and cohorts in the U.S. evaluating migrolimab in combination with azacitidine following a review of a preliminary data set suggesting an apparent imbalance in investigator-reported SUSARs or suspected unexpected serious adverse reactions between treatment groups in our ongoing Phase III trial in high-risk MDS. A subsequent partial clinical hold has been placed on the Phase II multiple myeloma study and the fully enrolled Phase II DLV-CL study. Importantly, patients currently enrolled in our Megrolimab studies can continue treatment, and our compassionate use programs remain open. We're working with the FDA to take a comprehensive look at the safety data, and we'll share the outcome as quickly as we can. In the meantime, we remain committed to the Megrolimab development program and believe that it has the potential to address an important unmet medical need in these seriously ill patients. As you know, the patients in our enhanced Phase III trial have a very high unmet need, with a median overall survival of only one to three years on the current standard of care. Separate from and prior to the partial clinical hold, our Phase 1b single-arm study in high-risk MDS no longer has a viable path to submission based on regulatory feedback. As such, we'll remain focused on our Phase 3 enhanced study and look forward to sharing the 1b data at an upcoming scientific meeting. Next, moving to cell therapy on slide 21, On behalf of Christy and the KITE team, I'll share a brief update on the impressive data KITE presented at ASH last December. First, as you may recall, in 2020, we shared that Yescarta had a four-year overall survival rate of 44% in third-line LBCL patients. At ASH in December, we presented five-year data from Zuma 1 in third-line LBCL patients, showing Yescarta demonstrated a remarkable and durable 43% overall survival rate, stable since our four-year update. Additionally, 92% of the patients who remained alive at five years have not needed any additional cancer treatment since their one-time infusion of Yescarta. It's truly inspiring to see this type of durability for CAR T-cell therapies. As announced yesterday, the FDA approved a label update for Yescarta to include use of prophylactic corticosteroids across all approved indications. Adding prophylactic steroid use can improve the management of certain side effects without compromising the activity of Yescarta. For example, the FDA label now shows no grade 3 or greater cytokine release syndrome events occurred using the cohort 6 protocol as compared to 13% in the original label. This label update complements data published in 2021 showing 68% of patients had no CRS or neurological events within 72 hours of the Ascarta infusion. As we look to earlier lines of treatment, The landmark ZUMA-7 trial evaluating Yaskarta in second-line relapsed refractory LBCL demonstrated a greater than four-fold increase in median event-free survival, or EFS, compared to standard of care through two years of follow-up. As you can see on the slide, the EFS curve for Yaskarta is compelling. The SBLA was filed last quarter, and we expect an FDA decision by April of this year. In terms of the first-line LBCL data, Yescarta demonstrated 89% overall response rate in high-risk patients and 78% complete response with a medium follow-up of 15.9 months. Given these encouraging data, the KITE team is in discussions with regulatory authorities on a potential path forward in frontline LBCL. And finally, on slide 22, we highlight the key 2022 catalysts across the portfolio, many of which I've just mentioned. I'd also like to take a moment to highlight the three ARCIS milestones in the second half of this year. Last quarter, Gilead opted into the three ARCIS programs, which added four assets to our portfolio. Donvanilamab, an FC-silent anti-tigit antibody, AB308, an FC-active anti-tigit antibody, Atrumadenant, an adenosine receptor antagonist, and Quimliclisat, a small molecule CD73 inhibitor. Together with ARCIS, we expect to share ARC7 Phase II PFS data in the second half of 2022, which will include data for the Zimbirellumab monotherapy, Zim and Dom doublet, as well as the Zim, Dom, and Atreuma triplet arm. We look forward to sharing data when available and are very excited to collaborate more closely with ARCIS to accelerate future development plans. On slide 23, you can see that Gilead's portfolio now encompasses 55 clinical stage programs, nearly doubling since 2019. Given the exciting potential of our portfolio across virology, oncology, and early-stage inflammation assets, this is just the beginning. Our teams are committed to advancing the most promising programs that will help transform patient outcomes, and we look forward to sharing our progress with you over the coming quarters and years. With that, I'll hand it over to Andy.

Thank you, Murdad, and good afternoon, everyone. It was a strong close to 2021, driven primarily by strong HIV and Vecluri revenue in the fourth quarter. For the full year, and excluding the impact of the LOEs, HIV grew 4% year-over-year, driven by the continued outperformance of Biktarvy, which achieved record U.S. market share of 42%, and sales of $8.6 billion, up 19% from 2020. Oncology was another highlight from both a pipeline and a revenue perspective, with full-year cell therapy sales of $871 million, growing 43% from 2020, and Tredelvi sales of $380 million in its first full year. By 2030, we anticipate our oncology franchise will represent at least a third of our total revenue. Before I get into the normal P&L review and 2022 guidance, I want to address the EPS results for this quarter up front. Slide 25 highlights two sizable expenses that occurred after we gave our last guidance update in October. First, and subsequent to the exercise of Gilead's opt-in to four ARCIS assets in December, our fourth quarter results reflect a net charge of $625 million recorded in R&D. This charge reflects our $725 million option payment recognized in Q4, less $100 million that was previously accrued. This impacted our EPS by about $0.38 in Q4 and for the full year. Second, and as part of a legal settlement with Veve and related parties, we have agreed to make a one-time $1.25 billion payment in addition to an ongoing 3% royalty for future sales of Big Harvey and the Bictegravir component of any Bictegravir-containing products in the United States. This royalty extends until October 5 of 2027. The $1.25 billion payment is recorded in our fourth quarter results and reflected in our cost of goods sold. This charge constituted an approximately 17 percent impact gross margin in the fourth quarter, and it impacted our EPS by 80 cents for Q4 2021 and the full year. Going forward, we expect the impact of this new royalty to be approximately 1% on our gross margin starting in the first quarter of 2022. Excluding these items and their combined $1.18 impact, our full-year non-GAAP EPS would have exceeded the guidance range that we set back in October, helped by stronger-than-expected Vicklery sales. Moving back to our quarterly review on slide 26, Fourth quarter revenue in our base business included HIV product sales growth of 7% year-over-year and 8% sequentially. But glory sales were higher than expected due to the start of the Omicron surge. Non-GAAP product gross margin was 70.5%, impacted by the legal settlement that I referenced earlier. And non-GAAP R&D was impacted by the ARCUS opt-in, resulting in non-GAAP EPS of 69 cents per share. Our non-GAAP effective tax rate for the fourth quarter was 32.2%, reflecting tax expense related to uncertain tax positions and an increase in valuation allowance, as well as the impact of discrete tax benefits related to legal settlements with tax authorities in 2020 that did not recur this year. For the full year on slide 27, total product sales of $27 billion grew 11% driven by Vic Lurie. Excluding Vic Lurie, total product sales were roughly flat at $21.4 billion as growth in Vic Parvey and oncology increased offset the $1.3 billion impact of the Truvada and A-triple LOEs in the United States. I touched on the main P&L impacts in the fourth quarter discussion, but I'll highlight that our non-GAAP effective tax rate for 2021 was 20.4%, despite the higher effective tax rate in the fourth quarter. Moving now to slide 28. Our 2022 guidance assumes that the recent Omicron surge represents the only major COVID-19 wave for 2022, and that our HIV business will continue to recover from the pandemic. With that in mind, we expect product sales in the range of $23.8 to $24.3 billion. Excluding Vecluri, we expect product sales in the range of $21.8 to $22.3 billion, representing growth of 2% to 4% for our base business year over year. Relative to Q1, I'll remind you to expect HIV revenue to decline sequentially This is a normal dynamic for HIV due to inventory and seasonal pricing impacts. And you'll recall that last year, HIV revenue declined 14% sequentially in Q1-21 from Q4 of 2020. For Q1-22, we expect a larger sequential decline given the favorable Q4-21 changes to gross to net estimates that Joanna mentioned earlier. Nonetheless, we expect a strong year overall for our HIV business and continued growth in the subsequent quarters. Looking beyond Q1, we expect the impact of the Truvada and Atripla LOEs will be largely behind us starting in Q2, and we look forward to accelerating growth in our HIV business during the remainder of the year. For the full year 2022, we expect Vecluri sales of approximately $2 billion. This assumes, as I previously indicated, that Omicron will represent the only major surge for the year, with Vecluri revenue heavily weighted in the first quarter. That said, the pandemic continues to be dynamic, and we will update you on our vectory expectations on a quarterly basis consistent with our recent practice. Moving to the rest of the P&L, we expect our non-GAAP product gross margin to be approximately 85% to 86%, consistent with our historic guidance and allowing for the 3% royalty associated with the legal settlement. For non-GAAP operating expenses, we expect R&D to decline or to decrease by a mid-single-digit percentage compared to 2021 levels. This decline is driven by the net $625 million charge related to the ARCIS opt-in in the fourth quarter of 2021. Excluding this, we expect full-year R&D expense to increase by mid- to high-single-digit percentage compared to 2021 levels. We expect SG&A expense to be approximately flat on a dollar basis compared to 2021. Our non-GAAP effective tax rate is expected to be approximately 20% this year. Finally, we expect our non-GAAP diluted EPS to be between $6.20 and $6.70 for the full year, and GAAP diluted EPS to be between $4.70 and $5.20. On capital allocation, our priorities have not changed. We continue to invest in our business, while at the same time, we returned over $4 billion in 2021 to our shareholders through dividends and share repurchases. In addition, we repaid $4.7 billion of debt in 2021. For 2022, we plan to repay $1.5 billion of debt, of which we repaid $500 million this morning. With that, I will invite the operator to begin the Q&A. Thank you.

As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the power key. We ask that you please limit yourself to one question, and if you have a follow-up, you may reenter the queue. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Meacham from Bank of America. Your line is now open.

Okay, great. Hey, guys, good afternoon. Thanks for the question. Dan or Andy, maybe a higher-level strategic question. I wanted to ask about your comment regarding long-term oncology sales. And the question is, are you comfortable with the aggregate assets in the portfolio? Do you think you'll need to be more aggressive on BD either to drive more near-term growth or looking longer-term to have higher-impact assets? Thank you very much.

Thanks, Jeff. Thanks for the question and teeing it up. I'll start and hand it over to Andy. So, yeah, I mean, the guide that we gave at J.P. Morgan was that we are confident in our ability to grow and to also have oncology by 2030 be at least a third of our overall revenue on top of a a solid HIV business and virology business overall. I think the answer to the question, Jeff, is we believe we have everything in-house to be able to fulfill on that commitment today. I mean, the number of options that we have with Tredelvi, with Megrolimab, with the Arcus assets, and with cell therapy from an oncology base provides tremendous opportunity for us to look alone and in combination in that portfolio to in the coming years. And that specifically leads to the more than 30 clinical trials we have ongoing right now in our oncology portfolio. And our guide that this year will start at least another 20 in the oncology space. So really, that's the armamentarium behind our commitment and our growth. Of course, we'll continue to be opportunistic around business development and look for supplemental options out there that can complement this portfolio as a course of normal business as any healthy company should. Having said that, we really do have enough in-house to be able to fulfill upon that commitment. So with that, Andy, I may have stolen all your thunder, but I'm sure you'll have some additional perspectives.

Jeff, thank you for the question. I think it's an important question, especially in the context of the maybe underpinning the question specifically. But the answer is relatively simple. We have a very strong set of assets already. The guidance that we provided at J.P. Morgan does not actually include all of the assets or all the indications for all the assets. So there's a lot of ways for us to get there. We have complete confidence in where we're going, and we don't expect to change our BD strategy as a result of any of the recent developments. We're actually really excited about where we are. And there's a lot of upside to that. If other assets, whether it's some of the earlier ARCIS assets or the Tizona or Pioneer assets as examples provide additional options for patients. So when you talk about high-impact assets, I would just summarize by saying we already think that we have a great portfolio of high-impact assets in oncology. We're incredibly pleased with what we've put together, and nothing that's happened recently has changed that in any way. So thanks for the question. Thanks.

Our next question comes from the line of Mohit Bonzal. from Wells Fargo. Your line is now open.

Great. Thanks for taking my question, and good afternoon. Maybe a question for Mardad. So in the light of new data that are emerging in HR quality in HER2-negative breast cancer, did you have any updated thoughts on how to think about overall survival in the treatment and control allowance for PROPXO2 vis-a-vis the expectation or the assumptions in clinical trials, which are, I think, if I'm not mistaken, 12 months for the control and 16 and a half months for the treatment. So how should we think about OS? Thank you. Thanks, Mohit.

Yeah, directly over to you, Murtaz.

Yeah, thanks, Mohit. It's a great question, and I think, as I mentioned in my call, I think we're excited that we're going to be able to share information the first interim analysis from the OS as well when we do the readout here for the PFS. So I do think we'll look at both at the same time. You're absolutely right that there are developments in the HR-positive space, but I continue to believe, and I think, you know, I think that the impact on both PFS, on PFS in particular here, but also OS, continues to be. I think if we see Something in the ballpark of what you just described, we're confident that that remains incredibly clinically relevant for people suffering with HR-positive HER2-negative. It is, as you state, an increasingly competitive area, but we do think that that remains a key milestone for patients if we can achieve that.

Thank you. Thank you. Our next question comes from the line of Corey Castembo from J.P. Morgan. Your line is now open.

Hey, good afternoon, guys. Thank you for taking my question. I wanted to follow up as well on the Tropics O2 study. And maybe, Murdad, can you talk about how you see the potential significance of this convergence of events that you alluded to when thinking about both progression-free survival and overall survival. Did you see any implications from this, or is this kind of moving along the lines as you would have expected it to? Thank you.

Yeah, great question, and thanks for asking it. I think I'm very reassured I would not read anything, you know, into this other than the fact that we've been, as you can imagine, keeping track of the PFS events and the OS events all along. And You know, we've now gotten to the point where those OS events have occurred in a timeframe that allows us to look at both of these events at the same time. I don't think it really says anything about – I think what you're getting at is does it have any implications for the underlying, you know, positive or negative or anything like that. And I really don't think there's any way to interpret that right now. It would be pure speculation to think that there's some – some underlying driver of bringing those endpoints together. And actually, it's not that unexpected. It's a little bit closer in than we thought it would be, but not by that much. So I wouldn't read too much into it. I'm just excited we'll be able to do it. It'll be a more robust look. And I think, as I've said before, we think the regulators are going to want to see those robust looks at the OS to help them with sort of, in a sense, supporting the PFS endpoints.

Thanks, Corey. Can we have the next question, please?

Our next question comes from the line of Brian Abrams from RBC Capital Markets. Your line is now open.

Hey, guys. Thanks so much for taking my question. I wanted to better understand the potential signals from Megrolimab. I think you guys have said that you haven't observed any clear AE trend. I'm curious, where's the disconnect versus what the FDA and investigator concerns are here? And maybe talk a little bit about the potential path to resolution, what additional safety data would be needed, and your level of confidence you will reach a resolution. Thanks.

That's great. Thanks, Brian. Thanks, Corey. Yeah, I think, so, look, I think the way to think about it is, you know, there have been a couple of events that, you know, the agency wants to make sure that they have a chance to look at the overall safety profile. I remain blinded to the safety data. So what is going on is we are gathering the safety data, and we're going to share it with the FDA and with the data monitoring committee. I can tell you that, you know, we feel that these are temporary challenges right now, and we're going to work through resolving it as quickly as possible. You know, I don't think these challenges really shake our confidence for the portfolio overall, and our overall strategy hasn't changed. we're really committed to the MAGRO development program, and we think that it really continues to have the potential to really address an important unmet medical need. The other thing I'd add is, remember, these are very generally pretty sick patients, and with that underlying illness, I think it's appropriate to be cautious and make sure that we're striking the right balance as we go forward. But we'll work through it by looking at the overall safety at the overall safety profile, Brian, and make sure that we are able to resolve those issues with the FDA.

And, Brian, we'll keep you informed as that evolves. We have, obviously, a lot of patients on Megrolamab that continue to be served by Megrolamab, so we have a sense of urgency in working with the agency around us. Thank you very much, Brian.

Can we have the next question, please?

Thank you. Our next question comes from the line of Salveen Richter from Goldman Sachs. Your line is now open.

Good afternoon. Thanks for taking my question. You referred to the ARCIS portfolio. Can you just comment on what you're most excited about outside of TIGID and when you might start the triplet study?

Sure. Murdad, why don't you start on that?

Sure. You know, I think in addition to the TIGIT asset, as you know, the adenosine portfolio, if you will, the two molecules, the two inhibitors of adenosine, both in terms of the synthesis inhibitor, CD73, as well as the receptor blocker, are really interesting to us. They're early programs, but we think that there's a real potential for those assets to provide significant upside to treatment, both in terms of where in lung cancer, where we think, you know, there's some trial that's ongoing that is looking at the addition of adenosine inhibition to TIGIT plus PD-1, as well as in some of the indications that ARCIS is evaluating with monotherapy, in particular pancreatic cancer. So I think for us, there are a number of opportunities there, and the broad potential of adenosine inhibitors to add on to immuno-oncology in general and TIGIC plus PD-1 in particular really strike us as a really great opportunity that hopefully, as the data mature, we'll be able to share more and really underpin the optimism we have around where those programs are headed.

Right, and I think there was a question around when to start.

Oh, and then the triplet study. Yeah, we haven't announced that yet. We need to work through some details. Thanks for reminding me, Dan. We're working through some approach. Really, the question here for us is how to go from the doublet, where we're really looking at a TIGID inhibitor being an unapproved agent, right, and then potentially bringing in a second unapproved agent. So we have to work through, in a sense, the regulatory complications of how we have to sequence and stage those studies to allow us to assess the contribution of components such that we can move forward aggressively. So we're working really closely with our adenosine colleagues, our ARCIS colleagues, and we'll work through the regulatory pathways to make sure that we can get to robust Phase III trials with those. So as we do so, we'll certainly share the timing and the pathway.

And, Selvine, the only thing I'd add on top of Merdan's very eloquent response is the potential to combine this attractive portfolio from Arcus with other medicines that we have within Gilead, including Tredelvi and possibly Megrolimab and others. So this combination of having access to a PD-1, two TIGIC compounds, two adenosines combined with Trodelvi provides a rich opportunity to look at rational based combinations. And we'll be getting more into that as we do a deeper dive in oncology as a starting point in April. And then obviously throughout the year, we'll continue to update you on that. And it's one of the major reasons why opting in early was important to us because we can work really fluidly now across a very rich portfolio and with the additional expertise and colleagues from ARCIS, it really expands all of our potential in clinical science and beyond. Thanks, Alvin, for the question. Can we have the next question, please?

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

Hey, thanks. Thanks for the question. Appreciate it. Maybe back to Murdad on Tredelvi, appreciating that. I know there's a lot of focus on this interim OS. I would love to give you the opportunity to perhaps frame expectations at an interim OS you know, interims have different connotations and there's different interims at different percent of events that have accrued. So could you just explain what percent of events this interim is based on? Do you actually expect to hit stat sig? Or do you just expect in a trend of a few months? Maybe just talk to that a bit because I think there's different implications of just an interim. Thank you.

Yeah. Thanks, Michael. And maybe just a suggestion as you answer Michael's specific question, it might be helpful for the whole audience to hear again kind of your overall view of, you know, potential success of this indication.

Michael, it's a great question, and I think thank you for asking it. So as a reminder, I think from a PFS standpoint, the primary endpoint of this study, we believe we're really well-powered to detect a difference there. And as I'll remind folks, we did redesign this study a year ago in order to power the study appropriately. adequately for OS as well. I think as excited as I am that we will be able to report out that first interim analysis. Michael, you're absolutely right on that. I would not expect statistical significance at this first interim because it is relatively early in the timeframe that we're seeing. So my expectation is that you know, again, pending a positive outcome, that we are well-powered to see a PFS improvement at a statistically significant level. And the OS will be supportive data at that point that will give us directionality as to where we're headed. And then, you know, hopefully subsequent to that as the events accrue, we'll see where we're headed with OS down the road. It's a great question. Thanks, Michael. Can we have the next question, please?

Our next question goes in the line of Ronnie Gow from Bernstein. Your line is now open.

Good afternoon, and thank you for taking my question. Switching over to talk a little bit about Yaskarta, can you tell us if there's already impact on the use of Yaskarta in second line, or is it still ahead of us? And you've mentioned you're increasing your capacity by 50%. Are you currently capacity constrained or demand constrained? Essentially, will all that demand be used if it comes online?

Yeah, thanks, Ronnie. And as I turn it over to Christy, let me just say how, you know, how – how many patients we've been able to impact with cell therapy in 2021, and that being just the beginning, I think, of our promise for the future. We certainly invested in the manufacturing capacity to anticipate demand and success in the second line, and Christy can go into the details with you. Christy, over to you.

Thanks, Dan. Thanks for the question. Yeah, we're very excited about not only the second line, which is most important to help the most patients, but the continued success of Third Line Plus with the five-year data that was presented at ASH, where year four you saw 43% of patients still alive, 44% of patients still alive at four years and 43% at five years, which I think you heard Murdad say. So based on those, as well as new indications coming out, we're really seeing an increase in demand. Our capacity, we're well-positioned. We have the El Segundo manufacturing site here in California. Amsterdam was approved during COVID and was up to its capacity by the end of last year. And now we have the Maryland site, which will be going online the first half of this year, where you'll see our automation as well. So not only increasing capacity, but also the ability to reduce costs. So things are coming along nicely in terms of our ability to deliver And, you know, we still have that reliability of 97% success when we give the cells back, which is so critically important to patients. So not a capacity issue. You know, we had a transparency, a couple of issues last year where we had a scheduling issue where physicians were asking for the exact same slot all at the same time, and we quickly addressed that and no longer have that concern. We're doing well and preparing for hopefully what we'll see is helping a lot more patients stay alive a lot longer.

Thanks so much, Christy. And overall, Ronnie, we're expecting about a 50% increase in capacity over the course of 2022, so continued investment there. Thanks, Ronnie. Can we have the next question, please?

Our next question goes to the line of Colin Burstow from UVS. Your line is now open.

Hey, good afternoon. Thanks for taking the question. On the Groner map, maybe could you explain why the multiple myeloma and DL-BCL trials are also on hold, given they're not in combination with AZA? And then just somewhat related to that, the $1.50 in acquisition-related expenses in the 22 guide, is there any component of that that's related to the 47 acquisition? Thanks.

Great. So we'll have Andy answer this second. Maybe you want to touch base on the first, Murdad, also telling about the stage of those two trials.

Yeah, it's really important to – I think this may have not been entirely clear. First of all, I think, look, I think whenever there's a safety question, the agency is going to err on the side of being cautious. And so we'll work through with them. on how to go forward. And I agree in those studies we are not combining with azacitidine. So again, I think as we share the data and the analyses with the agency, hopefully we can come to resolution sooner than later. And it's important to note that for the multiple myeloma study, we actually hadn't really started enrolling patients at that point. So I think that was one consideration. And by contrast for the DLBCL study, that study is completely enrolled. So the partial hold there actually doesn't have much of a practical impact on that study because we're going to continue dosing the patients who are already enrolled in that study. So, you know, I think remember that the way it works is maybe the context here is the holds are placed on an IND, not on a study-by-study basis generally. So this was a hold to the IND, and so that's sort of the context to think about it. I'll hand it off to Andy to answer the second part of the question.

Sure. Hi, Colin. I'm not sure that I fully understood the question, but what I can tell you is none of the updates that we provided in terms of the one-time fourth quarter expenses, nor none of our 2022 guidance has anything to do with 47 expenses. So You and I can maybe talk separately to understand what your question is specifically, but there's nothing related to 47 or the 47 acquisition that was either part of our fourth quarter update, year-end update, or part of the 2022 guide specifically. Thank you.

Thanks, Colin. Happy to take that up separately, too. So let's go to the next question, please.

Our next question goes from the line of Hartaj Singh from Oppenheimer. Your line is now open.

Um, Hey, thank you everyone. Uh, thanks for the question. Um, this is just a question on the glory, you know, you're starting to get a pretty consistent franchise there. Uh, I mean, unfortunately, you know, COVID-19 is still out there. Um, you know, various experts have indicated, even some of the companies we cover, we're going from a pandemic to an endemic kind of state over this year and into next year. How do we, how do you think of the glory, you know, going forward? I know it's difficult to give guidance there, but you've got a year and a half worth of data underneath your belt. you know, how are you thinking of hospitalizations going forward, you know, whether that's through breakthrough infections, you know, or do you see as unvaccinated individuals get less and less that hospitalizations will concomitantly decrease? Any thoughts there? And then assuming the oral program gets approved, how do you see, you know, remdesivir IV and then the oral option working together going forward? And again, thanks for the questions and a really nice

Thanks, Artash. So I think Joanna can start with some of the pandemic and then her dad could also comment a little bit on the forward portfolio. But please, Joanna, what do you think?

Thanks, Artash, for the question. Basically, what we've seen since the very beginning is how Vic Lurie sales truly track to the hospitalizations. And we've seen that most recently, again, with the Omicron surge. What we did see as well is the fact that despite the fact that Omicron seemed to be maybe less severe impact, unfortunately the number of cases were much greater and therefore just the pure absolute numbers of hospitalizations went up. And so we've tracked every single time pretty much in line parallel to the hospitalization rates and we assume that will continue. We do think the hospitalizations will get impacted by some of the oral compounds, even some of the outpatient use of Viclory, but also neutralizing antibodies as well as the oral treatments as well, like the PI from Pfizer. And so we do think that'll decrease hospitalizations over time. The one thing we had assumed maybe about a year ago is we really thought the vaccination rates would continue to rise and they didn't. They basically stabilized at around the 60, 65% rate. And of course there are variances across the country. So what we've seen is the use of different treatments as well as the vaccinations the vaccination rates are really dictating a little bit kind of the hospitalizations and therefore the Veclari usage. And yet again, in the December-January timeframe, we've really seen Veclari play a critical role here for these hospitalizations, also having to do with the fact that many of the other previous agents that were on the market were no longer effective against the Omicron variant. And we haven't seen Any of that, we've seen very strong efficacy with Vicklery, which has also helped that. I think most recently the outpatient data that's just come out in addition to the indication really plays a critical role when there are surges and hospitals are overcapacity so that they really can look at outpatient setting with Vicklery. And we think that'll just kind of play hand in hand. And I would propose, as I turn it over to Murda to address the oral piece of the puzzle, I actually think you need both. I think you need the oral setting. So more... more players in the oral setting is critical, and you still need hospitalizations, because unfortunately, if it does become endemic, I do think you'll see a steady rate of hospitalizations as we go through, and that's where Vic Cleary plays a critical role. Murda?

Yeah, thanks, and I guess I'd make two points. The first is very early days with the oral program, and so I would keep that in mind. We just started phase one, so a lot of things can happen, and so I would just keep that in mind. Obviously, if things go well, we'll move as aggressively as possible. And I agree with Johanna. I think that there will always be a role for both oral and IV therapies. There will be a, you know, what we're seeing now, I think, in terms of how folks are approaching it is that, you know, as availability of oral therapies becomes broader, they're used more relatively early in the course of disease, many people may progress and or not get treated early enough and end up in the hospital. And at that point, I think that's where that hospitalized or perihospitalization, more severe disease, is where the role of IV therapies is going to come in and that chlorine in particular is going to come in. So I don't have too much to add to what Johanna said, but I do think there'll be a role for both in the long run.

And Hartaj, just to complement what Joanna and Murdad said. I think, you know, we clearly see that, you know, as this becomes endemic, that there will be potentially a need for multiple mechanisms in the outpatient setting. So that's one of the reasons why, you know, approaching it from a preliminary standpoint as well as a protease standpoint, we think could make sense over the long term for resistance patterns. And the last thing I'll say is I think, you know, we've seen this, whether it's pandemic or endemic, remdesivir is going to firmly represent trenched now as a standard of care in the hospital setting. And so as goes hospitalization, so will go remdesivir over time, and we think that's going to be an important part of our ongoing business and our benefit to patients. With that, thank you. We'll move on to the next question, please.

Our next question comes from the line of Carter Gold from Barclays. Your line is now open.

Great. Thank you. Good afternoon. Thanks for taking the question. I wanted to come back to Tredelvi, but a little bit more from the commercial and strategic angle, and wanted to, you know, just sort of the decision to triple the sales force at this point ahead of Tropics 2. Is that decision dependent upon, you know, positive data from Tropics 2, or could that potentially be revisited depending on that outcome? And then specifically around sort of what you're seeing with the sales, it seems like that the growth on an absolute basis quarter on quarter does seem to be sort of slowing a bit. Can you maybe just talk about how the real world duration of use has maybe evolved and if that's sort of in line with what you saw in the studies, in the pivotal studies? Thank you.

Thanks, Carter. Right over to Joanna, please.

Sure, Carter. Thanks for the question. Just a couple of things. One is the footprint, the geographic footprint that we've just initiated in that ramp up. and the tripling, it has really maybe three objectives. One is to further support our initial launches of both metastatic TNBC as well as bladder. So that's definitely number one, and that is the here and now. The potential to support a potential indication in an HR positive, which is what you were referring to. And the third one is also setting up for the future success of our total oncology portfolio. So assuming positive data, of course, is what we've decided to go for. But having said that, even if that didn't play out, this is the right team for the future for Gilead Oncology. So that was the first part of your question. The second part of your question about the growth slowing, I actually think we're quite pleased, actually. As we got into Q4, what we've seen is the share really drive up post-NCCN breast guidelines update in September. And so we had good data point of share. The last data point we have is October, and that's the one in four that you heard me talk about earlier. And so that's doubling from where we were in April. So we were at about half of that share in second line, and now we're at about 24%, 25% share in second line. So a real nice growth on that front and definitely more to come. I think there's an incredible opportunity for Trodelvi in this patient setting, especially with the high medical need and the incredible OS data that we have with Trodelvi. So more to come on that.

Terrific. Thank you so much, Carter. We can take one last question, everybody. Thank you.

Thank you. Our last question comes from the line of Matthew Harrison from Morgan Stanley. Your line is now open.

Great. Good evening. Thanks for fitting me in. Just one clarification and one question. So first, Murdad, can you just clarify, it was unclear to me from your comments whether the FDA had asked for the OS data, and that's why you were including this interim now for the filing, or if that had been your plan all along. So if you could just clarify, that would be great. And then second, any comments you can make specifically around the stocking tailwind as well as the gross net tailwind that you had from HIV in the fourth quarter. Thanks. Thanks a lot, Matthew.

Yeah, very quickly. I think, as I mentioned, we did upsize a study last year for OS because we've always believed, especially in HR positive, that having OS data are going to be important to support a file. It's not the primary endpoint, and we think it's going to be important supportive data to go. So, That didn't really have much to do with this confluence of events here. It's a fortuitous event in terms of timing here that will support our data. The FDA did not ask for it. The FDA didn't specifically ask us for it, no. We were always going to take a look at OS with the first PFS data cut. At this point, Instead of doing a look and then an interim, we're just going to do the PFS and the interim at the same time. Thanks, Matthew.

And Matthew, the second part of your question around the Q4 piece of the puzzle. So as you well know, right, as you go in from Q4, you usually have a bit of a seasonal inventory build and sub-channel play. And then, of course, that bleeds out in Q1. So that's one piece of the puzzle. In Q1, the other difference is, of course, you increase your co-pay support, your donut hole coverage. And so all those pieces and your payer mix kind of changes in your first quarter. Having said that, in addition to that, there was some favorability in Q4 of 2021 from a gross to net standpoint, which will then create an even bigger kind of decline in Q1. And that's what we were referring to. So hopefully that helps a little bit. It's a one-time thing in Q4. And it's just more around the comparison versus Q1 over Q4 as we get through the first quarter. And that's what I was trying to signal.

Great, Matthew. And just want to, before I turn it over to Jackie, thank all of you for joining from our perspective. We are really excited about the build that we've had at Gilead over the past two years and the team and the people that we have on board. We've got a lot to do this year, and we're really teed up for a good strong year and a strong decade ahead with this portfolio. With that, Jackie, over to you, please.

Thank you, Dan, and thanks to our operator, Gigi, for your help today, and indeed to all of you for joining us. We appreciate your continued interest in Gilead and hope that you can join us for our virology deep dive scheduled for Thursday, the 17th of February. Thank you. This concludes today's conference call.

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