Gilead Sciences, Inc.

And thank you for standing by.

Welcome to Gilead Science's second quarter 2022 earnings conference call. All lines have been placed on mute to prevent background noises. After today's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by two. Please be advised that today's call is being recorded. I would now like to hand the conference over to Jackie Ross, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for the second quarter of 2022. 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 Scholl, the Chief Executive Officer of KITE. 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 which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand the company's underlying business performance. The GAAP to non-GAAP reconciliations are provided in the earnings press release in our supplementary data sheet as well as on the Gilead website. Now I'll turn the call over to Dan.

Thanks, Jackie, and good afternoon, everybody. We really appreciate you joining today. We look forward to sharing our second quarter results, which highlight a quarter of strong commercial and clinical execution. This was a very strong quarter for our business, delivering revenue of $6.1 billion. Excluding Viclarity, total product sales grew 7% year over year. If we look at the underlying business and also exclude the impact of the HIV LOEs and the currency headwinds in the second quarter, growth was actually 11%. Our HIV portfolio continues to deliver, and this quarter was no exception, with higher demand for both treatment and PrEP. McTarvey sales grew by 28% year over year, and we expect to see continued market growth for treatment and prevention with the ongoing market recovery. This was a record quarter for our oncology business. Revenue topped half a billion dollars for the first time with a strong contribution from Tredelvi and a standout performance by our cell therapies. The starter was approved by the FDA for second-line relapse or refractory large B-cell lymphoma in April. This increased awareness and drove demand not only for Yaskarta second-line patients, but also for those in later lines of treatment. Yaskarta is a potentially curative therapy, and Kite has uniquely and effectively scaled manufacturing to meet the needs of patients who give benefits. Turning toward clinical progress, our NDA submission has been accepted by the FDA for lenacapivir for heavily treatment-experienced people living with HIV, and we are now expecting the decision in late December. If approved, lenacapivir will be the first approved catheter inhibitor and the first therapy with a six-month dosing schedule for HIV treatment. Moving to Tredelby, we are in discussions with the FDA regarding a potential regulatory pathway for late-stage hormone receptor-positive HER2-negative patients, and we will update you as things progress. We have also begun screening patients in Ascent 3 and Ascent 4, evaluating Tordelvi in the first-line metastatic triple-negative breast cancer patients. We dosed the first patient in our new Phase 2 study, evaluating Tordelvi in non-small cell lung cancer, Evoque 2. And earlier this month, we dosed the first patient in a new Tredelvi combination arm in our ongoing Megrolinab triple-linked breast cancer study. Also for Megrolinab, we're targeting an interim analysis no later than early 2023 for Enhance, our Phase III study in first-line high-risk MDS. Additionally, we dosed the first patient for Enhance III, a Phase III Megrolinab study for first-line unfit AML. Moving to slide five, later this year, we expect to initiate an additional five studies for Tredelvi in a mix of monotherapy and combination studies. We also plan to start enrolling patients in three cell therapy trials and two domino non-combination trials. The extensive existing and planned studies really highlights the scale of our ambitious oncology programs. I want to take this opportunity to thank the teams at Cross, Gilead, and Kite for a terrific quarter of commercial execution and for the continued momentum in our clinical programs to continue to lay the critical groundwork for Gilead's future success. With that, I'll invite Joanna to share an update on our second quarter commercial performance.

Thanks, Dan, and good afternoon, everyone. Turning to slide seven, we had a very strong second quarter with total product sales excluding victory of $5.7 billion, up 7% year-over-year, driven by HIV, cell therapy, and herdality, and offset in part by HCV. Sequentially, total product sales, excluding victory, were up 14%, driven by the seasonal pricing and inventory dynamics we see coming out of the first quarter of every year, primarily in our HIV business, as well as higher demand across our total portfolio. On slide 8... HIV sales were up 7% year over year to $4.2 billion, primarily driven by channel mix associated with lower government utilization, leading to a higher average realized price, as well as higher demand for both treatment and PrEP. Excluding the impact of the loss of exclusivity of Truvada and Atripla, HIV sales increased 11%. Quarter for quarter, HIV sales were up 14%. due to demand and channel mix, leading to higher average realized price as well as the favorable seasonal inventory dynamics that we typically see in the second quarter relative to the first. Year over year, the HIV treatment market grew over 4% in the U.S. and was largely flat in Europe, but sequentially grew over 2% in the U.S. and 1% in Europe. We're encouraged to see the market recovering and, on a year-on-year basis, continue to expect annual treatment market growth in the 2% to 3% range. The SCOBY sales in the second quarter were $460 million, up 6% year-over-year and 23% sequentially. We're pleased to see continued PrEP market growth with broader awareness and market volume that are well above pre-pandemic levels. For the quarter, the overall market growth was up 25% year-over-year and 5% sequentially, highlighting both robust recovery and growing adoption of PrEP. Despite generic and other market participants, the SCOBY share in PrEP is holding in the mid-40% range. As awareness continues to grow and the overall market expands, we expect the SCOBY to continue to play an important role in PrEP and really look forward to adding Lenacapivir as a potential long-acting alternative for those seeking preventative care as early as 2025. On to slide nine, VicTarby grew 28% year-over-year to $2.6 billion, primarily driven by strong demand and channel mix. Victorby's market share in the U.S. grew from 40% in Q2 of last year to 44% in the second quarter of 2022 and continues, by a wide margin, to be the leading treatment for HIV, as well as the fastest growing. In fact, Victorby's differentiated clinical profile was once again reinforced this past weekend at the International AIDS Conference in Montreal. At five years, Victorby had zero cases of treatment failure due to resistance, as well as sustained efficacy and a demonstrated safety profile in people living with HIV. Notably, this five-year trial duration demonstrating zero cases of resistance is unprecedented for an HIV regimen. Share also increased sequentially, up 1% from the first quarter of 2022, contributing to 19% growth in Victarvie revenue quarter-over-quarter, in addition to the channel mix and the seasonal inventory dynamics we referenced earlier. Moving to slide 10. HCV sales in the quarter were down 18% year-over-year due to the channel mix leading to lower average realized price and fewer patient starts, partially offset by higher volume in Eastern Europe. Sequentially, HCV was up 12%, driven by the timing of a large order, in addition to higher patient starts. Overall, in HCV, we maintained steady market share of 50% to 60%, both in the U.S. as well as Europe. For HCV and HDV, on slide 11... Sales were roughly flat quarter-over-quarter and year-over-year, driven by unfavorable adjustments associated with the recent volume-based procurement updates in China, and offset by higher year-over-year demand and volume growth in all other regions. The clear revenues in the second quarter were $445 million, as shown on slide 12. As expected, sales declined both year-over-year and quarter-over-quarter, as hospitalization rates declined in most geographies. Additionally, U.S. revenue reflected inventory drawdown in the second quarter. While COVID-19 is still prevalent, the most recent subvariants have been less severe and contributed to fewer hospitalized patients, although roughly 60% of hospitalized COVID-19 patients that are being treated in the U.S. are receiving Vicklery. We continue to be committed to supporting patients with COVID-19 globally. Last month, we signed our second joint procurement agreement with the European Commission that enables participating countries to purchase Veclary for a period of up to 18 months. Additionally, the European Medicines Agency Committee for Medicinal Products for Human Use, or CHMP, adopted a positive opinion recommending Veclary receive full marketing authorizations for the treatment of appropriate patients with COVID-19. This builds on our prior conditional authorization, and we look forward to the final decision by the European Commission later this year. We're proud of our track record of meeting global demand for Vicklery since the fall of 2020, and we'll maintain our readiness to supply Vicklery where it's needed and have increased our full-year guidance to reflect anticipated patient need in the second half. Turning to oncology and beginning with Tredelvi on slide 13. Sales of $159 million grew 79% year-over-year and 9% quarter-over-quarter. Sequentially, Tredelvi grew 41% outside of the U.S., with particularly strong growth in Germany and France due to increased awareness and adoption. Sequential 7% volume growth in the U.S. was offset by unfavorable pricing dynamics. We expect to see continued growth in the second half, driven by the impact of our expanded sales force in the U.S., as well as reimbursement approvals in the EU. We're committed to broadening access for Shavelli and continue to work with regulators and payers around the world. We're pleased with the recent decisions by both NCCN in the U.S., and NICE in the UK, recognizing the significant clinical benefit of Tredelvi in patients with metastatic triple-negative breast cancer based on the Phase III essential trial. These decisions add to the building support for Tredelvi's use following positive health technology assessments in a number of other countries. Tredelvi is the first ADC to demonstrate statistically significant and clinically meaningful overall survival benefit in this metastatic TMDC patient population. In fact, The NCCN guidelines elevated Tredelby to a Category 1 recommendation for second-line and later metastatic TNBC, its highest recommendation available. Additionally, while Tredelby is not approved by the FDA for use in HR-positive HER2-negative settings, we're pleased that the NCCN has issued a Category 2A recommendation for Tredelby's use for these patients with advanced disease. Turning to slide 14, I'm pleased to share some incredibly strong results on behalf of Christy and the CHI team. Cell therapy sales for the second quarter were $368 million, up 68% year-over-year and 34% sequentially, driven by a very strong U.S. second-line launch for Yaskarta in relapsed or refractory LBCL, which exceeded our expectations and continued strong growth in third-line plus Yaskarta. As a reminder, strong data and an NCCN recommendation, which predated the second-line approval, helped drive our impressive early uptake, especially in large-volume authorized treatment centers, with a high familiarity with CAR-T therapies. Additionally, Yaskarta Second Line LBCL is already available in two other large markets, in France through the Early Access Program and in Germany through reimbursement decisions ahead of approval. The decision on Yaskarta Second Line LBCL approval in Europe is expected later this fall. Third Line Plus LBCL deliveries also increase sequentially and year-over-year, reflecting growing overall awareness and confidence in the use of Yaskarta. This follows the presentation of five-year Zuma 1 data at last year's American Society of Hematology meeting and, more recently, our second-line approval in the U.S. For the quarter overall, Yaskarta sales of $295 million were up 66% year-over-year and 40% sequentially. Of note, Yaskarta deliveries increased 67% year-over-year and 39% sequentially, demonstrating the effectiveness of Kite's manufacturing expansion strategy and our ability to meet demand for our cell therapies. We're proud of our reputation for consistent and reliable deliveries that further differentiate kite cell therapies and was a continued source of strength in Q2. While we saw very strong demand in the first half of 2022, we expect this growth to normalize in Q3 as second-line usage expands beyond the early adopters and more towards community referrals. Turning to Curtis. Sales for the quarter were $73 million, up 78% year-over-year and 16% sequentially, driven by continued demand and expansion in new geographies for relapsed refractory mantle cell lymphoma, as well as uptake in adult acute lymphoblastic leukemia in the U.S. Christie is available for Q&A later on the call. In summary, this was a really strong quarter for the entire Gilead and Kite commercial organization. And so with that, I'll hand the call over to Murdad for an update on our pipeline.

Thank you, Joanna. From a clinical perspective, we made solid progress in the second quarter, including a wealth of data updates spanning our oncology and virology portfolios. Starting with HIV on slide 16, we're very pleased to share that our NDA submission for lenacapivir for heavily treatment-experienced people living with HIV was accepted last week. We now have a PDUFA date set for the end of December. Outside the U.S., we received a positive CHMP opinion for this indication based on data from the Phase 2-3 Capella trial. Week 26 data from this trial were published in the New England Journal of Medicine in May with updated one-year data presented at the conference on retroviruses and opportunistic infections earlier this year. In this very difficult-to-treat population, 83% to 86% of those treated with linacapabir achieved virologic suppression at one year, sustaining the rates achieved at week 26. We continue to expect a decision from the European Commission later this year. Looking to Trudelvi on slide 17. We shared new data at ASCO that increases our confidence in Tredelvi's potential applicability across a broad range of tumor types. These positive data from the Phase III ascent study reinforced Tredelvi's survival and health-related quality of life benefit over treatment of physician's choice in patients with metastatic triple negative breast cancer. We also highlighted positive PFS and quality of life data from our Phase III tropics O2 study. demonstrating a statistically significant and clinically meaningful 34% reduction in the risk of disease progression or death in late-line endocrine-resistant patients with HR-positive HER2-negative metastatic breast cancer who had received a median of three prior lines of treatment in the metastatic setting after having failed hormone therapy. This study also demonstrated a positive trend in overall survival at the first interim analysis. The TROPHICS02 data, coupled with the NCCN recommendations, support TRODELVY's potential as a treatment option for late-line HR-positive HER2-negative patients. As Dan mentioned, our discussions with the FDA are ongoing on the potential regulatory path, and we'll update you when we can. In the meantime, TROPHICS02 continues with patients being followed for subsequent planned OS analyses. Separately, we continue to expand our TRODELVY clinical program. We began screening for patients in ASCENT03 evaluating Tredelby in first-line metastatic TMBC patients who have PD-L1-negative tumors, as well as in the ASCEN-04 study, evaluating first-line patients with PD-L1-positive metastatic TMBC. Moving to Tredelby in bladder cancer, the ongoing Phase III TROPHICS-04 study is our confirmatory trial designed to enable global registration for Tredelby in patients with locally advanced or metastatic urethelial cancer. This study follows the encouraging data from TROPHY-U01, supporting accelerated approval of Tredelvi in the U.S. for patients with MUC. Pending results from our first-line expansion cohorts in the Phase II TROPHY-U01 study, we plan to open two Phase III studies in frontline MUC. In our TROPHY-1 program, we initiated the Phase II EVOKE-02 non-small-cell lung cancer study in the second quarter, evaluating the combination of TROPHY-U01 with Merck's Keytruda in patients without actionable genomic mutations. Looking forward to the second half of the year, we expect to begin enrolling patients for the Phase 3 EVOCO3 or Keynote D46 study in first-line non-small cell lung cancer with PD-L1 expression levels greater than or equal to 50% in collaboration with our partners at Merck. Additionally, later this year, we expect to initiate several other Tredelvi combinations, including evaluating Tredelvi in castrate-resistant prostate cancer. Moving to Megrolimab on slide 18, we're pleased that both divisions of the FDA have now lifted the partial clinical holds on Megrolimab. All Megrolimab programs have resumed enrolling patients without FDA requiring any additional protocol changes. Our confidence in Megrolimab's potential efficacy and safety profile is unchanged. At ASCO, we shared MDS and AML data from our Phase 1b study, where Megrolimab continues to demonstrate high and durable response rates and high-risk MDS with encouraging complete response rate of 33% compared with the historical rates of azacitidine alone. We also observed promising efficacy in patients with TP53 mutant AML with an ORR of 49% and a CR of 33%. Notably, our phase three study in frontline HRMDS enhanced has been rolling nicely, and we expect the interim analysis no later than early 2023. Moving to cell therapy on slide 19, on behalf of Christy and the KITE team, it's gratifying to see that more patients are benefiting from our cell therapies, giving a growing body of clinical evidence. Building on the Zuma 7 data, we presented real-world data at ASCO that demonstrated consistent outcomes for survival and safety, regardless of race and ethnicity. And in a sub-analysis of Zuma 7, patients over 65, Yaskarta demonstrated more than eight times greater median event-free survival, and a clinically meaningful improvement in quality of life. These data further establish the efficacy and safety profile of Yaskarta for patients with relapsed or refractory LBCL and support ongoing exploration of Yaskarta in more settings. We expect to enroll our first patient for ZUMA24, a Phase II study to evaluate Yaskarta and second-line LBCL in an outpatient setting, as well as ZUMA23, a Phase III study to evaluate Yescarta in first-line high-risk LBHCL patients in the second half of this year. Additionally, we expect first patient in in a new Phase III trial evaluating the use of Yescarta in second-line HR follicular lymphoma patients, ZUMA22, later this year. Now to slide 20. As Dan mentioned, we made steady progress in the first half of the year and continue to focus on clinical execution. The key clinical milestones in the second half include an update on our regulatory discussions for Tredelvi for late-line HR-positive HER2-negative patients in the U.S., a number of potential regulatory decisions, including for lenacapivir, Yaskarta, and Tocardis, at least six more trial initiations spanning Tredelvi, cell therapy, and dominilamab, as well as several data updates with our partner, ARCIS, including Phase II data from ARC-7. Later this year, we also expect to have interim Phase II data for Atruma from the ARC-6 study, as well as ARC-8's Phase II data for Clemson. We're encouraged with the early Phase I data for GS5245, our investigational novel oral nucleoside in development for the treatment of COVID-19. We're discussing these early data with regulatory agencies and are planning to move into the clinic. We're also pleased to see our earlier stage pipeline with our partners, such as Tizona and Pioneer, continue to advance nicely. For example, Tizona's HLAG program is currently enrolling its dose expansion cohorts, and Tizona expects to share interim data mid-2023. With our robust internal pipeline and external partners, we're confident our portfolio across virology, oncology, and inflammation will deliver many life-changing treatments to help those patients in need. With that, I'll hand the call over to Andy.

Thank you, Murdad, and good afternoon, everyone. Before I discuss our second quarter results, and starting on slide 22, I would like to remind everyone that following the SEC guidance earlier this year, similar to our peers, required in-process R&D expenses or IPR&D, including upfront payments for business development transactions, are now included in our non-GAAP financial measures and reported under acquired IPR&D. As a reminder, the $300 million payment associated with the Dragonfly collaboration announced in May is included in our Q2 results, but was not reflected in our prior 2022 full-year guidance. Additionally, we have shifted prior period milestone and opt-in payments from R&D to acquired IP R&D. We believe this presentation better reflects the total costs incurred to acquire IP R&D projects. The most notable example is the $625 million opt-in payment we made to ARCIS that we reported in the fourth quarter of last year. There are a few other smaller payments that have been moved, and this slide highlights the changes that you will now see reflected in our 2021 P&O. I'll further note that this change impacts our 2022 R&D guidance because our R&D guidance is given relative to our 2021 results. I'll touch on that again later in this call. Moving to our second quarter results starting on slide 23, this is a very strong quarter with a notable contribution from both our HIV and our oncology businesses. As expected, VECLURY sales were substantially lower sequentially and year-over-year, reflecting the lower COVID hospitalization rates in the quarter. Total product sales, excluding VECLURY, were up 7% year-over-year. Foreign currency impacted second quarter sales, excluding Vecluri by approximately $65 million net of hedges. If we exclude this impact, as well as the impact of the HIV LOEs, total underlying sales growth year over year was 11% in the quarter. For the first half, total product sales growth excluding Vecluri was 5%. Also excluding FX and the impact of the HIV LOEs, underlying growth for the first half was 8%. Back to our reported results on slide 24. Joanna took you through our revenue results and the drivers there. Non-GAAP product gross margin was 85.6% for the second quarter, down 80 basis points year-over-year, primarily due to the BIC-TARVY-related royalty following the settlement in the first quarter of this year. Non-GAAP R&D, excluding acquired IP R&D expenses, such as milestones and upfront payments, was 1.1 billion, up 6% year-over-year, primarily due to increased investment in development and timing of clinical trial activities, primarily for our oncology business. Acquired IPR&D for the quarter was $330 million, including $300 million related to the Dragonfly collaboration. Non-GAAP SG&A was $1.3 billion, up 13% year-over-year, primarily due to increased promotional and marketing activities, including for Tredelvi, as well as higher corporate expenses, including IT investments and grants. Non-GAAP operating margin was 43%, reflecting higher operating expenses and the upfront Dragonfly payment. Excluding the Dragonfly payment, non-GAAP operating margin was 47.5% for the quarter. Moving to tax, our non-GAAP effective tax rate in the second quarter was 19.3%. Our non-GAAP diluted earnings per share was $1.58 in the second quarter of 2022, compared to $1.81 for the same period last year, reflecting the Dragonfly payments, which represented 18 cents on a post-tax per share basis, as well as the Big Tar V related royalty. Overall, we had a strong first half of the year, as shown on slide 25. with growth across HIV, cell therapy, and Tredelvi, offset in part by HCV. Of note, currency headwinds impacted the first half total product sales by approximately $180 million net of hedges compared with the first half of 2021. Moving to slide 26, we are increasing our full-year sales guidance to reflect our year-to-date results. and our expectations for the second half, including our expectations for FX. In addition to the impact in the first half, we expect continued FX headwinds in the second half, impacting total product sales by approximately 200 million in the rest of the year compared to our initial February guidance. For revenues, we now expect total product sales of 24.5 to 25 billion compared to our previous range of 23.8 to 24.3 billion. This reflects the strong performance year to date, notably very strong growth in cell therapy and HIV, and it also incorporates our expectations for the broader macro environment. In HIV, we expect modest sequential growth in the third quarter, keeping in mind the strength we experienced in the second quarter. And in cell therapy, we expect flat to modestly higher revenue in the third quarter compared to Q2. Following the launch bolus of orders we experienced in the second quarter, we expect demand to stabilize. Moving to Vecluri, and with the first half revenue of almost $2 billion, we're increasing our expectations to approximately $2.5 billion for the year. Following inventory drawdown in the second quarter, we expect sales to increase sequentially in the United States and to continue to track hospitalization rates. Note that our Vecluri guidance assumes no significant increase in hospitalization rates from Q2 levels. Excluding that glory, we expect our total product sales to be $22 billion to $22.5 billion, representing growth of 3% to 5% year-over-year, and compared to our prior range of $21.8 to $22.3 billion. As for the rest of the non-GAAP P&L, there is no change to our product gross margin guidance range of 85% to 86%. R&D, as described earlier, will no longer include BD-related payments such as milestones and opt-in fees. These will be reported as acquired IP R&D along with upfront payments. With this change, we have moved $762 million of full-year 2021 expense from R&D to acquired IP R&D. As a result of this change, we now expect full-year R&D expense to increase by a mid-single-digit percentage compared to the new 2021 baseline, of $4.5 billion. Our expectations for full-year R&D expense remain largely unchanged from the start of the year, and this guidance revision reflects only the recasting of acquired IP R&D items, including ARCIS, previously reported in R&D in 2021. Moving to acquired IP R&D, we are not issuing guidance for the full year, and similar to what we did with the Dragonfly deal this quarter, we'll update our EPS guidance quarterly as needed to reflect any relevant activity during the quarter. What we have included here is the year-to-date acquired IPR&D amounts. For SG&A, with our continued investment across our commercial organization and expectations for higher costs as a result of inflation, we now expect SG&A expenses to grow by a low single-digit percentage compared to 2021. Altogether, we expect operating income to be $11 to $11.6 billion for the full year compared to $10.7 to $11.5 billion previously. Similarly, we now expect our non-GAAP diluted earnings per share to range between $6.35 to $6.75, up from $6.20 to $6.70 previously. On a GAAP basis, we expect our diluted earnings per share to range between $2.90 and $3.30, compared to $3.00 and $3.50 previously, primarily reflecting net unrealized losses from strategic equity investments. As a reminder, this revised EPS guidance reflects the $300 million upfront payment associated with the Dragonfly collaboration we announced in May, which was not included in our previous guidance, as well as our FX expectations and operating expenses for the second half. The guidance shared today does not include additional upfront payments related to normal course of business partnerships or licensing deals that we might announce in the third or fourth quarters. As discussed previously, we will continue to update our guidance as needed to reflect the impact of any new business development transactions closed in the prior quarter. Finally, on slide 27, you can see there is no change to our capital allocation priorities. In the quarter, we returned almost $1 billion to shareholders, including $920 million in dividend payments. And just after the close of the quarter, we repaid $1 billion of debt, fulfilling our commitment to repay $1.5 billion of debt this year. I'm pleased to share that as of July 1st, we have returned to the same debt level we were at prior to the Immunomatics acquisition. With that, I'll invite the operator to open the Q&A.

At this time, I would like to remind everyone that in order to ask a question, Press star, then the number one on your telephone keypad. Please limit yourselves to one question to help us get to as many questions as possible. Once your question has been asked, your line will be muted. If you'd like to ask a follow-up question, please return to the queue. We will pause for a moment to compile the Q&A roster. Our first question comes from the line of Ryan Abrams with RBC Capital. Brian, your line is now open.

Hi there. Good afternoon and thanks for taking my question and congratulations on the quarter. I recognize that the discussions around Tredelvi and HR-positive HER2-negative population are ongoing, but I'm just wondering, broadly speaking, if you can talk about the key things that you'll be focusing on with regards to the data and if there's certain subpopulations you might expect to gear towards from either a labeling or commercial perspective. Thanks.

Hey, Brian. Hi, this is Murdad. I guess I'll start with that. For us right now, as we go forward with the study, I think we'll continue our focus on, of course, the OS evolution of the trial. And I think as we see how those data evolve over time, we will use that in our discussions with regulators as we go forward. In terms of additional subpopulations, of course, we'll keep an eye on a number of things in terms of whether it's line of therapy or those sorts of subpopulations or duration of prior therapy, which were all part of the original analyses. But those were – it's consistent with what we've already shown at ASCO in the data that we've presented and shared with you. So it will be consistent with what we've already shown.

And we're ready for our next question.

Thank you. Our next question comes from Jeff Meacham with Bank of America. Jeff, your line is now open.

Great. Afternoon, guys. Thanks so much for the question. Joanna or Christy, the cell therapy segment, which you guys called out, had a huge quarter. I'm just curious, how much of the demand do you think is sustainable? I mean, was it mostly driven by the new second-line label, or did the total end market expand meaningfully? I guess I'm trying to figure out whether, you know, we've reached a tipping point overall for reimbursement access in cell therapy. Thank you. Thanks, Jeff. Kristi, over to you, please.

Yeah, thanks, Jeff, for the question. I'll start with the second piece, reimbursement. Our reimbursement is really good. We have 98% access, and that's Medicaid, Medicare, commercial. Even with the second line launch, in less than one quarter, we already had 94% paid for across any of those three groups. So reimbursement, in terms of the uptake, your first point of your question, the uptake that we've seen since launch is – First, primarily due to second-line, we've seen the patients that are going for stem cell transplants are the ones that are getting referred instead of that transplant to second-line Yaskarta. So that is our initial growth. But what we expect is, you know, we've had this 68% year-over-year growth, 34% quarter-over-quarter. But we do believe that this is a bolus, and we expect the second half of the year going forward that we expect that growth to normalize at historical rates as that growth becomes more dependent on the referrals from the community. So, we expect it to be, you know, still a really good growth, but we do believe that this is a bullet from the second line of the patients that exist in the ATCs, and that for the rest of the year, just to reiterate that that growth will return to more historic growth rates.

Amber, ready for our next question? Thank you. Our next question comes from Tyler Van Buren with Cohen. Tyler, your line is now open.

Great, thanks. Good afternoon. Can you guys please provide your latest thoughts regarding the potential impact that drug pricing reform could have on Gilead's business and perhaps BIC Darby in particular, given the significant concentration of HIV sales to the product and its longer patent life?

Yeah, thanks, Tyler. I mean, I'll start. This is Dan. I mean, I think it's important. for everybody on the call to note that we as a company and I think as an industry are very focused on the fundamental issue in the U.S., which is reducing patient out-of-pocket costs. And there are lots of different ways to do that. Unfortunately, the current legislation falls very short of making an impact on patients, and in particular the negotiation part of the proposal is really, you know, I think a real dangerous precedent in terms of of potentially reducing forward innovation. I think in terms of, you know, how, as you know, Tyler, the bill is still very much in discussion right now, and it's very difficult to determine the full impact. What I would say is it's several years away, first of all, from the first impact. And, of course, in the Part B area of the reform, you know, that could have some impact on our business, but also help patient out-of-pocket costs. I think when one starts to think about the negotiation aspect of the bill, it's still, I think, too premature to think about exactly how that could affect, and it is later in the decade in terms of its impact. So let's take it one step at a time, I think, to first see what happens with the current legislation, the discussions going on in Washington. Rest assured that we are actively involved in supporting the what we think are patient-oriented benefits here and adjustments to the program. And then once, and we'll see where that goes over the coming weeks and months, we'll be able to give you even more clarity on how things might impact our business. But overall, I would just emphasize the strength of our portfolio is strong. I mean, we have tremendous new innovations coming out of the pipeline. We have continued growth in our HIV business and beyond. And I think, you know, the innovation cycle at Gilead is very sound.

Amber, we're ready for our next question, please.

Our next question comes from Olivia Breyer with Cantor Fitzgerald. Olivia, your line is now open.

Hey, good afternoon, guys. Thanks for the question. Are you guys seeing any impact from monkeypox on the HIV business? Is that a headwind you're factoring into guidance at this point for the second half of the year?

Sure, Olivia. Hi, it's Joanna. Let me take that one on. You know, speaking with a lot of our specialists across the U.S. but also in Europe, they have seen, obviously, the rising number of monkeypox, and there is a correlation with both our HIV treatment business but also with prevention because The general percentage, the higher percentage of folks that are experiencing monkeypox are actually men having sex with men. And so obviously that's the overlap. So on the contrary, we're not seeing an impact to our HIV business. We're actually seeing more screening and diagnosis that are coming in in light of that. and because of that close association. So I do think, and the same people are treating. So prevention piece is actually a really important piece of the puzzle to try to prevent moving forward with monkeypox and getting the vaccines in. So definitely more on the positive front of our HIV business and however we can support that, that's what we're trying to do right now.

Amber, ready for our next question?

Our next question comes from Uma Rafat with Evercore. Umar, your line is now open.

Hi, guys. Thanks for taking my question. I had a question and a clarification. First, maybe the question, I think, Mehrdad, you hinted you are or you will be discussing early oral remdesivir data with FDA. I'm curious if you saw any viral load benefit as well as whether the EC90, how much EC90 tracks above the C-troughs. And then clarification was on PIDGIT Arc 7 because the slides on the last quarter implied we're expecting PFS data, phase 2 PFS data in second half, but today's slides only say phase 2 data, so maybe if you could clarify if there's still a chance PFS could be part of the data update. Thank you.

Hi, Amar. Yeah, thanks for the questions. So as far as the oral new program for COVID-19 goes, the Phase one study is in healthy volunteers, so we don't expect to see anything other than safety and PK in that study. And all I can say is I think things have gone very well with that trial so far, both from a tolerability and an exposure standpoint. We're very happy with where we are, and now we'll move into the proof of concept and clinical development stage. So no viral load data to share. And then in terms of the ARC-7 data, I don't think – I guess I would suggest not over-reading. We are working with ARCIS, and we will – As the data roll out, we'll be sharing data, ARCIS, and we will be sharing data from the ARC7 study later on this year. And the data that we will have, we're not really detailing what those data are going to look like right now. But be assured that we'll work with them to show data later this year.

Amber, ready for our next one?

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

Great. Good afternoon. Thanks for taking the question. I was just hoping you could talk a little about Tredelvi demand in the U.S. Sort of sequentially, you know, growth has slowed pretty significantly over the last couple of quarters here. Is that mostly a reflection that you've penetrated most of the triple negative market, and you need label expansion to see that growth, or are there other factors there from a sequential growth standpoint? Thanks.

Thanks, Matthew. It's Joanna. Let me try to give you a little bit more context. So as you saw, from a global standpoint, we had really strong growth across the board. A lot of that growth, as you're referring to, comes from some of the market launches in Europe, mainly France and Germany, where there's been a bit of a bolus, but also real learnings as to making sure that we increase awareness for Tridel V early on. And so from a U.S. standpoint, we actually did see strong demand growth quarter-by-quarter. We saw it at about 7%. Unfortunately, it got impacted by unfavorable one-time pricing dynamics. And so that's where you see that, you know, the net revenues are only up 1%. No concerns on our end because we do see the momentum actually continuing from a share standpoint. And we definitely haven't maximized our opportunity in Tridelby, let me tell you. I think that With the incredible overall survival data and the only overall survival data that's shown in this patient population, there's a real opportunity for us to educate and increase the awareness. That's something that we've been tracking really closely is that awareness piece. We got a little slowed down through the COVID era just because offices and cancer centers were quite shut down. But having said that, that picked up really quite nicely over the last three to four months. And we've expanded our footprint, as you may recall, we close to tripled our footprint as of April-May timeframe. Now, obviously, as you know, when you do that, you shouldn't expect results. I would love it, but you shouldn't expect results within the first month. It usually takes about six months or so to start seeing those through, and we should see those come through in the fall, as well as additional countries getting reimbursement, as you've seen from some of the HTA decisions that have come through and launching in Europe as well. So looking forward to that, but definitely more opportunity ahead and definitely on track to make sure we we capture that opportunity.

Amber, are we ready for our next question?

Our next question comes from David Frisinger of SVB Securities. David, your line is now open.

Thanks very much, and congrats on the results, and thanks for taking my questions. We are obviously in the unfortunate situation in which the government may be working against small molecule innovation in particular, but innovation more broadly. And in light of the possibility that legislation could be signed into law, could you comment on the percentage of Vic Tarvey net revenue that currently comes from Medicare Part D? just so we have a sense for the potential exposure to VicTarvey drug price controls in 2027. Thank you. Thanks, David.

Do you want to start with that?

Sure.

Yeah.

I'm happy to add.

Let me start with that. So thanks, David, for your question. I think, you know, we touched on a little bit about some of the potential impact. Having said that, from a split government to – to, I guess, commercial business, it's around, depending on the different pieces, you're looking at around 40%, 50% versus about a 30% commercial. So what I'm including in that is more your Medicaid, Medicare kind of business, and that's what's kind of playing out as well as your 340B. So I think it's really, I don't think you should look at it more, you know, just looking at it the percentage of the business. I think it's going to be really interesting to see how all this plays out and when it plays out because nothing's really going to impact us for quite some time. I would also suggest that we look at the incredible diversity of our portfolio that we're growing year on year, and also the geographical diversity as well, which I think will really help mitigate some of these pressures as we go forward. But just from a government business, you are looking probably close to 50% of our total business is in the government setting.

Great. Thanks, Rhianna.

Amber, our next question? Our next question comes from Salveen Richter with Goldman Sachs. Salveen, your line is now open.

Good afternoon. Thanks for taking my question. On HIV, could you just comment on what's keeping the screening and diagnosis below pre-pandemic levels and whether you'd expect a full recovery by year end? And separately, could you give us a quick update on where you stand with the programs? What's the last part? Can you repeat the last part of that question? Sure. Where you stand with the long-acting programs when we might see first- Oh, long-acting, sorry. Yes, thanks. You cut out a little bit.

Apologies. So let me get the first part of that question, and then I'll throw it over to Murdad for the long acting. So from an HIV screening standpoint, we're about 8% below pre-pandemic levels, so very much in line with kind of where we were pre-2019. From a diagnosis standpoint, what you're seeing is that 30% or so below pre-pandemic, but that's kind of normal. What we've seen in the past, even prior to COVID-19, We're seeing a decline of the diagnosis rate about 10% year over year. And so if you think about three years, that's about your 30%. So not a huge surprise there and good news, right, as you're thinking about how this HIV market is evolution. What I would like to focus you on, though, is the fact that from a treatment and PrEP standpoint, we are above pre-pandemic levels from a market growth standpoint. And so we feel very confident that the market has recovered from And actually, in PrEP, it's more than recovered. It's actually higher than it's ever been before. So it's actually an expansion of the market. So I think we're in much better shape, and it's taken a little bit more time for treatment. But I think as of Q2, I can honestly say that it is really in a very good place, which is great news for patients.

And from a lung acting standpoint, I just – Just to reiterate, you know, with the Purdue debate at the end of the year for lenacapivir in highly treatment-experienced, I think that will be the first approval, knock wood, for lenacapivir, and I think that gets us started. After that, remember then we have multiple efforts ongoing. On the PrEP side, we have the purpose studies that are underway. Those are longer-term studies because they're prevention studies, so they'll take a little bit longer to read out. You know, we're looking at a few years there, a couple of years at least, for those studies. And then on the treatment side, we have a number of shots on goal there, both oral lung acting as well as subcutaneous lung acting. And there we have our own efforts. And you may have noticed we have a number of partner molecules that are coming through our pipeline that could be partnered with lenacapivir for a full treatment regimen that would include lenacapivir. And we continue to work with Merck on the potential for lenacapivir combinations with islatravir. So a lot of different options and a lot of work that's ongoing and it does progress farther along. We'll keep you updated.

Amber, may we have our next question, please?

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

Hey, thanks. Good afternoon. One question, but two parts. On Tridelvi, maybe Andy or Murdad, you could remind us, have you actually met with FDA on the potential filing or what's the holdup there? And how soon is soon to hear back at this.

And I think you've already taken a write-down if it was not to be filed. So that would be a different scenario there. But I don't think there'd be any further write-downs if that was the case. And then maybe just comment on lung cancer opportunity. I think in your slide you say there would be phase three data in lung cancer next year. And I know that you just read out next year as well. So just want to understand that and your confidence level in lung cancer. Thank you.

Thanks, Michael. Thanks for the questions. So, on Tredelvi, yeah, I think nothing has changed from what we said earlier in that, you know, we are excited about the data that we generate in Tropics O2 and are having ongoing discussions with the agency. And, you know, I think if things continue to go well, we will discuss with them the potential for filing. We're cautiously optimistic that that should be able to continue to go forward, and we'll be able to update you in due course. In terms of lung, the primary focus for us in lung is actually the initiation of our Phase III trials in lung, whether it's the combination trials I referenced earlier with Merck or some of the other combinations that we're doing, We will have some additional data in mind that will be coming that will be generated over time. But I think the focus should be on those phase three studies that we'll be reading out. And then maybe, Andy, do you want to address the Write down.

Sure. Yeah, I'd be happy. Hi, Michael. Thanks for the question. As you recall, we took a conservative approach to the write-down that we took earlier this year. We looked at the potential paths forward. We will continue to monitor on a quarterly basis. as we have historically, and as we should, the progress on the program, both in lung cancer and in hormone receptor-positive HER2-negative breast cancer, both of which we have carrying value on the balance sheet in IPR&D, as you know. So we'll continue to monitor it over time. And at each major event, whether it's regulatory discussions or filings or potential approvals, we'll look at that value. Again, we remain confident in the program overall, like where the program's going, and we'll update you as soon as we can on our discussions with the FDA and other regulatory agencies. Thank you.

Amber, we're ready for our next question.

Our next question comes from Steve Seathouse with Rabid James. Steve, your line is now open.

Great. Thanks for taking the question. I had another one on Yaskarta, just given the strong second-line launch. I was wondering how you view the market size or opportunity in second-line versus some of the potential upcoming opportunities, assuming the 23 or 24 populations and outpatients, high-risk, first-line, and if those could be similar legs up, and just how you're thinking about the sort of peak overall opportunity here for Yaskarta.

Thank you for the question, Steve.

You know, it's really great news for patients right now. You know, not only is Yescarta being used, but more importantly, we're seeing the class grow. So, the use of cell therapy overall is growing, which means instead of just two out of ten patients receiving cell therapy, more are. And that was really, the impetus for that was really the second line approval in April. Also, all of the data that you saw at ASH with our Zuma 5-year data, Zuma 1 and 5-year data of overall survival from Zuma 7. Second line, NCCN guidelines, Yaskarta being the only Category 1 NCCN product approved for second line. So we do see that this momentum is starting to happen, where it is the only curative potential that physicians have in this, you know, grave disease state for patients. So, as we look to the future, we're very optimistic that, you know, we're trying to get this closer to patients in the outpatient setting, which we are doing through clinical trials. And also, some of our authorized treatment centers have already published their data on utilization of Gascarda in the outpatient setting, i.e. Vanderbilt. And as we look at the frontline setting, we're in negotiations right now with the regulatory authorities on exactly how do we define high risk for that trial. So, I do think, you know, we're finally starting to realize the potential of this curative therapy for patients, and I think that this will continue. I will say, though, that, you know, this bolus is, I'll reiterate what I said before, this is a bolus, we believe, with the second line in launch of this pent-up demand in the HCC, including patients with immuno-authorized treatment centers, going to stem cell transplants. So, The heavy lifting is over. We have a lot of work to do to educate physicians in the community to ensure that they're referring patients to treatment centers at a timely fashion. So we do have work to do in education, and that's included in the community and also as we launch in multiple countries across the globe. So we do see a steady growth continuing for the next quarters and years to come.

Thanks, Christine. We're ready for our next question.

Yep.

Our next question comes from Carter Gold with Barclays. Carter, your line is now open.

Great. Good afternoon. Thanks for taking the questions. I guess one question, one clarification. First on sort of the CAR T business, can you just talk about the phasing of the supply ramp on the manufacturing side? And to the extent that might help out this year, should we think about that really just sort of weighted to your end? And I guess in answering that, if you could also address sort of the EU manufacturing side. We don't hear much on that. And then on the clarification piece, Joanne, I appreciate the comments on sort of the 50% government for Bataarvi. But could you spell out, I guess, Medicare versus Medicaid there? It's been getting a lot of incoming on that. Thank you.

Great. Kristen, do you want to start, and then we'll move to the next?

Happy to. So, you know, one of the things we're probably particularly proud of is our ability to supply our patients both consistently, reliably, and to the high-quality standards. And that started with El Segundo in California, but to your point, in the EU, Amsterdam is now supplying all of Europe for Yaskarta, and they're starting to do to Cardis as well. And so we expect all of the manufacturing for European patients to move to the Amsterdam site by the end of this year. In addition, we just opened the Maryland site, which is the first time we'll actually have automation. One of two modules of automation is up and running in Maryland. And that Maryland site has allowed us to actually increase our number of slots for patients by 50%. So we feel very confident that we not only can provide patients for what we have today, but what we have in the future and for the future ramp up that we have plenty of capacity to supply and continue to ensure that we have the high quality standards. The last piece I'll say on supply is, you know, we made a decision about two and a half years ago to bring in viral vector at Oceanside, California. So we're not at the whim of ups and downs, if you will, of supply. viral vector supply. So we have both internal and external ability to ensure that we can keep that continuity for patients and not be disrupted.

Thanks, Christine. Yeah, what are you doing? Yeah, thanks.

So just to clarify, and thanks for allowing me the opportunity, Carter, and maybe give a little bit more insight to David's question. I gave you full numbers on government, but obviously not all of those numbers get impacted by this reform or what we think might be the reform that we're talking about. And so from a Medicaid standpoint, it's less than 20% of our total business. And so that's really what we should focus on if we think about potential for impact. And, again, that impact doesn't happen anytime soon. It's really later in this decade. Dan, did you want to add something?

Yeah, great. I'll just add. Thanks, Carter. I know there's a lot of moving parts here, so I just want to kind of reinforce a couple of things. As you know, you know, there are three different aspects of the bill. I mean, one is, of course, the Part D reforms. And here, you know, the major difference from what occurs today, instead of 10% in the catastrophic phase, it goes to 20% in the catastrophic phase. And this is potentially, you know, the second half of the decade. And I think something from our perspective that as we look at our business is quite manageable. The second thing is in place in rebate, which I think, you know, we would have a low to zero exposure to. And then the third one is negotiation. I just want to be clear on negotiation. There's a lot of moving parts here, and to Joanna's point, it does not affect the entirety of the government business. Much of the government business is already contracted and under negotiation. And so I really think, and I'm sure you'll find this with most companies, that it's extraordinarily difficult to measure that impact. It also comes much later in the decade. And there's quite a bit of ambiguity about what products and how and when. And there'll be a lot of discussion should this legislation be passed about the details associated with that. So, again, as much as I believe this is not the right thing to do for the industry, I also believe that we've got a very robust underlying business here and that these impacts are not short-term at this stage. So, yeah. Just to be clear, on that 20% figure, that's – Medicaid, Medicaid.

Sorry? Medicaid, Medicare. Right.

Thank you. I know we've gone over by a couple minutes, but we'll take one last question. Amber, please.

Our last question comes from Mohit Bansal with Wells Fargo. Mohit, your line is now open. Great.

Great. Thank you very much for taking my question. So maybe, Joanne, if you can talk a little bit about the COVID trends in prep market. So I know last couple of years you took a little bit of price decline just to maintain market share. Where do you stand on the pricing? Is it stabilized at this point? And where does the market share of Discovery versus Truada in this market stand at this point? Thank you.

Sure. So let me take that one, Mohit. So basically from a market share standpoint, we basically – we lost maybe a point or so over the last year, but we're at about 44% market share for Discovery in props. which I think is pretty incredible if you think about the generic competition that we've been facing. The balance of that market share right now is pretty much all Truvada, Truvada generics. There's about less than 1% if you think of Aperture as you think about new entrants in the marketplace. So it's really a mix of the SCOBY for prep as well as Truvada genericization. From a pricing standpoint, what you were referring to, It has stabilized, although the rebates are definitely higher than what we were doing in the past just because there's choice now. And we are really trying to ensure that DSCOVI is a choice for physicians when people at risk need something. And so we want to make sure that that's an option for them and making sure that we have the best on the marketplace if you think about the bone and renal safety profile that Discovy can offer. So that's really why we've been playing in that field, and that's why it's put a little bit more pressure on the commercial fund, specifically on the rebate fund. And so I think that's stabilizing, but every year is a new year as we enter negotiations, so more to come as we go into 2023. But for 2022, we're in good shape. And we're also leveraging the incredible market growth for prevention that's been playing out. So all those things are very positive things for DSCOVI in prevention, as well as for people at risk.

Great. So thanks so much for joining us today, Cynthia. I just want to thank you again. I just want to reinforce what a strong quarter this was and thank the team for really significant momentum, I would say, in our business. You saw our first quarter, our second quarter. We're committed to delivering quarter after quarter on this, on both the commercial execution and the pipeline side, and really excited about where we stand right now and where we're heading. With that, I'll turn it over to Jackie for some closing comments.

Thanks, Dan. And thank you all for joining us today. Please do feel free to reach out to Investor Relations if you have any follow-up questions on the quarter. We appreciate your continued interest in Gilead and look forward to updating you on our progress throughout the year. Thank you.

That concludes today's conference call. You may now disconnect.