Gilead Sciences, Inc.

Ladies and gentlemen, thank you for your patience and thank you for attending today's third quarter 2022 Gilead Sciences earnings conference call. My name is Amber and I will be your operator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad at any time. It is now my pleasure to hand the conference over to our host, Jackie Ross, VP of Investor Relations. Jackie, please proceed.

Thank you, operator, and good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for the third quarter of 2022. The press release, slides, and supplementary data are available on the investor 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 KITE. Before we get started, let me remind you that we will be making forward-looking statements, including those related to Gilead's business, financial condition, and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections, and the use of capital. and 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.

Thank you, Jackie, and good afternoon, everybody. We're pleased to connect with all of you today to share the details of another very strong quarter. Thanks to strong commercial and clinical execution by our teams, The positive momentum continues to build. Total product sales excluding Vicklery were $6.1 billion, growing 6% sequentially and 11% year over year. The total including Vicklery was $7 billion. If we exclude the impact of foreign currency fluctuations and the tail end of the loss of exclusivity for Truvada and Atripla and HIV, total product sales excluding Vicklery grew 15% from the third quarter of last year. The majority of this growth was driven by HIV, and over 40% of the $620 million increase in sales came from oncology. The team will share more details, but this has been a great quarter for commercial execution, including continued share gains for Victarvie, growing momentum for Tredelvi, another impressive quarter for Cell Therapy, and a strong quarter for VicLurie. We also saw continued clinical momentum this quarter. Some of the highlights include the FDA priority review granted to Tordelby for late-line HR-positive HER2-negative metastatic breast cancer, the EU approvals for Yaskarta for second-line relapsed and refractory large B-cell lymphoma, and Ticardis in adult acute lymphoblastic lymphoma. And in virology, Lenacapivir received its first regulatory approval in Europe. Marketed as Sunlenka, It is approved for heavily treatment-experienced people living with multidrug-resistant HIV, making it the first approved capsid inhibitor and the first therapy with a six-month dosing schedule for HIV treatment. We are taking multiple important steps to advance our ambitious clinical pipeline, including in oncology, we are expanding our lung program with eight trials now active and three more planned to start in the coming months. We plan to resume our phase two trial investigating a once-weekly oral combination of Merck's Slatravir and Arlenicapivir. This will be one of many ongoing combination studies we have for long-acting HIV treatment, in addition to our extensive program for prevention. And we continue to further strengthen our early-stage portfolio, adding a BTLA agonist for inflammation from Mirovial and an option for a bispecific antibody for oncology from Macrogenics. Moving to our clinical goals for 2022 on slide five, we're on track to start the two remaining phase three trials, namely EVOK3 for first-line non-small cell lung cancer and ZUMA23 for first-line high-risk LBCL. We continue to expect another interim readout for the phase two R7 study in first-line non-small cell lung cancer before the end of the year. Overall, this has been another very strong quarter and a very strong year for Gilead. We're seeing impressive growth of our base business with continued shared gains for Victarbi and excellent performance for cell therapy and growing demand for Tredelvi. On the clinical side, we've had the first approval for Lenacapivir, a foundational asset for the future of our HIV franchise. Tredelvi is now under priority review for HR-positive HER2-negative breast cancer in the U.S., and we're executing on an extensive development program across virology, oncology, and inflammation. Finally, the recent task settlement is expected to significantly extend the exclusivity of key components of our HIV franchise in the U.S. I'd like to take this opportunity to thank the Gilead and Kite teams for their outstanding clinical and commercial execution. This consistent execution of our strategy, along with a very robust portfolio, has led to some terrific progress in 2022, and we look forward to building on that momentum through the rest of the year and beyond. With that, I'll invite Joanna to share an update on our third quarter commercial performance.

Thanks, Dan, and good afternoon, everyone. Before I jump into the commercial results for the third quarter, I wanted to begin by acknowledging our team for another exceptional quarter. We're making important progress in our goals of ensuring the strength and sustainability of our virology franchise, while also continuing to build our expertise and market presence in oncology. Turning to slide seven, We had a very strong quarter with total product sales excluding Zeclury at $6.1 billion, up 11% year-over-year, or 15%, excluding FX, and the residual impact of the HIV LOEs, with growth in each of our core franchise areas and notable strength in HIV and oncology. Sequentially, total product sales excluding Zeclury grew 6%, driven by HIV, HCV, and oncology. growth excluding FX impact and the LOEs was 8%. On slide 8, HIV sales of 4.5 billion were up 7% year-over-year. Excluding the impact of both FX and the LOEs, HIV revenue grew 10% year-over-year. Similar to last quarter, this was primarily channel mix driven by U.S. government utilization leading to higher average realized price in addition to higher demand. Overall, despite the quarter-over-quarter shifts in average realized price, government plans continue to represent approximately 60% of our U.S. HIV treatment prescriptions, including Medicare in the low 20s. HIV revenue growth was driven by the U.S., while Europe was down year-over-year due to effects and less favorable pricing dynamics, offset in part by higher demand. Quarter-over-quarter, HIV sales were up 6%, similarly driven by channel mix and inventory dynamics, as well as higher demand. Turning to the market more broadly, we are encouraged that on a year-over-year basis, the HIV treatment market across the U.S. and Europe has grown for five consecutive quarters. This reflects the work we have been doing with our partners to bring people living with HIV and people at risk of HIV back into care following the pandemic. The market growth we are seeing suggests that activity has returned to pre-COVID trends. In the third quarter of 2022, the market grew 2% year-over-year, both in the U.S. and Europe. Looking forward, we continue to expect annual treatment market growth in the 2% to 3% range. The SCOBY sales were $500 million, up 16% year-over-year and 9% sequentially. and PrEP market share remains stable despite generic and other entrants. For the quarter, the PrEP market continues to demonstrate robust growth, largely driven by the growing awareness for PrEP and demand well above pre-pandemic levels. Overall, the PrEP market grew 19% year-over-year and 6% sequentially. On to slide nine. Third quarter BIC-TARBIE sales were $2.8 billion up 22% year-over-year, driven by higher demand in both the US and Europe, and favorable pricing dynamics. Sequentially, sales were up 8% due to higher demand, as well as favorable inventory and pricing dynamics. Once again, Victarbi continues to command a leading position in the treatment of HIV, with another record quarter growing to 45% market share in the US, up 4 percentage points year-over-year. Moreover, Victarbi remains the leading medicine for those seeking to switch to a new regimen in the U.S., as well as those starting treatment in both the U.S. and Europe. Most notably, capturing 10 new starts for every one person prescribed another medicine in the U.S. Looking to the fourth quarter, I'd like to call out a few points. First, given the historic trend towards a significant inventory build in the fourth quarter, followed by inventory drawdown in the first quarter, we are renewing our focus on inventory management in an effort to better align the timing of product delivery with end user demand. Second, while we continue to see strong market share gains for Biktarvy, in addition to solid growth in both the treatment and prevention markets, we will remind you that some of our second and third quarter performance has been driven by shifts in channel mix that have had a favorable impact on average realized price. Given the favorable trends, we observed over the last two quarters, we do expect the channel mix to be more stable in the fourth quarter. With these factors in mind, and also allowing for further FX impact, we expect fourth quarter HIV sales to be roughly flat on a sequential basis, noting that full year 2022 HIV growth is therefore expected to be approximately 4% or 7%, excluding the LOEs and FX headwinds year to date. In summary, we're extremely proud of the portfolio we have built in HIV and excited about the way Gilead is positioned for 2023 and beyond. Specifically, Victorby's clinical profile continues to impress, evidenced by ongoing strong growth rates, even though its annual revenue run rate is now in excess of $10 billion. Discovy for PrEP maintained over 40% market share despite competition and generic entrants. And most recently, Lenacapavir's approval as Sunlunca for heavily treatment-experienced people living with multidrug-resistant HIV in the EU. This is an important option for a group that has very few treatment options and is a great opportunity for physicians and the HIV community to get more familiar with a six-monthly subcutaneous HIV therapy. We believe this sets the stage well for our other planned Lenacapavir-based treatment and prevention regimens. All of this, combined with the treatment and prevention markets showing solid recovery, the impact of the loss of Exclusivia Truvada and Atripla now behind us, and the recent task settlement extending projected U.S. LOEs for Descovy and Odessy into the early 2030s, and Joan Boya's patent to 2029 in the U.S. All of this truly underpins our confidence that Gilead is well positioned for growth and continued leadership in the HIV market. Now on to slide 10. HCV sales for the third quarter were $524 million, up 22% year-over-year and 17% sequentially, primarily due to the favorable resolution of a prior year rebate claim in Europe and other favorable pricing dynamics in the U.S. Offsetting these benefits, there were fewer patient starts in both the U.S. and Europe, consistent with our expectations for both the quarter and the general trend that you should expect in HCV going forward. Despite the trend in patient start, we're pleased to maintain HCV market share of more than 50% in both the U.S. and Europe, and third quarter share increased on a year-over-year basis. For HBV and HDV on slide 11, sales were up 7% year-over-year and 13% quarter-over-quarter primarily driven by favorable inventory dynamics. Moving to that glory on slide 12, third quarter revenues were $925 million. As expected, sales were down year over year given lower US hospitalizations as compared to the same period last year. Indeed, though hospitalizations are below the peak seen at the start of the year, it's clear with the sequential increase that the path of the pandemic remains difficult to predict. Nonetheless, we're proud of the role Viclarie continues to play in the fight against COVID-19. In the U.S., Viclarie is used in approximately 60% of hospitalized patients who are being treated for COVID. Outside the U.S., Viclarie's benefit to patients continues to be recognized by health authorities, including the World Health Organization and the European Medicines Agency, based in part on the pine tree data, which demonstrated a significant reduction in the risk of hospitalization after a three-day IV treatment in the outpatient setting. These factors continue to support the clear utilization where it's needed. Moving to oncology and beginning with Tredelvi on slide 13. Sales of 180 million grew 78% year-over-year and 13% quarter-over-quarter, and we continue to work with regulators, payers, and clinicians around the world to broaden access. Since its approval in second-line metastatic TNBC late last year in Europe, Tdeli is now reimbursed in 13 countries outside the US, with additional markets in Europe and elsewhere expected to come online shortly. We've also begun work on establishing the right infrastructure to support a potential launch into pre-treated HR-positive HER2-negative metastatic breast cancer. Reinforcing the significant unmet need in this population and the clinically meaningful overall survival data demonstrated in the phase three tropics O2 study. FDA has accepted our supplemental biologics license application as priority review, and we look to a decision in February of next year. We're excited by the potential for many more patients to benefit from Tredelvi. Now onto slide 14, and on behalf of Christy and the KITE team, I'm pleased to share that cell therapy sales in the third quarter were $398 million, up 79% year-over-year and up 8% sequentially. These strong results were driven by continued growth in large B-cell lymphoma and KITE's ability to reliably meet customer demand. Together with our recently FDA-approved viral vector manufacturing facility in Oceanside, KITE remains well positioned to ensure clinical and commercial supply availability while it continues to execute on its geographic expansion. For the quarter, Yaskarta sales of $317 million were up 81% year-over-year and 8% quarter-per-quarter, driven by a continued successful launch in second-line LBCL in the U.S. and partially offset by FX headwinds in Europe. Just last week, Yaskarta was approved in the EU for second-line LBCL, and we look forward to launching there in the months ahead. Tecardis grew 72% year-over-year to deliver 81 million in sales, driven by growth in adult acute lymphoblastic leukemia. In early September, the European marketing authorization for Tecardis in relapsed or refractory ALL was granted. We continue to broaden awareness and access to our cell therapies through indication and authorized treatment center expansion in existing markets, as well as through geographic expansion, as demonstrated by our most recent regulatory applications in Brazil, Singapore, and Saudi Arabia. As always, Christy is available for Q&A later on the call. Overall, this was an incredibly strong quarter for Gilead Oncology with revenue of $578 million, up 10% from last quarter and 79% from last year. This represents an almost $2.4 billion annual run rate as we move into the last few months of 2022 and hints at the possibilities ahead as we continue to execute on our commercial and clinical oncology goals. And with that, I'll hand the call over to Murdad for an update on our pipeline.

Thank you, Joanna. Before I start, I'd like to recognize the strong execution of our internal team and external partners across a broad range of activities that's diversified across therapeutic area and clinical stage with milestones spanning study initiations, the SBLA submission for Tredelvi, two EC approvals in cell therapy, and our first approval for Lenacapivir in the EU. On slide 16, you can see that we've made a lot of progress so far this year, meeting nearly all of our milestones. Regarding our BLA filing for Hepcludex, we received a complete response letter from the FDA, citing concerns about the manufacture and delivery of Hepcludex. We will take the time to fully digest the CRL, but note that no new safety or efficacy clinical trials were requested by the FDA. We plan to resubmit as quickly as possible, and we'll work with the agency on the path forward. We remain confident in Bulevratide and the potential benefits it can bring to people living with HDV, and we'll share an update on the U.S. regulatory pathway when we can. Moving on to HIV on slide 17, we're thrilled that Lenacapivir received its first marketing authorization from the European Commission as Sunlenka for people living with multidrug-resistant HIV in combination with other antiretrovirals. Sunlenka is a first-in-class capsid inhibitor. It's the first and only twice-yearly subcutaneous HIV treatment, and that's a much-needed option for those people living with HIV with limited alternatives. We continue to expect a decision on our NDA from Lenacapavir from FDA in late December of this year. In the meantime, this first regulatory approval from the EC is an important validation while we continue to progress our other Lenacapivir-based treatment and prevention programs. For HIV treatment, a new clinical development plan allowing a lower dose of Islatravir, Merck's investigational NR-TTI, is moving forward after FDA review. As such, we're planning to resume the Phase 2 trial investigating oral, once-weekly Lenacapivir and Islatravir combination. Our internal combination programs are also ongoing, and we expect to share data next year from the Phase 1b proof-of-concept study for lenacapavir and two broadly neutralizing antibodies, or BNABs, directed at HIV. In prevention, our clinical development continues to progress with four in-process or planned clinical trials evaluating every six months subcutaneous lenacapavir. Moving to slide 18, Vicluri continues to be recognized as a standard of care for patients with severe COVID-19. with updated guidelines for Vicluri from the World Health Organization. Additionally, the CHMP issued a positive opinion on the use of Vicluri for the treatment of pediatric patients with COVID-19. Although novel treatments and vaccinations have improved the COVID-19 outlook, there's a continued need for effective and convenient oral treatment options for patients. I'm pleased to share that the FDA has just granted our novel oral nucleoside GS5245 fast-track designation which aims to expedite development of promising new medicines. We continue to be in active discussions with the FDA and other global regulators on potential clinical pathways, including a Phase III study that we expect to start within the next several months, either globally or outside the U.S. On slide 19, we show the Phase III tropics O2 results in patients with HR-positive HER2-negative metastatic breast cancer. There was a late-breaking presentation at ESMO in September. Tredelby demonstrated a statistically significant and clinically meaningful 3.2-month overall survival benefit. Patients with metastatic HR-positive HER2-negative breast cancer who have progressed on endocrine-based therapies and chemotherapy have limited options. As a reminder, the patients enrolled in TROPHYXO2 were heavily pretreated with a meeting of three prior chemotherapy regimens in addition to prior CDK4-6 inhibitors. Importantly, The FDA recently accepted our SBLA for Tredelvi, an HR-positive HER2-negative metastatic breast cancer, and granted it a priority review. The PDUFA date is currently set for February 2023. We continue to work with regulatory agencies outside the U.S. to potentially make this medicine available to eligible patients. Additionally, following the acquisition of Tredelvi's Asian commercialization and development rights from Everest Medicines, we expect data from our Phase III metastatic TMBC China bridging trial in the next few months, and our Phase III Asian HR-positive HER2-negative metastatic breast cancer study in mid-2023. Moving to lung cancer on slide 20, you can see that we expect to have at least nine active clinical trials in non-small cell lung cancer by the end of 2022, including five with Tredelvi, as well as programs with Zimbirellumab, Dombinilumab, and Atruma, Merck's Keytruda, AstraZeneca's Dervalumab, and our own Negrolimab. Eight trials are already underway, including the Phase III EVOKE-1 study in second- to third-line non-small-cell lung cancer and our Phase II EVOKE-2 study in first-line non-small-cell lung cancer without actionable mutations. Our partner, Merck, also plans to initiate the Phase III EVOKE-3 study later this year to evaluate the combination of Tredelvi and Keytruda in first-line patients with non-small-cell lung cancer whose tumors express high levels of PD-L1. Additionally, with our partner, ARCIS, we're looking forward to the fourth interim analysis of the Phase II ARC-7 trial, evaluating ZIM and DOM in PD-L1 high non-small cell lung cancer before the end of the year. Data from ARC-7 are expected to support our ongoing Phase III studies for DOM-based combinations in lung cancer, including STAR-121, which just achieved first patient N. Lung cancer is a disease area with high unmet need. and we believe we have multiple promising MOAs and potential combinations that could help bring additional new treatment options to patients. To explore these opportunities, we plan to initiate two Phase II signal-seeking platform studies, Velocity and the Arcus-led EDGE Lung, in the coming months. Overall, we have initiated a comprehensive evaluation of the assets in our portfolio to address the significant unmet need in lung cancer and look forward to sharing updates in the coming years. Moving to slide 21, and on behalf of Christy and the KITE team, we're highlighting our expanding clinical pipeline as we build on the growing momentum and adoption of cell therapy based on the significant survival benefit that Yescarta and Tocardis are delivering to patients. We believe there are still opportunities to bring Yescarta and Tocardis to more patients by moving into earlier lines as well as new indications. As you can see, we've recently enrolled patients in several studies, including ZUMA24, a Phase II study to evaluate Yaskarta in an outpatient setting for second-line LBCL, and ZUMA22, a Phase III study for Yaskarta and second-line plus high-risk follicular lymphoma. We also expect to begin screening for patients for the ZUMA23 study of Yaskarta in Q4. The decision to initiate a Phase III trial in first-line HR LBCL was based on the encouraging data from ZUMA12, where Yaskarta demonstrated 89% ORR, and 78% CR. Additional studies include an evaluation of Tocardis in rare B-cell malignancies and KITE363. It's evaluating a CD19-20 bisistronic CAR-T and post-CD19 third-line plus LBCL. We're committed to continuously improving the safety and efficacy of our cell therapies through both internal pipeline and external partnerships. On slide 22, we turn to hematology. and highlight the breadth of our programs across MDS and AML. For migrolimab, we fully enrolled our phase three enhanced study in MDS ahead of schedule. Our discussions with the FDA and other regulators continue, and we expect to share an update in early 2023. Moreover, enrollment for the two AML trials, enhanced two and three, is well underway, and we're targeting top-line data in 2024. A few weeks ago, we announced our oncology collaboration with Macrogenics to develop bispecific antibodies. This includes the exclusive option to license MGD024, the bispecific antibody that binds to CD123 and CD3, currently in phase one, as well as two additional research programs. This complements Megrelumab and furthers our work as we explore therapies that could translate into better clinical outcomes for patients with AML and MDS. Finally, we are pleased FDA granted KITE222 orphan drug designation at the end of September. It's the first CLL1-targeted CAR-T and is currently enrolling patients in a Phase 1 study. On slide 23, I want to take a moment to welcome NeuroBio to Gilead. We completed the acquisition a few weeks ago and pleased to add the NeuroBio team to the Gilead research family and bring their proprietary discovery platform and immune and inhibitory receptor agonist to our portfolio. This acquisition complements our inflammatory disease cornerstones, including IBD, RA, and systemic lupus. and opens opportunities in other indications. We're excited to continue to explore and develop these antibody agonists, which we believe have the potential to induce immunosuppressive signaling and restore tolerance and autoimmunity. Wrapping up, I'll note that we now have 60 clinical programs underway here at Gilead, spanning a broad range of indications across virology, oncology, and inflammation. We've accomplished a lot in 2022, and yet feel we're really just getting started in exploring the possibilities offered by our portfolio. With that, Andy.

Thank you, Murdad, and good afternoon, everyone. We are pleased to share another strong quarter of results with sequential and year-over-year growth in every franchise across our core business. As shown on slide 25, product sales excluding Vecluri grew 11% year-over-year despite $130 million headwind from FX. If we exclude this FX impact in addition to the impact of previous HIV LOEs, total underlying sales growth year-over-year was 15%. Moving to slide 26, you can see that VECLURY was down as expected year-over-year, although it more than doubled on a sequential basis from the second quarter. I'll note that with the continued strengthening of the U.S. dollar, the total FX impact on revenue net of hedges was higher than expected at approximately $200 million compared to the third quarter of last year. Non-GAAP product gross margin was 87%, down 320 basis points from last year, primarily due to the third quarter 2021 reversal of a previously recorded litigation reserve. Additionally, non-GAAP product gross margin was impacted by higher VicTarvey-related royalty expense and lower VEC Lurie sales. Non-GAAP product gross margin improved sequentially due to higher HIV and VEC Lurie product sales. Non-GAAP R&D, excluding acquired IPR&D expenses, was $1.2 billion, up 10% year over year, primarily due to investments in oncology. Sequentially, R&D excluding acquired IPR&D expenses was up 6%, driven by investments in oncology and COVID treatments. Acquired IPR&D, reflecting acquisitions, milestones, and upfront payments for the quarter, was $448 million, and includes $389 million of expense related to the Miro bioacquisition. Non-GAAP SG&A was $1.2 billion, up 3% year-over-year. Non-GAAP operating margin was 47%, down year-over-year, and driven primarily by higher acquired IPR&D expenses and lower vectory sales. Sequentially, non-GAAP operating margin increased 400 basis points due to higher HIV and vectory sales, partially offset by higher acquired IPRD expenses. Non-GAAP effective tax rate in the third quarter was 22.4%, higher than normal due to the non-deductibility of the upfront MiroBio payments. Overall, our non-GAAP diluted earnings per share was $1.90 in the third quarter of 2022, compared to $2.65 for the same period last year. Of note, the MiroBio transaction impacted post-tax EPS by 31 cents a share, And this was not reflected in the full-year guidance we shared back in August. On slide 27, we take a quick look at our performance year-to-date, which shows total product sales, excluding Vectlory, at $16.7 billion, up 7% year-over-year. If we exclude the approximately $385 million of FX headwinds year-to-date, as compared to the same period last year, in addition to the impact of the HIV LOEs, the underlying growth year-to-date is 11%. Vic Lurie, as expected, is down year-to-date, highlighting the lower demand for COVID-19 treatments in this stage of the pandemic. Moving to slide 28, we are increasing our full-year sales guidance to reflect our year-to-date results and our expectations for Q4, including our latest view of FX. For revenues, we now expect total product sales of $25.9 to $26.2 billion. up from our previous range of $24.5 to $25 billion. This reflects the strong performance year to date, notably very strong growth in HIV, Reclurie, and cell therapy, and incorporates our expectations for the broader macro environment, including FX, which will once again be a headwind in the fourth quarter. In HIV, as Joanna discussed, we expect HIV revenue in Q4 to be roughly flat on a sequential basis. In cell therapy, We expect slower growth on a sequential basis, primarily due to stabilizing demand following the second-line LBCL launch and FX headwinds. Additionally, we are taking a cautious view with regards to both the current shortage of food aerobene, which we expect to be partially mitigated later in the fourth quarter, and to the competitive landscape as our peers improve their manufacturing reliability. Moving to Vic Lurie, and with year-to-date revenue of $2.9 billion, we are increasing our expectations to approximately $3.4 billion for the full year. Note that we expect Vecluri sales to continue to track hospitalization rates, and our guidance assumes no significant increase in hospitalization rates from the third quarter levels. Excluding Vecluri, we expect our total product sales to be $22.5 to $22.8 billion, representing growth of 5% to 6% year over year, compared to our prior range of $22 to $22.5 billion. As for the rest of the non-GAAP P&L, product gross margin is now expected to be in the 86% to 87% range compared to our prior guidance of approximately 85% to 86%. There is no change to our R&D guidance, where we expect full-year R&D expense to increase by a mid-single-digit percentage compared to the 2021 baseline of $4.5 billion. Moving to acquired IP R&D, we are not issuing guidance for the full year, and similar to what we did with MiroBio this quarter, we'll update our EPS guidance quarterly as needed to reflect any relevant activity during the quarter. What we've included here is the year-to-date acquired IPRD amounts, including approximately four cents per share associated with the Macrogenics collaboration that we announced last week. The guidance shared today does not include any upfront payments related to normal course of business partnerships or licensing deals that we might close in the fourth quarter. For SG&A, With our continued investment across our commercial organization and expectations for higher costs as a result of inflation, we continue to expect SG&A expenses to grow by a low single-digit percentage compared to 2021. Altogether, we expect operating income to be $11.8 billion to $12.2 billion for the full year, up from $11 to $11.6 billion previously. And finally, we now expect our non-GAAP diluted earnings per share to range between $6.95 to $7.15 per share, up from $6.35 to $6.75 previously. This EPS guidance range is approaching our 2021 non-GAAP EPS results, despite an expected $2.2 billion decline in VEC lorry revenue and a more than half a billion dollars in total FX headwinds anticipated through the end of the year as compared to 2021 rates. This highlights the strength of our core business, which is now expected to grow in the 5% to 6% range in 2022. On a GAAP basis, we expect our diluted earnings per share to range between $3.35 and $3.55 per share, compared to $2.90 and $3.30 per share previously. Finally, on slide 29, you can see that there is no change to our capital allocation priorities. In the quarter, we returned over $1.1 billion to shareholders including $928 million in dividend payments and $180 million in share repurchases. As we announced previously, we repaid $1 billion of debt early in the third quarter and have returned to the same debt level we were at prior to the Immunomedics acquisition. With that, I'll invite the operator to open the Q&A.

Of course. Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. Please limit yourself to one question at a time, and please re-queue for any follow-up questions. And as a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from Chris Schott with JPM. Chris, your line is now open.

Great. Thanks so much for the question. My question was on Lenacaprevir and in treatment. I want to talk a little bit about maybe first Islatravir and the lift of the clinical hold. How interesting is that as a partnered asset relative to your internal programs? And as a second part of that, just a bigger picture one in treatment, Do you see the portfolio with Lena Capravia resulting in, I guess, a number of different combos that serve different segments of the market? Or is it more likely you're going to end up with one of these combos that really separates from the other and becomes an anchor-type asset like we see with Biktarvy? Thanks so much.

Hi, Chris. This is Murdad. Let me... First start by saying that we are really excited about the recent approval for Lenacapavir in the highly treatment-experienced population. Obviously, that's a group of people who have limited options, and I think Lenacapavir as a new class provides a new opportunity for them. In terms of Islatravir, what we like about Islatravir is that it is fairly late in its development, we were able to be in phase two with that. And I think it provides us a relatively near-term opportunity to launch a partner in treatment for Lenacapavir that could be given in a long-acting way. And I think that's really important in terms of where the market's going and what our goal is in terms of, as we've said before, providing a long-acting parenteral option that is longer than, you know, is in the three months or longer timeframe. And we're optimistic about our ability to do that. So for that, we have our internal pipeline assets that are really providing our options there. For Islatravir, That's part of our oral program. And for us, we do think that we have a number of opportunities in terms of oral programs to provide weekly oral treatment options for people using lenacapivir. And right now, it's a potential. Certainly, islatravir is an option there. And we have other options in our pipeline that could potentially get to that level. So the way I look at it, just to answer directly your last question, We do think that there will be, you know, a Lenacapavir partner and there will be probably one partner that will achieve our therapeutic goals in oral, potentially a different partner in parenteral. And as we go forward, if we can make improvements, whether that's to Lenacapavir and being able to provide even longer than six months therapy, or to the partner that we could extend the duration of therapy with a different molecule or different formulation, we'll always try to get to that longer exposure. So over time, I expect us to continue to try to innovate and move forward.

So maybe just to add to that, Chris, in light of what Murdad was just referring to, we've done a lot of patient market research to really understand the segments within the oral market, but also with the long-acting market, specifically in treatment, which is quite different to your point to prevention. And in the treatment setting, it is clear that you will always have a market for that daily oral, which we believe Biktarvi has really set the standard there. And then there are others that, you know, the weekly oral will be more preferred. Some people just want to make sure they're taking something every single day. Others don't want to be reminded that they have HIV. And then you have, obviously, the injectables or the sub-Q with lanacapavir combinations every three months or potentially even every six months that will be very appealing to some that don't want to be reminded at all. And so those are kind of the segments we're trying to play out. So I do think in the long-acting, there will be more of a split segment than we've seen in the daily orals.

Amber, are you ready for the next question, please?

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

Good afternoon. Thanks for taking my questions. On the TIGIT program, what is the likelihood that we'll see PFS data at this point? And if we don't, when could that come? And then based on the interim updates, it does seem like you already have clear benefit on ORR, at least on the doublet arm versus monotherapy. would love to see if you could just walk us through the possible scenarios with this data readout and if there's any outcome that could impact the recently initiated phase three studies.

Thanks, Sally. This is Murdad again. Yeah, maybe I'll start by saying that, really, Nothing, nothing has really changed in terms of the arc seven study and where we're headed. And the reminder make is that this is going to be the fourth interim analysis for the ongoing phase two study and enrollment was only recently completed over the summer. And so when we look at that, if you think about it in that context, to your point, we continue to look for consistency in the DOM and ZIM combination as a doublet in the ORR to bolster our ongoing phase three program, just to underline our confidence in the TIGIT and DOM combination based on the data we've seen already, and this should continue to support that. In terms of PFS, You know, I think PFS is, as I tried to allude to, given the fact that enrollment went on until fairly recently, the likelihood is that PFS is going to be fairly immature and may not be informative. And certainly when we think about the triplet there as well, it's unlikely that PFS is going to be informative, but it may be. And so we'll look at that, and our plan is to evaluate the data and then decide with our partners at ARCIS what, you know, the data and how we approach it. And certainly, as we've said before, making sure that we are sharing the data at a medical conference next year. And exactly to your point, it's really about confirming the confidence we already have in Tidget in moving into phase three with the lead programs that we're moving with. So hope that answers your question.

Amber, may we have our next question? Our next question comes from Brian Abrams with RBC. Brian, your line is now open.

Good afternoon. Congrats on the quarter, and thanks for taking my question. A question on Tredelvi. With the maturing tropics to overall survival data and the evolving competitive landscape, I'm curious on your latest views on where you see Tredelvi fitting in and the HR-positive HER2-negative population. Any updates on market research, on how it might be used, your commercial strategy to align with that? And I'm curious also your latest expectations on how effective it could be post-in HER2 in certain patients who may receive that first. Thanks.

Hi, Brian. It's Joanna. Thanks for the question. So basically, let me start by saying with Tridelvy, the performance for the quarter has been really strong. We're seeing 78% year-on-year growth, 13% quarter-over-quarter, and we're seeing markets add in every week, basically, and reimbursement kind of playing out. We have now over 13 countries ex-U.S. that have gotten reimbursement, so we're seeing really strong launches, namely France, Germany right now, and other markets coming in as we're speaking. So strong foundations there. I think having OS data in both triple negative breast cancer as well as now with tropics O2 in the HR positive HER2 negative patient population really helps the foundation for Tredelvi, but really helps across breast cancer. To your specific question around kind of where do we position ourselves, obviously with tropics O2, we're in previously treated, heavily treated lines of therapy, right, when you think about this patient population. So a little bit different than some of our competitors. And so we're excited actually because these patients have very limited options. And so now with Tredelvi, there's a real potential for overall survival in these late line patients. So we do think that as we're playing it out, as we're doing our market research, we feel very confident that Tredelvi will be very well positioned in the marketplace and will build on the success that we've seen thus far in triple negative breast cancer as well. in how we're playing that out. So we expect continued momentum in our base business. And, you know, I might have mentioned before in one of the previous calls how we've expanded our footprint specifically in the U.S. to prepare for both not only the expansion of what we need to do in triple negative breast cancer, but also what we need to do in HR positive. And so we're well poised to make sure that we're ready for that producer date coming up in February to make sure that we're successful.

And maybe, this is Murda, maybe I'll add to that. We're not done, right? I think we're excited about how much we've been able to achieve with Tredelvi so far. And you've seen consistent positive data across tumor types. And in particular, I think, as Joanna highlighted, the late-line therapy. Certainly, those are patients who may now, there's a potential that some of them will be getting in HER2 beforehand. We don't have data on sequencing, but I do believe that, you know, there may be those who decide to treat for those patients who may not respond adequately to an HER2 to later lines, right? So that's kind of where certainly there's an opportunity there. The other thing I would add is that we've got really strong data in triple negative breast, including the HER2, sorry, in HR positive breast cancer. including the HER2 zero population. And I think that's a very important distinction and really important to remember. And then finally, based on what we've seen so far and the clinical benefit we've brought, we certainly believe that there's an opportunity for us to move to earlier lines of therapy as well in breast cancer, in triple negative, in HR positive, and in other tumor types. I think that's Our excitement about Tredelvi has always been the ability to go into broad tumor types, and our strategy has always been to advance into earlier lines of therapy as we generate positive data.

Now we have our next question, please.

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

Hey, guys. Thanks. Congrats on a great quarter. I also wanted to ask Murdad a question on Tredelvian lung cancer. I mean, I would think that this is an even bigger opportunity than breast cancer. On EVOKE1, which is ongoing, can you confirm you think you would have data next year and how you think about that opportunity versus second-line docetaxel? I know there's some early response rates based on the basket study when you acquired immunomedics, and I was wondering if you've had more data in lung cancer that you've been observing to give you more confidence there. And then you commented on Evoke 2 and Evoke 3, which is the first line. I just wanted to understand, do you think we would have data on Evoke 2 next year? I would think that's pretty big trying to replace chemo. So maybe comment on Evoke 1 and Evoke 2. Thank you.

Yeah, Michael Murdad, thanks for the question. I think, you know, just to follow on, it's a great follow on to the prior question around our ability to really look across tumor types and in early lines. And in particular, I think what you're referencing is our confidence in going to early line lung cancer and starting those studies. To your point, we've seen data, as you know very well, from our early phase 1b study in lung cancer, and we continue to enroll, and we've initiated now studies looking at both the second and third line setting, and then as well as in the front line setting. As you know, we're doing a study in combination of VOCO3 with the PD-1 in the PD-L1 high population, which I think is really an important trial for us to proceed on. So I think what I would say is that, you know, the timing of the data, Michael, is always difficult to predict. We have to see how the study enrollment goes in its early days. But we're really excited about the opportunity to bring a meaningful therapy to a group with a very high unmet need.

Amber, may we have a next question, please?

Our next question comes from Brian Scorney with Baird. Brian, your line is now open.

Great. Thank you for taking the question. Maybe perhaps for Murda, just kind of jumping off on the long-acting HIV discussion. I noticed in the pipeline slides, long-acting Bictegravir has been removed from the pipeline. Obviously, it would have been nice to have a known entity like Bictegravir part of the combo. I was just wondering if you could give us any insight into what happened in the phase one there. Is Bictegravir missing a PK threshold, or is it something that you're seeing with 6212 or 5894 that gives you more confidence there? Thanks.

Yeah, thanks for the question. Happy to expand on that. Yeah, look, Bictegravir is an amazing molecule and is done a lot for patients. And one of the opportunities we looked at is, in addition to thinking about Bictegravir for long-acting oral, was to see if we could give it as a long-acting subcutaneous. Really what happened is we had tolerability issues just giving that molecule sub-Q in terms of injection site reaction. So it's not about the molecule itself. One of the challenges of developing long-acting subcutaneous therapies is tolerability. And so, you know, I want to make sure that it's clear that Bactetravir as an oral agent continues to be a huge part of where we want to go. And then maybe just to step back to your point, the way I think about it, maybe the way to think about it is from a PrEP standpoint, long-acting, we are Lenacapivir. It's PrEP for long-acting, and those studies are underway, moving along nicely. From a treatment standpoint, as I mentioned earlier, Lenacapivir is a huge part of our backbone therapy for us. And now we are looking at a number of different opportunities to get to long-acting oral and long-acting parenteral. And, you know, molecules like laminocapyvera don't come along every day. We are looking for a number of, at a number of molecules. We think we have the world-class expertise in chemistry, and preclinical development that gives us a leg up on the competition to get to those molecules that will really get to the need that Joanna laid out, which is to get to the subcutaneous or every three months dosing or even longer. And that's what we're looking for.

Amber, may we have our next question, please?

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

Great. Good evening. Thanks for taking the question. I just wanted to ask a question on 5245. Can you just talk a little bit about the range of possibilities you might be thinking about in terms of what a phase three might look like, and then just sort of where you see commercially what sort of data you might need to compete, just given the fact that it may be hard to have the same kind of data set as some of those pills that were developed earlier in the pandemic? Thanks.

Hey, Matthew, Dan O'Day here. So we'll have Murdad take the first part of your question, then Joanne to compete into the second.

Yeah, thanks, Dan. Yeah, thanks, Matthew. So 5245 has, you know, as you know, we started those trials in phase one earlier this year. Things are going well. And as you know, the pandemic has changed a lot. And I think you make an excellent point that Looking at high-risk patients is a challenge right now, and looking at high-risk patients who may get hospitalized is a challenge right now, given vaccination, other treatment options. So, exactly to your point, I think the discussion we're having internally and with our regulators is, what's the best population for us to establish the benefit of 5245? And how does that anticipate what might come down the road, which has been the unpredictable part, whether that is resistance to other agents, the need for combination agents, new variants that may increase the hospitalization rates. Those are all the things that we have to be prepared for. And we really see 5245 as a way of, you know, as we move forward with that and move into clinical trials, once we demonstrate its efficacy as an important tool, should the pandemic start to pick up again, heaven forbid. But that's how we think about it. So both combinations and treating resistance or a new surge.

Yeah. So in line with that, Matthew, Joanna, I would just add to what Murda was saying. So I think from a commercial standpoint, what we're thinking is the fact that it doesn't have a boosting agent is a real plus here. As well as the fact that we're going to look at rebound effects that we've seen with current marketed products right now have that that issue. And so in addition to the antiviral activity. So I think those pieces are kind of what we're thinking about As well as you know, as you well know, drug drug interactions has been, you know, a bit of an issue with some of the current agents today. So I think if you without the boosting agent. I think those will just open up a little bit more for broader patient population potentially to really benefit. And as we've seen with these, this pandemic, it's not over. We've seen hospitalizations go up and down. We've seen a little bit of an increase most recently, and we're tracking that very closely with hospitalizations, of course, because of that glory. Um, but we do believe that, um, there's still opportunity for more options here, um, to, to make sure that we, we curve this pandemic.

And Matthew, this is Dan. I'll just add one other thing in addition to my colleagues, which is, you know, in our conversations with the U.S. government, particularly the recent fast track designation that was applied to GS5245, you know, there's three major things that they're interested in, too. Number one is more oral antivirals. Number two, to the point that both Murdad and Drenna made, working across the variants as the virus continues to mutate. And then thirdly, lack of DDI, lack of boosting, and this rebound issue. So I think it's a recognition of the fact that there is a need for the ongoing pandemic, endemic, whatever you want to call it with COVID, for additional options. And I think that's expressed in the way the U.S. government wants to work closely with us as we continue to develop this program.

Amber, may we have our next question, please?

Our next question comes from Tyler Van Buren with Cohen. Tyler, your line is now open.

Hey, guys. Thanks. Congratulations on the results. Great quarter. I had a follow-up high-level question on Vic Tarvey. So the product continues to see very impressive uptake, and it looks like it'll be around 60% of HIV product revenues this year. So where do you expect the product to peak out as a percentage of HIV sales over the next several years?

Tyler, it's Joanna. Thanks for the question. I would say that we're really proud of the BIC-TARBIE performance, but I would say even the increased momentum that we're seeing, and this is not just in the US, this is really around the globe. And so, you know, we're just about 45% market share with BIC-TARBIE. We've seen 4% share gain year on year. And now we're looking at an annual run rate in excess of about $10 billion. So I do think we're very well poised for the future. The, um, we're looking at both the naive share, obviously, and just about under 60% of that share, um, right now with big Harvey. So really setting the standard for new patients coming into HIV and obviously the switch share, and you can't, you know, switch here is obviously a little bit lower because you can't switch to big Harvey if you're already on big Harvey. So, so therefore we're tracking that very closely as well, but making sure that when there is opportunity, either from older. drugs or when there's been some issues for patients to really come on to BIC-TARVY just because it really does have a profile from an efficacy standpoint and safety standpoint. So we do believe that continued growth with BIC-TARVY is on the agenda. And I would also add just a little bit of a note around the market as well, which also helps, right? Because where the market goes, BIC-TARVY goes, and where BIC-TARVY goes, the market goes. We've seen market stabilization actually back to pre-pandemic levels. and growing at about 2% or so year on year, both in the U.S. as well as in Europe. And so that also really helps our momentum continue, and BITARBI is driving that as well. Of course, in a lot of our efforts, the teams have worked very closely with community partners and physicians and advocacy groups to make sure that we get patients back into clinics, back into care, both from a screening standpoint and diagnosis standpoint, and you really see those numbers back to pre-pandemic. I think we're in a good place moving forward and well poised for the future to continue this leadership in HIV driven by B-TARVY.

Amber, I think we'll squeeze in just two more, please. May we go to the next caller?

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

Hi, guys. Thanks for taking my question. I wanted to touch up on a slightly different topic today, and I have a two-part question for Dan and Andy. And this is on the Tenofovir litigation that's been ongoing. And then I guess my question really was, there's a very unusual amount of plaintiffs aggregated up in this case. And I'm curious, is it something you guys are looking to take to a final judgment or would you be open to a settlement? And that brings me to sort of the second part. Andy, how much of a legal charge have you taken on this litigation to date? Because I know you've been doing that on the Tarvey and other litigation in the past. And is there something more significant that has to happen for a more prominent charge to show up? I ask because every company handles the accounting differently, so I was just curious. Thank you.

Thanks, Umar. You know, let me just start before I hand it over to Andy to say, obviously, with any litigation, we don't comment on ongoing litigation in any level of detail. I do want to emphasize the confidence we have in our overall patent portfolio in general. And maybe with that, I'll hand it over to Andy to answer some more specifics of your question as well.

Yes. Thanks, Dan.

Hi, Omer. Thanks for the question.

I'm happy to touch base on this. This is a topic, as you know, that we've been getting a lot of questions on with the Zantac litigation. So a number of things that I can provide some background and context. So first of all, like most companies, anyone operating in the U.S., we are routinely managing a lot of different litigation matters, as you know. Many of those are, from our perspective, meritless or baseless. As a matter of practice, we don't typically or usually comment on specific litigation cases. What I can say, stepping back, is that we have won or resolved the three material litigation matters over the past year, as you know, on terms that were favorable to the company and to our shareholders. the Juno Kite IP litigation, the Veve IP litigation around Bictegravir, and the third was the TAF litigation with generic companies. We have an outstanding legal team, both internally and externally. And then maybe to your specific question, I mean, we have complete confidence in the merits of the defense on the ongoing product liability case. So it is very different than the Zantac litigation case. So just to your question on the number of plaintiffs, for instance, if I remember correctly in the Zantac cases, There were 250,000 patients. In our case, I'm sorry, plaintiffs, there were 25,000 in ours. But the key difference is that, you know, the issues at hand here, I mean, our TDF-based products are lifesaving products that really transform care for HIV. And the side effects of the products were in the label from day one. The labels in the U.S. and Europe were slightly different, but the labels were there. These were well-known, well-disclosed potential side effects. And I think that's an important piece of it. So it's a very different case. Zantac, if I remember correctly, was taken off the market and reformulated. So be careful about drawing too many parallels between what you saw with Zantac and some of the companies that were affected by that in this litigation. That doesn't mean that we don't take it seriously. We do take it very seriously. And as I said, we have a great team that's working on it. The last thing, maybe the last two things, there are a number of amicus briefs that have been filed. Those are all publicly available. This is in the California state litigation. that I would encourage you to read. I think there are four or five amicus briefs that really speak to how different this cause of action is relative to what you would typically expect to see in a case. And then finally, on the charge, no, we have not taken a charge. And as I said, we feel very strongly about the merits of our case and look forward to proceeding with the litigation over the coming months and years. So good question. Thank you.

Amber, may we go to our last question, please?

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

Great afternoon, guys. Thanks for the questions. Mirdad, I want to follow up on a few questions that you've gotten on long-acting HIV. You know, I know it's been tricky to develop a doublet that has a comparable profile to Lenacastrovir, but, you know, is there a mechanism that you have either in-house or that you've seen in HIV that Looks like it's more straightforward to develop long acting. I wasn't sure if integrase would be better than nuke versus non-nuke or something of that category. Thank you.

Thanks, Jeff. This is Murdad. Yeah, I think our chemistry and our virology team do favor the instees as a class where we believe that we have a, a better shot at getting to a long-acting partner for the capsid inhibitors. So I would say a fair bit of our effort is going into those, and we are open to looking at a variety of mechanisms to achieve our goal. We just think that the entities are more likely to get there. I will remind you, this may have gone under the radar, but we do have the program where we are looking at the BNABs. I did mention it in the script. And that does provide us another option for people from a long-acting standpoint where, you know, we're looking at every six months potentially there. So we are pretty open and committed to finding the right partner that will achieve our goals.

Terrific. With that, this is Dan. I just want to thank all of you for joining today. And I just wanted to emphasize how we believe our third quarter performance demonstrates the tangible impact of delivering on our strategy. After putting the right foundation in place over the past three years, we're now seeing the positive momentum that continues to build. It's an exciting time for the company as we realize our potential to do more to reach further and help more patients in the communities we serve. So I just want to take this opportunity to thank all the colleagues again at Gilead and Kite to thank all of you for joining your interest in Gilead. And as usual, if you have any additional questions, please reach out to our investor relations team. As you know, they're more than happy to help. And thank you for joining today.

This concludes today's

Third quarter 2022 Gilead Sciences Earnings Conference Call. Thank you for your participation. You may now disconnect your line.