Gilead Sciences, Inc.

Good afternoon. Thank you for attending today's fourth quarter and full year 2022 Gilead Sciences Earnings Conference Call. My name is Hannah, and I will be your moderator 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 1 on your telephone keypad. I would now like to pass the conference over to our host, Jackie Ross. 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 fourth quarter and full year 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 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 2023 financial guidance, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand the company's underlying business performance. The GAAP to non-GAAP 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, everyone. We had the opportunity to connect with many of you a few weeks ago in San Francisco, and I'm excited to be able to reconnect now to share our strong fourth quarter and full year results for 2022, in addition to our guidance for 2023. These show the tangible impact of our business transformation, notably the growth trajectory for our HIV portfolio and our fast-growing oncology business. The team will take you through our quarterly results in detail, but I'm very pleased to highlight on slide four the strongest full-year growth in our base business since 2015, when growth was driven by the peak of HCV sales. Full-year 2022 sales at Victarvy grew 20% year-over-year to $10.4 billion, exceeding $10 billion for the first time. Excluding Victory, our base business in 2022 grew 8% year-over-year And I'm pleased to share that our initial 2023 guidance points to base business growth between 4% and 6%. Andy will share our revenue guidance in detail, but I do want to take this opportunity to recognize the Gilead team for the progress we've made in returning to growth. Thanks to their commitment to improving the health of people and communities around the world, Gilead is now poised to extend its reach to more patients and more challenging diseases and conditions than ever before. Beyond our financial results, our clinical progress in 2022 reinforces how far we've come. At the end of the year, Sunlenka received its first approval in the U.S. for heavily treatment-experienced adults with multidrug-resistant HIV infection. This follows the European approval in the third quarter. Sunlenka is the first six-monthly subcutaneous medicine to be approved, and we believe it represents the most exciting innovation in HIV therapeutics in recent years, with significant potential across prevention and treatment. We look forward to partnering with the HIV community to increase awareness of Sunlenka and to advancing our portfolio of long-acting options. We are anticipating another potential approval any day now with the upcoming PDUPA date for Tordelvi in pre-treated HR positive HER2 negative metastatic breast cancer. We also expect to hear from European regulators later this year. In the meantime, Tordelvi's commercial momentum is building with full year 2022 sales growth of 79%. In cell therapy, we continue to reinforce our leadership and to execute on plans to broaden availability with Yaskarda most recently approved in Japan for second-line relapse through refractory large B-cell lymphoma. Murdad will talk you through our pipeline updates and key milestones in a few moments. For now, I'll simply note the significant expansion in our clinical programs, which have more than doubled in the last four years. We continue to add further programs, including our new preclinical candidates to partner with Lanacapavir for our long-acting HIV treatment programs, the new phase three oak tree study for a novel oral COVID-19 nucleoside, and the five phase three trials that we expect to initiate this year. Before I hand over to Joanna, I want to briefly review the clinical goals we shared with you a year ago. The Gilead and Kite teams have done a terrific job in both delivering as planned and acting with agility in response to changing circumstances. We had an impressive year of disciplined and determined execution in 2022, and fully expect to further strengthen our track record of execution in 2023 and beyond. With that, I'll hand over to Joanna for a review of our fourth quarter and full year commercial performance. Joanna?

Thanks, Dan, and good afternoon, everyone. Before discussing our commercial results, I want to acknowledge our Gilead team for delivering another outstanding quarter and closing out a very successful year. 2022 was an exceptional year for Gilead, with our virology franchise well-positioned to continue its leadership for years to come and significant progress in executing our oncology strategy and bringing new medicines to improve the lives of more patients all around the world. Starting on slide seven, we had a very strong quarter, delivering a total product sales excluding that query of $6.3 billion, up 9% year over year, or 12% excluding the impact of FX and the loss of exclusivity of Travata and Atripla with solid growth in each of our core franchises and growth across all geographies. Once again, led by HIV and oncology. Quarter of a quarter, sales grew 5% driven by HIV, Tredelvi, and cell therapy, partially offset by HCV. For the full year, Total product sales excluding Vicklery were $23.1 billion, up 8% year-over-year, or 11%, excluding the impact of FX and the Truvada Tripla LOEs, driven by HIV and oncology. As expected, full-year Vicklery sales were down meaningfully in 2022 compared to 2021. That said, Vicklery's performance has been more sustainable than we previously expected, and it's clear that it continues to play an essential role for hospitalized patients treated for COVID-19. In 2022, Vecluri delivered $3.9 billion, including $1 billion in the fourth quarter. Overall, full year total product sales of $27 billion was flat compared to 2021, as growth in our base business was offset by the decline in Vecluri sales. On slide eight, HIV sales for the fourth quarter were $4.8 billion, up 5% year-over-year, driven by higher demand as well as favorable pricing dynamics. This was offset in part by a smaller-than-usual inventory build in the fourth quarter, reflecting our early efforts on seasonal inventory management. Sequentially, HIV sales in the fourth quarter were up 6%, primarily driven by favorable pricing and inventory dynamics as well as higher demand. For the full year, HIV sales of $17.2 billion were up 5% year-over-year due to higher demand, primarily related to the continued strength of Biktarvy, in addition to channel mix leading to higher average realized price. This was partially offset by inventory dynamics and FX. Overall, the HIV treatment market in the fourth quarter grew 1.5% year-over-year in the U.S. and over 2% in Europe. On an annual basis, the market has grown in line with our expectations of 2% to 3%. Moving to prevention, the U.S. PrEP market grew 18% year-over-year and 3% sequentially in the fourth quarter of 2022, reflecting growing awareness. Dyscovy sales for the fourth quarter were $537 million, up 13% year-over-year and 7% sequentially. Notably, despite generics and other entrants, demand for Dyscovy for PrEP continues to increase, up more than 20% for the full year, in addition to maintaining a stable market share of over 40%. With these trends and the TAF IP settlement last year, Discovery's position in the growing PrEP market has only strengthened. Overall, this provides a strong foundation as we look to the potential launch of Lenacapavir for PrEP as a true long-acting, every-six-month regimen in the middle part of the decade. Moving to the target on slide nine, sales for the quarter were $2.9 billion, up 15% year-over-year, primarily driven by higher demand, as well as favorable pricing dynamics, offset in part by lower channel inventory. Quarter-over-quarter, sales were up 6%, similarly driven by higher demand, as well as favorable pricing and inventory dynamics. In every quarter since our launch, we've seen Vic Tarvey continue to gain market share, and the fourth quarter was no exception, getting more than three percentage points in share year over year. This continued momentum is a testament to Bictarbi's differentiated clinical profile, reinforced by the long-term five-year data we presented last year. Notably in the US, Europe, and other major markets, Bictarbi remains the number one regimen for new starts, in addition to its number one position in treatment switches across most of the major markets, including the US. At the end of 2022, there were almost 1 million people managing their HIV with Biktarvy worldwide. Taken all together, this has led Biktarvy for the first time to achieve full year sales of over $10 billion in 2022. Looking ahead, we're confident Biktarvy will remain the leading medicine for the treatment of HIV in the US, Europe, and other major markets for years to come. Now looking ahead for the first quarter of 2023 for HIV, a few points I just wanted to call out. First, with respect to pricing dynamics, as we enter the new year, we expect a typical first quarter reset in patient copays and deductibles. As always, these will have an unfavorable impact on average realized price in the first quarter. Second, a reminder that we've historically seen inventory buildup in Q4 that has led to notable drawdowns by wholesalers in Q1. While we've implemented new processes to better manage inventory dynamics from the fourth quarter into the first quarter, we continue to expect an inventory drawdown to occur in Q1, albeit at more modest levels compared to prior years. So with this in mind, we expect HIV sales for the first quarter to decline by low teens sequentially from the fourth quarter. This compares to the 18% sequential decline we reported in the first quarter of 2022. For the full year 2023, I'd like to remind you that some of our HIV performance in 22 was driven by shifts in channel mix, that had a favorable impact on average realized price, contributing in part to the 5% year-over-year revenue growth we reported in 2022. We expect channel mix in 2023 to be relatively similar to last year, and therefore do not expect HIV growth to benefit from changes in average realized price like we saw in 2022. As a result, we continue to expect HIV to grow in 2023, albeit at a modestly lower growth rate than 2022. As we think about the future of the HIV market, Gilead is well positioned to provide many people living with HIV and those at risk of HIV with multiple options for care. To that end, we're excited about the recent approvals for Sonlenka in the U.S. and Europe for heavily treatment-experienced adults with multidrug-resistant HIV infection. This first indication represents only 1% to 2% of people living with HIV, but it's a huge unmet medical need. These individuals have cycled through multiple antiretroviral regimens, and until now have had very few, if any, effective options left available. Sunlenka is now approved in the US, UK, and European markets, and we're working as quickly as possible with regulators and reimbursement bodies to make Sunlenka available in many more countries. We believe this first launch of Sunlenka represents a key milestone for Gilead and looking forward in the treatment and potential prevention of HIV. With Sunlenka, a true long-acting regimen is a reality. As awareness and familiarity of Sunlenka's every six months subcutaneous administration grow among healthcare providers, community groups, and people living with and at risk of HIV, we believe Sunlenka is well positioned for the future. Turning to HCD on slide 10, sales for the fourth quarter were 439 million, up 12% year-over-year, reflecting timing of Department of Corrections or DOC purchases, and favorable pricing dynamics in the U.S. Quarter-by-quarter, HDB sales were down 16%, primarily due to resolution of a rebate claim in Europe in the third quarter of 2022 that did not repeat, as well as other pricing dynamics in the U.S., offset in part by timing of DOC purchases. Going forward, we continue to expect new starts to decline, but are encouraged that our market share remains over 50% in both U.S. and Europe. Sales of HPV and HDB for the fourth quarter were $255 million, as shown on slide 11. Sales were down 4% year over year and down 3% sequentially, primarily due to lower vanity demand and pricing dynamics outside of the U.S. Moving to Beclery on slide 12, sales for the fourth quarter were $1 billion with a full year totaling $3.9 billion. It's clear that as the pandemic has evolved, Beclery's role in the treatment of COVID-19 has remained unchanged as a key part of the standard of care for hospitalized patients. In fact, Viclar is still the only antiviral approved in this setting, and in the U.S., Viclar continues to be used in over 50% of hospitalized patients who are being treated for COVID-19. We're excited to continue to work on our oral COVID-19 nucleoside, which Murdad will discuss shortly. Moving to oncology, and beginning with Chidelvi on slide 13, sales of 195 million in the fourth quarter grew 65% year-over-year and 8% sequentially. For the full year, Tridelvy's sales were $680 million, up 79% year-over-year. As we continue to broaden access to Tridelvy around the world, we're encouraged by the growing demand in existing markets. Tridelvy is now reimbursed across the major European markets, and in the U.S., demand was up 13% quarter-over-quarter, a growth rate almost double from the prior quarter, reflecting the solid contribution of our expanded fuel force and growing awareness. We're also excited by the expected decision from the FDA later this month, which could expand Chidelvi's potentially clinically meaningful benefit into the pre-treated HR-positive HER2-negative metastatic breast cancer setting. We estimate this represents at least 6,000 addressable patients in the U.S., and our U.S. field force has just wrapped up this launch meeting and is energized for the upcoming approval. The opportunity for Chidelvi to benefit patients with pre-treated HR-positive HER2-negative metastatic disease is supported by the recent NCCN category one preferred recommendation for Tredelvi based on the Tropics O2 data. Additionally, the European Medicines Agency recently validated our marketing authorization application for Tredelvi in HR positive, HER2 negative, and we look forward to a decision later this year. Now onto slide 14, and on behalf of Christy and the KITE team, cell therapy sales in the fourth quarter were 419 million, up 75% year-over-year and 5% sequentially. Full year, cell therapy sales were $1.5 billion, up 68% year-over-year. The growth in the fourth quarter and full year were driven by continued uptake of Yaskarta in large B-cell lymphoma, notably in the U.S. Growing physician familiarity with Yaskarta data and Kite's industry-leading manufacturing continue to be key growth drivers. The Ascarta sales were $337 million, up 85% compared to the fourth quarter of 2021, and 6% sequentially. We're pleased to see not only strong momentum in second-line LBCL in the U.S., but also continued uptake in third-line LBCL in both the U.S. and across European markets. Tecarta sales were $82 million in the fourth quarter, up 2% quarter-over-quarter, with growing volume demand in both mantle cell lymphoma and adult acute lymphoblastic leukemia. Year over year, Ticardis sales were up 44%. We're pleased to see the building momentum of CAR-T cell therapy as a treatment class with curative potential, and you start in Ticardis as the leading cell therapies of choice globally. More patients are getting access due to Kite's industry-leading reliable manufacturing capabilities and the team's expanding footprint of authorized treatment centers around the world. And just last week, UK's National Institute for Health and Care Excellence, or NICE, recommended Yaskarta for routine use in third-line large B-cell lymphoma. This makes Yaskarta the first CAR-T available for commissioning in England. Approvals and reimbursement into additional indications that are currently available in the U.S. to other markets is expected to continue over the next year. Yaskarta was recently approved for second-line LBCL in Japan, which has the potential to be the second-largest cell therapy market outside of the U.S., and we look forward to the transfer of the marketing authorization to Gilead and Kite later this year. In the interim, although still early days, we'll continue to work with our partner, Daichi Sankyo, to make Yaskarta available to approximately 7,000 patients in the Second Line Plus setting. Kite will begin manufacturing supply for the Japanese market through our El Secundo, California facility. And with that, I'll hand the call over to Murdad for an update on our pipeline.

Murdad? Thanks, Joanna. I'm pleased to be starting 2023 with all the momentum of 2022 behind us. With the positive data readouts for Tridelvi and Donvanilamab and the recent approvals for Lenacapavir, the team is really excited to progress our programs in 2023 and beyond. Starting with virology on slide 16, and as I just mentioned, Lenacapavir received its first U.S. FDA approval for people living with multidrug-resistant HIV in combination with other antiretrovirals. Marketed as Sunlenka, Lenacapivir is the first and only twice yearly subcutaneous HIV treatment, bringing a much needed option for people living with multi-drug resistant HIV that, until now, had limited alternatives. Combined with the approval from the European Commission, the FDA approval is an important validation while we continue to progress our other Lenacapivir-based treatment and prevention programs. For HIV treatment, We currently have 10 partner agents for lenacapivir in various stages of development, including two new integrase inhibitors, or INSTIs, in the pre-IND space. We expect to share data this year from the phase 1D proof of concept study for lenacapivir and two broadly neutralizing antibodies, or BNADS, directed at HIV. And in prep, our clinical development of lenacapivir as a monotherapy for HIV prevention continues to progress with two trials underway and two additional trials expected to achieve SPI in the second half of 2023. Moving to slide 17, we continue to progress our novel oral nucleoside for COVID-19, GS5245. Treatments such as Gilead, Ficklery, and vaccinations have improved the outlook for patients with COVID-19. but there's still a significant need for effective and convenient oral treatment options. We've been working with the FDA and other global regulators to launch a clinical development program that could enable global filings. We've initiated the Phase 3 Birch Trial in high-risk patients, defined as unvaccinated patients with one or more risk factors or vaccinated patients with two or more risk factors. The Phase 3 Oak Tree Trial will evaluate standard risk patients, which includes people age 12 and older with no CDC-defined risk factors. We expect this trial to enroll its first patients in the US in the first quarter, and we'll share progress when we can, which depends in part on the prevalence of COVID-19 near study sites. Moving to oncology on slide 18, and starting with Tredelby, we continue to build on the momentum of our Tropics02 data And we announced the European Medicine Agency's validation of our marketing authorization application for pretreated HR-positive HER2-negative metastatic breast cancer in early January. As Joanna noted, we expect a regulatory decision of our SBLA in the U.S. later this month and a decision in Europe in the latter part of the year. Tredelby has already changed the standard of care for many patients with metastatic TMBC and advanced bladder cancer. And we expect that these regulatory approvals will be an important step forward in bringing this potentially practice-changing therapy to certain HR-positive HER2-negative metastatic breast cancer patients. Moreover, recently presented data demonstrated Tredelvi's PFS and OS benefit was consistent across a range of tumor TROP2 expression levels. This late-breaking post hoc analysis presented at the San Antonio Breast Cancer Symposium was consistent with Sridhavi's data in metastatic triple negative breast cancer, where baseline TROP2 expression was not associated with treatment response. Moving on to slide 19, we were pleased to share data from the fourth interim analysis of the ARC-7 trial with our partner, ARCIS, in December as presented at the ASCO plenary session. ARC-7 is a randomized phase two proof of concept study that enrolled 150 patients the largest data set in anti-TIGIT studies released to date with more than 100 patients across the two DOM-containing arms. We were pleased to see both DOM-containing arms demonstrate clinically meaningful differentiation compared to ZIM monotherapy across all efficacy measures evaluated, clearly establishing that the addition of dominilumab improved the clinical responses to anti-PD-1 therapy in this population. We were also encouraged by the consistency of the safety data in the DOM-containing treatment arms, which showed no unexpected safety signals. This is an ongoing trial, and we look forward to sharing updated data at ASCO 2023. While these efficacy and safety data will mature over time, this fourth interim analysis fully supports our joint DOM-Zen clinical development program and the importance of interrupting the TIGIT pathway. Based on the totality of the data seen to date, We're very confident that DOM with an FC silent design has the potential to be differentiated compared to other antitiget molecules in this space. The ongoing phase three trials of DOM added to anti-PD1 treatments in non-small cell lung cancer will provide the opportunity to confirm this activity. We're moving very quickly with our partners in both proof of concept studies as well as late stage trials, including the four ongoing phase three trials. Moving to Megrolimab or anti-CD47 therapeutic. On slide 20, we have three ongoing pivotal trials and six proof of concept studies across six solid tumor indications. As we shared last month, the independent data monitoring committee met to review data from the first interim analysis from the enhanced study in first-line high-risk MDS. I'm pleased to share that there were no new safety signals and the study continues unchanged. As a reminder, Based on previous discussions with the FDA, we are now pursuing mature OS data for filing. The study is powered for the final OS analysis, and Gilead remains blinded to the data to preserve study integrity. We will update you again in the second half of 2023 after the second interim analysis, noting that these interim analyses are event-driven, so timing is provisional. Moving on to slide 21, and on behalf of Christy and the KITE team, I'm pleased to share details of another strong quarter of clinical progress in our cell therapy programs. At ASH, Kite had more than 25 data presentations, further demonstrating the transformative impact of cell therapies, including three-year follow-up data from Zuma 5, showing that 52% of patients with indolent lymphomas treated with Yescarta continued to respond. Following the compelling Zuma 12 data on Yescarta in frontline LBCL, shared at ASH in 2021. We expect to achieve FPI in our Phase III ZUMA23 trial and frontline high-risk LBCL in the first half of the year. We are also progressing our Phase II ZUMA24 outpatient study in second-line LBCL and look forward to sharing interim safety data in the first half of this year. While there is still so much we can explore with the Escarga and Ticardis, We are also building out the pipeline to ensure the kite will extend its leadership into new indications and next generation cell therapy technologies. In December, we announced the strategic collaboration with Arcelix for the late stage clinical product candidate CAR-T-DDBCMA, which is currently being evaluated for the treatment of multiple myeloma. If approved, together with our industry leading manufacturing capabilities, We believe we can reliably and consistently deliver a much needed therapy to patients. Additionally, we announced the pending acquisition of Timmunity Therapeutics, which adds an armored CAR-T platform and rapid manufacturing technology to KITE. The Ocellix transaction closed earlier this week, and Timmunity is expected to close later this quarter. Both highlight KITE's continued leadership in cell therapy and our commitment to building a robust and exciting pipeline in cell therapies. Wrapping up on slide 22, we are sharing the key pipeline milestones that we expect in 2023, which, as you can see, spans FPI, data readouts, updates, and regulatory approvals across oncology and virology. This highlights the progress that Gilead has made on its transformation journey with 59 clinical programs that are well-diversified across indications and stage. As the clinical pipeline has grown, our focus on execution has intensified, and we look forward to updating you on our programs as we progress through 2023. With that, I'll hand the call over to Andy. Andy?

Thank you, Mrdad, and good afternoon, everyone. Gilead closed out the year with a strong fourth quarter, driven by Victarvy, Vicluri, and Oncology. For the full year, our sales, excluding Veclury, grew 8 percent, which is by far the strongest full-year growth rate Gilead has reported since HCV sales peak in 2015. Of note, and excluding the impact of the A-triple and Truvada LOEs, HIV grew 8 percent year-over-year, driven by continued strong performance of Victarvy, which grew 20 percent from 2021 to $10.4 billion. McTarvey continues to demonstrate strong potential for further growth in 2023 and beyond. Oncology full-year revenues exceeded $2 billion for the first time and grew 71% from 2021. Moving to our quarterly results starting on slide 24. The fourth quarter demonstrated another strong performance across our business. Total product sales, excluding Vecluri, grew 9 percent year-over-year, despite an approximately $130 million headwind from FX. If we exclude FX, in addition to the impact of HIV LOEs, total underlying sales growth for the fourth quarter was 12 percent compared with the prior year. Moving to slide 25, that glory was down, as expected, year-over-year, although it grew 8 percent on a sequential basis from the third quarter. highlighting that VECLURY will continue to play an important role even as COVID-19 progresses into its endemic phase. Non-GAAP product gross margin was 86.8%, up more than 16 percentage points from last year, primarily due to a $1.25 billion charge related to a legal settlement recorded in COGS in the fourth quarter of 2021. Non-GAAP R&D expenses for the fourth quarter of 2022 were $1.5 billion, compared to $1.3 billion in the same period in 2021. Higher R&D expenses were driven by timing of clinical investments, mainly in oncology, in addition to the impact of inflation on expenses. Fourth quarter acquired IP R&D was 158 million, primarily reflecting the macrogenics collaboration and the license amendment with Jounce, and lower than prior year due to the $625 million charge related to the exercise of opt-in rights for ARCIS assets in the fourth quarter of 2021. Non-GAAP SG&A was $2 billion, up 23% year over year, primarily reflecting a charge of $406 million associated with the termination of the Tridelvi collaboration with Everest Medicines. This $406 million charge includes the $280 million that we agreed to pay Everest to acquire the development and commercial rights to Tridelvi in China and other Asian territories in addition to some other termination-related expenses. Excluding this Everest impact, SG&A was down 2% year over year. Fourth quarter non-GAAP operating margin was 37%, down sequentially due to the factors referenced earlier, including the $406 million Everest charge, and up year over year. Excluding the Everest charge, non-GAAP operating margin was 42%. Non-GAAP effective tax rate in the fourth quarter was 16.8%, lower than the prior year, driven by discrete tax charges recorded in the fourth quarter of 2021. Overall, our non-GAAP diluted earnings per share was $1.67 in the fourth quarter, compared to 69 cents in the fourth quarter of 2021. Of note, the Everest contract termination impacted non-GAAP diluted EPS by 25 cents a share, This was not reflected in the guidance we shared back in October. Moving to the full year on slide 26, total product sales were $27 billion. Excluding Vecluri, total product sales were $23.1 billion, up 8% compared to 2021, primarily driven by Victarvie and oncology. Excluding around $380 million of FX headwinds, and the $350 million impact of the Truvada and A-triple LOEs, total product sales, excluding Veclury, were up 11% as compared to 2021. I touched on the main P&L impacts in the overview, but will highlight on slide 27 that our non-GAAP effective tax rate for 2022 was 19.3%, and non-GAAP diluted EPS was $7.26 per share, compared to $7.18 per share reported in 2021. I'll move now to guidance on slide 28. We recognize that the macro environment continues to be uncertain. Our initial 2023 guidance assumes an overall stable macro environment and relatively stable FX at current rates. While inflation is expected to moderate, our 2023 guidance reflects a full year of higher expenses experienced in 2022 associated with inflation. With that in mind, we expect total product sales in the range of $26 to $26.5 billion. For total product sales excluding Vecluri, we expect sales in the range of $24 to $24.5 billion, representing growth of 4% to 6% for our base business year over year. And we expect Vecluri sales of approximately $2 billion. As always, vectory sales will continue to track hospitalization rates and will remain highly variable depending on the frequency and severity of surges. Notably, we have seen a decline in hospitalization rates in recent weeks and will continue to monitor the landscape carefully. As a result, and similar to last year, we will update you on our vectory expectations on a quarterly basis. Moving to the rest of the P&L. We expect our non-GAAP product gross margin to be approximately 86%, just slightly below our 2022 results, and primarily reflecting the growing contribution from oncology. For non-GAAP operating expenses, we expect R&D to increase by a high single-digit percentage compared to 2022 levels, reflecting our ongoing investment in strategic areas of growth and an increase in activity from later stage trials. As a reminder, we had eight phase three trials start in 2022, and we expect to have 23 active phase three trials by the end of 2023. Looking ahead, we expect R&D growth to moderate, although we will step up investments as needed to support promising programs based on clinical data. Acquired IP R&D includes previously announced payments for our CELIX community and milestone payments for existing collaboration. Consistent with our approach in 2022, we will continue to share expected acquired IPR&D expenses as we announce additional transactions. Finally, we expect SG&A to decrease by a low single-digit percentage compared to 2022. However, this is primarily due to some expenses reported in 2022 that we don't expect to repeat in 2023. If we normalize the 2022 SG&A expense for these items, we expect full-year 2023 SG&A expense to increase by a mid-single-digit percentage on a basis of approximately $5.1 billion in 2022. Altogether, we expect our non-GAAP operating income for 2023 to be $11 to $11.6 billion. Our non-GAAP effective tax rate is expected to be approximately 20% again this year. And finally, we expect our non-GAAP diluted EPS to be between $6.60 and $7 for the full year, and GAAP diluted EPS to be between $5.30 and $5.70 per share. Moving to capital allocation on slide 29, our priorities have not changed. In 2022, we returned over $5 billion to shareholders. This included dividend payments and $1.4 billion in share repurchase. Fourth quarter share repurchases were approximately $800 million. For 2023, we have announced today a 2.7% increase in our quarterly cash dividend to $0.75 per share and remain committed to growing our dividend over time in line with earnings growth. You can also expect to see continued judicious investments in our business both internally and externally through select partnerships and business development transactions. Finally, we will continue to use share repurchases to offset equity dilution, as well as additional repurchases on an opportunistic basis. With that, I'll invite the operator to open the call up for questions.

Certainly. 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, press star one. We kindly ask participants to limit themselves to one question today and then re-enter the queue for any follow-up. 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. The first question comes from the line of Tyler Van Buren with Cowan. Please proceed.

Hey guys, thanks very much for the question. It's great to see yet another impressive quarter of performance from the core business. At the midpoint, guidance assumes 5% year-over-year growth for product sales, excluding Bechlery, yet non-GAAP BPS guidance assumes a decline of 6%. So should we expect roughly flat earnings for the next two to three years as you continue to invest aggressively in the pipeline to set up earnings growth for the second half of the decade? Or is that too conservative? And what levers do you have to increase earnings in the near to midterm?

Hey, Tyler, it's Andy. Thanks for the question. We appreciate it. Look, what we've said and obviously we don't provide longer term guidance, but I'll reiterate that the as you as you highlighted, the base business is performing very well. We had another good year with that glory, but we expect, as you heard in our prepared comments, that the covid-19 market will continue to be dynamic. And again, this year, you saw, if you look at our EPS, the growth of the base business offset the decline in VEC Lurie, despite the increase in expenses. Going forward, again, a lot of our shareholders, as you know, focus on non-GAAP EPS excluding VEC Lurie based on their assumptions. We expect, using kind of that metric, for our EPS to grow and for that growth to accelerate over the longer run as our products continue to deliver with additional commercial approvals. expanded indications, new products entering the market, et cetera. So again, I think what you're highlighting is the difficulty of looking through the impact of Vecluri. When we look at the base business, we have a lot of confidence in terms of the health of the business and the growth it's going to deliver over time, both on the top line and the bottom line.

Hannah, may we have our next question, please?

The next question comes from the line of Jeff Meacham with Bank of America. Please proceed.

Afternoon, guys. Thanks so much for the question. I will keep it just to one. When you look at Lena Capervere in the U.S., just help us with maybe the expected kind of loss dynamics following the recent approval and just with consideration of the hurdles with regard to payer access. Obviously, you guys have a long history here, but wondering if the environment is different today. versus sort of pre-pandemic. Thank you.

Thanks, Jeff, for your question. It's Joanna. I think that we're super excited with some Lincoln approval. Do remember, though, it's really for a very specific patient population for the heavily treatment-experienced, multidrug-resistant population. And so that's about 1% to 2% of people living without HIV. That's about 5,000 patients or so in the U.S. So just to give you a little bit of a perspective on it the that's one piece of the puzzle so far so we just launched so it's still early days and we're excited about it I think physicians response has been has been very strong as well the I think they really see the innovation of having something every six months coming in and also the promise of what it could mean in future with prevention indication as well as a treatment combination so more to come on that one I think it's an incredible opportunity for us to gain awareness for some Lenka how to use it, the reimbursement systems. And as to your point about pre-COVID to COVID, I think that actually we've really normalized the market. I think we're back on track when it comes to HIV, both screening, diagnosis, et cetera, and treatment. So we do believe that that's probably not in play as we go forward in 2023. But again, small revenue, huge unmet medical need, and an incredible opportunity for patients to have something to ensure that they don't proceed to more like AIDS disease versus just staying HIV positive.

Hannah, may we have our next question, please?

Thank you. The next question is from Michael Yee at Jefferies. Please proceed.

Hey, thanks for the question. Maybe a question for Murdad. On trope two, the competitor, AstraZeneca-Daichi, continues to be quite bullish and actually has a phase three lung cancer study readout, and the street is quite bullish on trope two. Can you explain your thoughts around your differentiation, appreciating your study readout, I think, in 24, and what we should appreciate as to how you will compete there or differentiate, and maybe it's safety, but maybe walk me through that and help us understand trope two for you versus your competitor. Thank you.

Yeah, thanks, Michael. This is Murdad. You're absolutely right. We do think that there are a couple of things that we think about when we think about differentiation. The first is that we've now been on the market and have several approvals under our belt with Tredelphi. And I think that is an important factor for us having now been on the market in important indications. To your point with Lung, we will be somewhat behind where our competition is. We do think that, you know, the data will have to evolve for us and for them. And I think, you know, so far we have been fortunate to not see ILD in our development program so far. And so we are going to continue advancing our program forward aggressively. We've had a lot of success so far. And, you know, I think our plan is to keep going ahead with the differentiated clinical development program so we can get into the broadest population as possible.

Thank you. The next question is from Du Kim with Piper Sandler. Please proceed.

Hi, thanks for taking my question, and congrats on the quarter. Keeping it on Tredelvi, Murdad, I was hoping if you could provide a little more detail on Ascent 7 and pre-chemo HR-positive HER2-negative breast cancer that you're initiating later this year, just what that study design would look like, and how did you come to conclude that this was the next best study for this population?

Yeah. Hi. Thanks. That was a great, that's an excellent question. And I think we haven't really talked about the design yet. In large part, we are working through both with investigators and regulators on what the best approach is going to be in that patient population. We do think that there's an important need in a large population there. And we want to make sure that we navigate that pathway carefully. So, I think as we develop that program, as a protocol gets developed, we'll be able to share more detail over time.

Hannah, may we have our next question, please?

Thank you. The next question comes from Colin Bristow with UBS. Please proceed.

Sorry, can you guys hear me? Yes. Yes. Good afternoon. And congrats on all the progress. Maybe one on Tidget and Dombananamab. What is it that gives you the confidence that the SC silent construct is the right approach when, you know, I think at least the animal data suggests that this may not be preferred. And then as you think about the upcoming study, ARC-7, could you talk about the frequency of scans here? Because this has come up as a point of... at least discussion with regards to the comparator trials and the frequency of scans. Thank you.

Sure. This is Murdad again. Excellent question. Thank you for that. In terms of our confidence, I think, to your point, look, I think there was a lot of debate a couple of years ago. We shared in that debate with what the preclinical data was showing, and as you know, the data, there were conflicting preclinical data, including some data that suggested maybe NFC silent may not work, which is why we ran the studies the way we did, and very importantly, why we ran ARC-7. The objective there was really to establish whether NFC silent would demonstrate a benefit relative to NFC active molecules. Part of the hypothesis there is what happens in the periphery and whether depleting effector cells with the TIGIT could actually be harmful with an FC-competent molecule relative to an FC-null molecule. And our confidence really comes from our ARC-7 data. I think the ARC-7 data really answer that question. We clearly show benefit when added onto a PD-1. The PFS data exceed our bar for moving forward. And so, we really think that we've answered that question in the clinic as to whether the FCNL matters.

Hannah, let's move to our next question. Thank you.

The next question is from Chris Schott with JP Morgan. Please proceed.

Great. Thanks so much. Just a question on the COVID business. I know it's volatile and I know this, but at the same time, the street doesn't seem to model much of a tail for that glory or, or GS 5, 2, 4, 5 at all in numbers beyond this year. Well, we've got Pfizer's and others, I think talking about more sustainable COVID businesses, I guess, off of 2023 levels. So I just mentioned your thoughts of just how you're thinking about the business longer term. And, you know, is this a meaningful franchise for you over time or, or, Are you really thinking of this continuing to fade down beyond this year? Thank you.

Sure, Chris. It's Joanna. Yeah, so definitely we've changed a little bit. Our position on this one has evolved from 2020 to where we are today, obviously. I think we do truly believe that the veterinary business is much more sustainable than we've ever seen before, let alone as we think about kind of where we're going with COVID-19, including the oral that Murdad can speak to. The one piece that we've seen is maybe a little bit different than some of the oils that you're referring to is one is that we've been part of a commercial model since October of 2020. So we haven't had such big inventory loads at the government level, like some others have had. So really what you see probably 85 to 90% of revenues in 2022 are truly reflecting the demand for Viclory in 2022. And so therefore, coming into 2023, we feel very strongly that Viclory, because it's still the only antiviral indicated at the hospital level at this point in time, because of the fact that in many countries around the world, it is the treatment of choice when they decide to treat hospitalized patients. I think there's really an incredible continuing opportunity for us to ensure that Viclory is accessible to all these patients. And so that's why we think the model is quite sustainable moving forward. I would also just add that our label has broadened over the last year in some. We have a very strong body of evidence, including mortality, as well as we have guidelines endorsement with the NIH as well as the WHO. So all of those pieces together actually make for a strong Viclory position, 23, but actually and beyond. And maybe I'll just pass it over to Murdad to talk a little bit to how we're thinking about COVID-19 as a whole with the oral.

Yeah, just two seconds. I think you're right to point out the uncertainties that we all have and that we've seen with outpatient COVID. And we have a lot of confidence in the mechanism of 5245, given our expertise in the molecule itself and how well behaved it is. And we are going to push forward and do our best with both a high risk and a standard risk study. And the uncertainties in terms of the pandemic will really determine what happens from here. So we will definitely keep you updated as to how that goes from here on out.

Thank you. The next question is from Brian Abrahams with RBC. Please proceed.

Hey, good afternoon and congrats on the quarter and thanks for taking my question. Maybe continue on the COVID theme on 5245, the oak tree study. Can you talk a little bit more about the assumptions you've made in powering the primary endpoint here for the standard risk patients? And then help us understand how Oaktree and Birch might fit together to support U.S. and ex-U.S. approvals across the two populations you're studying. Thanks.

Sure. Very briefly, to your point, one is in the high-risk population, right? So I think that's important. Those are people who have risk factors, whether or not they've been vaccinated, and then the standard risk, which is people without risk factors. And Those are very different populations. The endpoints are different in terms of what we're looking for. In the high risk, we're going to be looking for the ability to prevent things like hospitalization. And in the standard risk, it would be looking for things like symptom improvement. Again, I'll just reiterate that I think the uncertainties in terms of those factors and importantly the underlying event rates is real. And so we've made a number of assumptions around what that background rate will be and we've built into the trials checkpoints to make sure that our assumptions are correct and we have the ability to modify our program based on what the underlying event rates are. So that sort of helps mitigate the risks and the uncertainties. So we've gone in fairly eyes open to that.

Thank you. The next question is from Mohit Bansal with Wells Fargo. Please proceed.

Great. Thanks for taking my question and congrats on the progress. Maybe if you could comment on your overall market share in HIV space and how it has been progressing. What I want to understand is that is there a scenario where your HIV business growth could be better than the market growth as you gain share at this point? Thank you.

Sure. Hi, Mohit. It's Joanna. I think as we look at HIV as a whole, we're looking at about a 5%. year-on-year growth. And, of course, that's mostly driven by demand, namely Biktarvy. And so it's probably important to talk about the share there. So our total Gilead share is still in the low 70s, and we've been quite stable at that level. We saw a little bit of a dip when we got the Truvada and Tripla LOEs, and that's the only decline that we've seen there, and really held steady. Where you see nice growth, of course, is Biktarvy. Our year-on-year growth for Biktarvy is 20% in 50-year post-launch. And I think that's the piece of the puzzle that's really driving the overall HIV business in addition to what's going on in PrEP with Dyscovy. To your point about the market growth, we've seen market growth around 2% to 3% year on year, both in the U.S. as well as in Europe. And we've assumed that, you know, we're kind of assuming that for some years to come. And I do think there's still enormous opportunity for continued growth in that market. And, you know, one of the main reasons why is, there's still an opportunity for increasing treatment rates, so from diagnosis to treatment, but also further penetration in underserved patient populations. And so, you know, at this point in time, with United Nations goal at a 95-95-95 for testing, treatment, and virology suppression, we're only at about 70-75%. So if we were to get to those goals, you're looking at over 350,000 more patients into the system. So I think you're absolutely right. I think there's a great opportunity for us to continue to grow BIC-TARVY and our HIV business at Gilead.

Thank you. The next question is from Umar Rafat at Evercore. Please proceed.

Hi, guys. I have a question on the model today. I feel like consensus models have a lot of operating leverage in the long-term estimates for Gilead, and consensus doesn't carry more than low single-digit OPEX growth across SG&A and R&D. So with SG&A growing mid-single digits this year after the one-timers and R&D growing high single digits, I guess, should we assume that given all the collaborations and recent acquisitions that you really do need to be growing R&D meaningfully from current levels? I'm just trying to understand where the OPEX is heading longer term.

Hey, Omar. It's Andy. Thanks for the question. Maybe a couple of things. First, I'd highlight that, as you'd expect, we are mindful of expenses and don't expect Paul Cecala, R&D or SG&A to grow indefinitely. That said, we're going to continue to invest thoughtfully in the pipeline and you're already seeing, I'd highlight the tangible benefits of doing that. So that's a really important point. Paul Cecala, We started on the R&D side, as you know, we started eight phase three trials this year. We're going to, as you heard, start at least another five Paul Cecala, in 2023. So we are in an investment cycle. Over the longer run, and maybe one other thing before I kind of talk about the long run picture to your question. Again, when you benchmark us relative to competitors, as you know, historically for both SG&A and R&D, we underspent. And it was partly why we didn't have the pipeline that would drive the top quartile sustainable growth that we aspire to and we think we're on track to achieve today. So we're going to continue to invest, as you've heard, And especially in these late phase three trials that have started, we'll continue to do BD, not at the same pace or level that we have over the last four or five years as we rebuilt the pipeline. But our R&D is a percent of revenue. This past year was below industry averages, I think, right around 19%. Same thing is true for SG&A as a percent of revenue. And even our guide suggests, I think, reasonable spend levels relative to comps. In the longer run, to your point, so we think about things over a longer cycle, you know, we will not, we do not expect to grow R&D or SG&A above the rate of earnings growth. And there is a lot of leverage in the model we expect over the long run. So we're getting to the point where you're starting to see that play through, especially at the top line. And then over the coming years, we expect that you'll really see that play through on the bottom line as well. So thanks for the question.

Thank you. The next question is from Olivia Breyer with Cantor Fitzgerald. Please proceed.

Hey, good afternoon, guys. Thank you for the question. What's the latest thinking with respect to the regulatory path forward for migrolimab? I guess the question really is, could we see survival data from that enhanced interim later this year that's actually mature enough to file on? And is there anything beyond OS benefit that FDA has pointed to for a complete submission package? Thank you.

Hi, Olivia. This is Murdad. Yeah, I think maybe it's good to step back and just clarify, in a sense, how we're approaching interim analyses for our studies. So the pivotal MAGRO study is powered for events at the final analysis. And of course, we run interim analyses, I think, as is norm for for the industry to evaluate things like safety, but also we spend a little bit of alpha in case there is a dramatic improvement in the primary endpoint and offer ourselves the opportunity to start early to benefit patients. So the OS data continue to mature. The next interim this year, dependent on events, of course, is not the final analysis. So it really depends on how big the magnitude of improvement is in OS, whether that leads to a stop in the study or an unblinding in the study. Our expectation is that we go to the final OS analysis. Of course, we always hope for an upside surprise at one of the earlier interim analyses. And then in terms of approval, I think we really need to have OS. We initially had hoped that we could get, for example, an accelerated approval with CR rates alone. We think we need to do both now to have both a complete response rate, but primarily be driven, not primarily be driven, but importantly have OS data as well in order to support a file.

Thank you. The next question is from Simon Baker with Breadburn. Please proceed.

Thank you for taking the question. On that answer and the nice recommendation, And clearly that's good from a UK perspective, but it's the case that NICE recommendations are closely followed by a much larger range of countries. So I just wondered if this does indeed have a spillover benefit beyond the UK for Yescarta. How important is this approval in the UK?

Hey there, Simon. It's Christy. Thank you for the question. So we think it's... you know, very important because first of all, it's the number of patients is still very similar at 450, but the process by which patients get approved obviously should be much smoother and really giving access to, this recommendation really helps the patients get access much more quickly. And so to your point, we do think, you know, as you see this approval that this hopefully will have an influence on other countries Just like we saw with reimbursement, as we look at the reimbursement of Yaskarta in over 20 countries, it was one at a time. And as certain countries started to approve, we saw the other countries also do the same. So based on the second line, Zuma 7 trial as well, that'll be our next step too, to continue to provide the data that giving a patient the one-time treatment can really help the healthcare system and improve patient outcomes. Yes, we're very hopeful that it could have some influence.

Thank you. The next question is from Robin Karnowskis with Truist. Please proceed.

Good afternoon, and thanks for taking our question. This is Nicole on for Robin. Are you seeing any safety signals in ascent four and evoke three with Trudelphia and Pembroke? Like, are the safety profiles comparable in both populations? And if so, would this hamper uptake in the first line?

Hi, Nicole. This is Murdad. We haven't really disclosed anything on the safety. Those studies have really just gotten underway, so I don't think we have anything to share yet. We'll, of course, be following that to see if anything emerges. Your question is exactly the one that we want to make sure we address as we move forward, but we don't have enough data at this point to make a comment one way or the other.

Thank you. Our last question will be from Evan Segerman with BMO. Please proceed.

Hi, guys. Thanks for taking my question. One for Christy. You're annualizing well above a billion for cell therapy products. Can you talk about the recent work you've done to expand manufacturing and how you think that could support further growth this year and beyond? Thank you.

Sure. So that was our focus and has been our focus is really on the supply side. and being able to ensure that we have the capacity to provide for patients. I think that's what you're seeing is our industry-leading manufacturing piece. And if you look at, you know, TCFO3 here in California, adding the new site, TCFO4 in Amsterdam and then TCFO5 in Maryland, we're really able to leverage that footprint to grow not only in, you know, the assets that we have today, but in future pipeline, especially as we look at, you know, the partnership we have now with Arcelexa Multiple Myeloma. So we're very confident about our ability to supply and the capacity that we've built today and for tomorrow. And really the next focus for us is, you know, we've had some really good gains on our margin improvements, but as we look at our operational, our optimization of our manufacturing footprint, yes, we need to continue the ensure the capacity, which we feel like we've really done. And now we're able to put a big focus too on the optimization piece, which we've made progress on, but we have several levers there to pull as well. So I hope you're hearing from me a big confidence in our ability to deliver for patients from a capacity standpoint.

Thank you. That concludes today's question and answer session. I will now turn the call over to the management team for any closing remarks.

Great. This is Dan. I just want to do a couple of things here. First of all, thank you all for joining and your ongoing interest in questions for Gilead. As usual, if we didn't get to all your questions, please reach out to Investor Relations. As you know, we're very happy to answer those on an ongoing basis. And let me just close by emphasizing that Gilead's in a very different place than it was a few years ago, thanks to the work the team has done to transform the company. We're going into 2023 in a very strong position with our current medicines performing well and tremendous growth potential in our neurotherapies as well as those in development. So what you can expect to see next is quarter-on-quarter execution and even faster progress and greater impact in the future. Thank you very much for your time today, and we look forward to speaking to you again soon.

That concludes today's fourth quarter and full year 2022 Gilead Sciences Earnings Conference call. Thank you for your participation.