Gilead Sciences, Inc.

Q4 2023 Earnings Conference Call

2/6/2024

spk05: Victoria, Good afternoon, thank you for attending the fourth quarter and full year 2023 Gilead sciences earning conference call my name is Victoria and i'll be your moderator today. Victoria, All lines will be muted during the presentation portion of the call with opportunity for questions and answers at the end, I would now like to pass the conference over to your host Jackie Ross Thank you, you may proceed Jackie.
spk00: Jackie Ross 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 of 2023. 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 Cindy Peretti, the Executive Vice President 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 2024 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. With that, I'll turn the call over to Dan.
spk14: Thank you, Jackie, and good afternoon, everyone. The team and I are pleased you could join us today as we share the details of our full year and fourth quarter performance and the latest on our clinical portfolio. Starting with our full year performance, 2023 was a strong year for Gilead, with 7% growth in product sales, excluding Vicluri, driven by HIV and oncology. HIV grew by almost $1 billion, with Victarbi sales growing 14% to almost $12 billion and increasing its market share in the US to 48%. Oncology grew 37% to almost $3 billion, an increase of almost $800 million in just one year. This growth was split evenly between our Kite Cell Therapies and Tredelvi. Vicluri for COVID-19 contributed $2.2 billion in 2023, ahead of our expectations, but down year over year as expected, given the evolution of the pandemic. In the last two years combined, Gilead's base business has grown approximately $3.3 billion, or more than 7% annually, largely offsetting the decline in Vicluri revenues over the same period. The consistent growth in our base business gives us a strong foundation as we continue into 2024 and look to deliver on our broad clinical portfolio. This is a catalyst-rich phase for Gilead with more than 20 updates this year and many more to come beyond 2024. Starting with oncology, we expect at least 12 further updates by the end of 2024. These include phase three updates for Tredelvi in bladder and triple negative breast cancer. and results from the pivotal Phase II IMAGINE I study for a needle cell and multiple myeloma, for which we saw encouraging Phase I data at the American Society of Hematology meeting in December. Also in cell therapy, we are very pleased to have shortened our manufacturing time for Yaskarta by another two days in the U.S., reinforcing our industry-leading median turnaround time, which is now at an anticipated 14 days. As you know, we did not reach the primary endpoint for EVOKE-01, our phase three trial for second line plus metastatic non-small cell lung cancer. Murdad will go into detail on this later, but while we did not see the outcome we hoped for, the data are encouraging on a number of levels. Namely, a numerical improvement in overall survival favoring Tredelvi, including in both squamous and non-squamous tumors. A safety profile consistent with our product label that could continue to differentiate TRODELVI versus other TROP2 ADCs. And while not statistically powered, a potential benefit for a pre-specified subpopulation that saw more than three months median overall improvement. The team is evaluating next steps given the data and the significant unmet need, and we look forward to discussing the data with regulators. Based on the totality of the results in both Evoque 02 and Evoque 01, We are confident in Tredelvi's potential in patients with metastatic non-small cell lung cancer, including in earlier lines of therapy. In virology, we are looking forward to a very important year for our HIV portfolio. Among the multiple updates we are expecting are the phase three data for lenacapavir in HIV prevention, and at least eight updates from our HIV treatment program. These are milestones that could bring us closer to our goal of helping to end the HIV epidemic. building on Gilead's decades of leadership in HIV. In COVID-19, today we are announcing that our phase three trial, Oak Tree, evaluating opaldesivir did not meet its primary endpoint. We conducted the study to explore whether opaldesivir could address the public health need that existed with COVID-19 for standard risk patients. Again, Merdad will share details later, but essentially because of the way things have evolved, the standard-risk population is now better able to fight COVID-19 without antiviral therapy. This made it more difficult for obaldesivir to show a benefit compared to placebo. We know that the world needs to be equipped for other viruses, and the broad antiviral activity of obaldesivir shown preclinically means it has potential for other viral infections. The updates we are expecting in 2024 have the potential to unlock multiple opportunities across virology and oncology. With a broad portfolio where the risk is balanced, we look forward to following the science and continuing to make a positive impact for patients and communities. Gilead has set an ambitious goal of delivering at least 10 transformative therapies by 2030, and we are driving confidently to that goal. Before I hand over to the team for their updates, I'll move to slide six and recap that we executed well in 2023 and achieved all the remaining targeted goals that we expected to in the fourth quarter. We'll share our 2024 milestones later in the presentation, but it's clear that it's going to be a very busy year for Gilead. I'd like to thank the teams for their work in bringing us to this important catalyst-rich phase for the company and for the strong commercial performance that gives us a firm foundation on which to build. With that, I'll hand it over to Joanna.
spk10: Thanks, Dan, and good afternoon, everyone. Beginning on slide eight, total product sales for the full year were at the high end of our guidance range at $26.9 billion, reflecting solid base business growth with total product sales excluding Vicklery at 7% year-over-year to $24.7 billion. This was almost entirely offset by the expected decline in Vicklery sales. For the full year, Declared sales were $2.2 billion, reflecting the uptick in hospitalizations at the end of 2023, though still below levels seen in 2022. Turning to the fourth quarter on slide 9, total product sales were $7.1 billion, down 4% year-over-year. Our base business sales were roughly flat year-over-year at $6.3 billion, primarily driven by higher oncology sales, offset by lower HIV sales due to changes in channel mix, that resulted in lower average realized price, in addition to the expected decline of our portfolio of non-promoted products. Moving to slide 10, our HIV business delivered very strong results for the full year, up 6% year over year to $18.2 billion, and contributing almost $1 billion in base business growth, primarily driven by demand, as well as higher average realized price due to channel mix and inventory dynamics. More specifically, Almost half of the full year HIV growth was driven by higher demand, most notably by Victarvy, which delivered solid double-digit year-over-year growth of 14%, with annualized revenues now more than $12 billion. Already the clear market leader, Victarvy continues to demonstrate impressive share gains, growing almost 3% year-over-year in the fourth quarter of 2023 to approximately 48% share in the U.S. This growth, once again, outpaced all other branded regimens for HIV treatment and represented the 22nd quarter of consecutive year-over-year share gains. For the fourth quarter, as highlighted on slide 11, HIV sales of $4.7 billion reflected strong demand in line with our expectations. On a year-over-year basis, this was offset by lower average realized price due to channel mix that was notably favorable in the fourth quarter of 2022 and resulted in a decline of 2%, Sequentially, sales were up 1%, similarly driven by strong demand as well as favorable inventory dynamics, partially offset by lower average realized price due to channel mix. As we have noted previously, the pricing tailwinds we saw in the second half of 2022 and the first half of 2023 are not expected to repeat and will make year-over-year comparisons more challenging in the immediate term as we saw in the fourth quarter. As a reminder, quarterly HIV growth is, in general, significantly more variable and less indicative of overall trends in the full year, particularly as certain quarterly pricing and inventory dynamics tend to normalize over the course of the year. Factors include, first, growth to net adjustments, which can be difficult to forecast due to the lag between product sales and claim payments that frequently occur in different quarters. The timing of bulk government purchases, which contribute to overall demand, but can have significant negative impact on pricing in the quarter in which they occur. For example, certain discounted government segments are unpredictable in terms of bulk order timing, and this impacts overall average realized price. And then finally, the inventory build by sub-channel wholesalers and customers that typically occurs towards the end of the year. Historically, this happens in the fourth quarter. In 2023, We saw the build start in the third quarter and continue, albeit to a lesser extent relative to prior years into the fourth quarter. Overall, despite these quarterly variables, we remain confident that overall demand trends are strong and unchanged. With our HIV treatment market share above 70% in the U.S. and above 40% in PrEP, Gilead remains well-positioned to continue delivering demand-driven growth. For 2024, we expect HIV sales to grow approximately 4% reflecting annual treatment demand growth of 2% to 3%, big target market share gains, and continued double-digit growth in demand for HIV prevention. In terms of quarterly HIV revenue, keep in mind that the first quarter is always impacted by the reset of patient copays and deductibles. Additionally, we've historically seen inventory build up in the fourth quarter that has led to notable drawdowns by wholesalers in the first quarter. In the first quarter of 2023, This contributed to HIV sales declining 12% sequentially, and we expect a similar decline in the 10% to 12% range for the first quarter of 2024. The continued strong performance to both Bictarvy and Descovy for PrEP are shown on slide 12. Overall, Gilead's leadership in HIV is unmatched, with a solid commercial portfolio and robust pipeline of potentially best-in-class regimens to serve the daily oral, long-acting oral, and long-acting injectable market. and I can share we are off to a strong start in terms of HIV demand, which gives us confidence in our full-year expectations for 2024. Moving to the liver disease portfolio on slide 13, sales of $2.8 billion for the full year highlight the consistently strong and stable contribution from our liver disease portfolio. In the fourth quarter, sales were $691 million flat year-over-year and down 2% sequentially, primarily driven by unfavorable pricing dynamics, offset by higher HCV market share and our efforts to increase linkage to care, in addition to growing HCV demand in new and existing European geographies. In HCV, we continue to reinforce Gilead's leadership with market share of over 60% in the US and over 50% in Europe. While we continue to expect the rate of HCV new starts to trend downwards over time, given the curative nature of our medicines, Demand growth in both HDV and HBV is largely offsetting that headwind. On to slide 14. Vicluri sales continue to be highly variable, with the fourth quarter down 28% year over year, though up 13% sequentially due to higher COVID-related hospitalizations in the fourth quarter. For the full year, Vicluri sales of $2.2 billion exceeded the expectations we set out at the beginning of 2023. Turning to slide 15, our oncology business has achieved an annualized run rate that now exceeds $3 billion, with strong fourth quarter sales of $765 million, up 24% year over year. In just three years, Tredelvi revenue has grown to more than a billion dollars, and we continue to see strong growth across our approved indication. And in cell therapy, sales approached $2 billion in 2023, and KITE remains firmly established as the leading provider of CAR T-cell therapies globally. Looking more closely at Tredelvi on slide 16, sales for the full year were $1.1 billion, up 56% year-over-year. For the fourth quarter, sales were $299 million, up 53% year-over-year and 5% sequentially. With over 30,000 patients treated to date, Tredelvi's solid demand trends continue to reinforce its robust clinical profile as the only TROP2-directed antibody drug conjugate approved and available in multiple tumor types. Awareness and utilization continue to increase, driving notable share gains. In second-line metastatic triple-negative breast cancer, approximately one-third of patients are receiving Tredelvi, reinforcing its position as the leading regimen across the U.S. and other major markets. In pretreated HR-positive HER2-negative metastatic breast cancer, we're encouraged to see share growth overall, driven by increasing adoption in the IHC0 setting, as well as continued use in HER2-low. Additionally, we look forward to potentially making TUDELVI more broadly available in metastatic bladder cancer. Data from the Conformatory Phase III TROPICS-04 study in the first half of the year could enable global filings and subsequent launches, as well as potentially drive adoption in the U.S. all together expanding Tredelphi's potential reach to nearly 25,000 second-line plus patients with metastatic bladder cancer. Turning to slide 17, and on behalf of Cindy and the KITE team, cell therapy sales were $1.9 billion in 2023, grew 28% from 2022, driven by impressive growth, particularly outside the U.S. as we expanded our network of authorized treatment centers and secured reimbursement following recent approvals. In the fourth quarter, cell therapy product sales were $466 million, up 11% year-over-year and down 4% sequentially, with strong growth in both Yaskarta and Ticardis in Europe and other international markets, offset in part by near-term headwinds for Yaskarta in the U.S., both in-class and out-of-class competition. As previously discussed, CAR-T class share of eligible second-line plus large B-cell lymphoma patients remains at roughly 15% in the U.S. as growth continues to be slower than anticipated despite the compelling clinical data that suggests these therapies are potentially transformative for many patients. In Europe and other markets, CAR T class share in this same second line plus setting continues to be stronger at approximately 30%. Following a restructuring in November, the KITE team has been focused on extending the reach of cell therapies from primarily academic medical centers to community practices, especially in the US. In late 2023, we established partnerships with leading community networks, which include over 1,750 physicians nationally. We are certifying affiliated practices to become authorized treatment centers to provide kite cell therapies. So far, we've made notable headway across centers in the Southeast United States, for example, that operate over 40 locations to serve cancer patients. We expect to see the initial impact of these initiatives in mid-2024. In the meantime, we expect our cell therapy business to be flat to slightly up in the first quarter of 2024 compared to the fourth quarter of 2023. Importantly, alongside our 96% reliability rate, we're also thrilled to share that we have shortened our manufacturing time in the U.S. by two days for Yescarta, bringing our anticipated median turnaround time to 14 days. This further extends our industry leadership in terms of manufacturing, and the CHI team continues to innovate in this critical element of the cell therapy business. We look forward to inviting you to visit one of our manufacturing facilities later this quarter during an analyst and investor event. In conclusion, I'd like to thank our teams for a strong 2023 performance and setting up such great momentum for continued growth in 2024. The team's excited to continue to make our medicines accessible of all those who can benefit from them. And with that, I'll hand over the call to Murdad.
spk16: Thank you, Joanna. We've had a busy start to 2024, and I'll begin by discussing the results of our EVOCA-1 study in second-line plus metastatic non-small cell lung cancer and our phase three oak tree study of Obaldesivir in standard risk non-hospitalized patients with COVID-19. While we're disappointed that these studies did not meet their primary endpoints, we're also encouraged by what we're learning from the data to inform our clinical programs and support our commitment to deliver innovative new therapies for patients. Let me cover each of these readouts in turn. First, on slide 19, our phase three study of Tredelvi and second line plus metastatic non-small cell lung cancer, EVOCO1, missed its primary endpoint of overall survival in this hard to treat setting. We plan to share the detailed data at the earliest opportunity. In the meantime, we'd like to highlight what we believe to be an important set of observations from EVOCO1 They give us continued confidence in Tredelvi as a pipeline and a product, and its potential to benefit some patients with lung cancer. We saw a numerical improvement favoring Tredelvi, including in patients with both squamous and non-squamous histologies. This is encouraging for our ongoing Phase III Evoco III first-line trial, evaluating Tredelvi in PD-L1 high patients in combination with pembrolizumab. Importantly, Tridelby continues to demonstrate a potentially differentiated safety, efficacy, and tolerability profile within the adverse event profile that is consistent with our label. Further, Tridelby achieved more than three months of improvement in median overall survival in a pre-specified subgroup of patients non-responsive to their prior anti-PD-L1 therapy. This subgroup is defined as those who achieved stable disease or progressive disease as their best outcome to last prior IO therapy and represented more than 60% of the trial population. This analysis was not alpha controlled for formal statistical testing, and we are continuing to analyze these data. We will discuss these data with regulators and KOLs to determine the best path forward. As a reminder, we required all patients to have received prior IO therapy regardless of driver mutation status, and responsiveness to prior IO was a stratification factor. Additional analyses, including trope 2 expression, are ongoing, and we will share these data as quickly as possible. Based on these observations and the data from the ongoing EVOCO2 study, we remain confident in Tredelvi's potential in patients with metastatic non-small cell lung cancer. For now, given these findings, we currently do not plan changes to our phase 3 EVOCO3 study that's enrolling as expected. Moving to slide 20. Our novel, twice-daily oral antiviral, Obeldesivir, did not demonstrate statistically significant symptom relief in standard risk, non-hospitalized patients with COVID-19 in our phase three Oaktree trial. Obeldesivir was well tolerated in this large study population, and we will share the data at a future medical meeting. Overall, the Oaktree results reflected decreasing severity and duration of COVID-19 symptoms observed in standard risk patients, driven by the evolution of variants and improved immunity to COVID-19 in our trial population. The time to symptom alleviation in untreated standard risk patients is now less than a week, as compared to almost two weeks at the peak of the pandemic. As a result, it was challenging for Obolesevir to show benefit in the standard risk population. We continue to assess whether Obolesevir could address other viral infections, given the broad antiviral activity that we have observed in preclinical data. Moving to another clinical update in oncology, the Phase III Enhance III trial evaluating megrolimab in frontline unfit AML has been discontinued based on a futility analysis and a higher observed incidence of grade 5 serious adverse events. Following the discontinuation of Enhance and Enhance II last year, we do not plan further development of megrolimab in hemologic cancers. Wrapping up on clinical updates, I want to thank all of those who were involved with Avoco I, Oaktree, and Enhance III. Every trial adds important advancements in our understanding of the treatment of these diseases and will inform our future development plans. We look forward to sharing more on that in due course. Transitioning to our HIV program on slide 21, we expect the phase three readout of purpose one, evaluating lenacapavir for HIV prevention later this year. Along with purpose two, expected in late 2024 or early 2025, purpose one forms the basis of our potential regulatory filing. We continue to target our first approval for lenacapavir in prevention in late 2025, potentially making lenacapavir the first twice-yearly dosing regimen available for PrEP. Looking at our HIV program more broadly, you can see we will be sharing at least nine updates this year across our next generation daily, weekly, three-monthly, and twice-yearly programs, all based on lenacapavir, our novel, first-in-class, long-acting capsid inhibitor. We're excited to have over 75 presentations at CROI this year across Gilead-led and supported studies. Among them, some notable updates from our treatment pipeline include encouraging data from our Phase 2 Artistry 1 trial, evaluating our lenacapivir and bactagravir once daily oral. We're exploring this combination as a potential additional option for virologically suppressed people living with HIV. Phase 1 data on GS1720 our once-weekly oral integrase inhibitor, and Phase II data on lenacapivir plus islatravir, our once-weekly oral combination in development with Merck. In the second half of this year, we look forward to providing an update on the Phase II trial evaluating lenacapivir plus BNABs as a twice-yearly regimen. Turning to cell therapy on slide 22, you may have seen that the FDA recently proposed safety label changes for all approved CD19 and BCMA CAR-T cell therapies. including Yaskarta and Ticardis. There is no change to our confidence in the benefit-risk profile of Yaskarta and Ticardis. Based on analysis of our global safety database, with over 16,800 patients treated with Yaskarta, there has been no causal link established between Yaskarta and those reported to the FDA Public Safety Dashboard. Additionally, no cases of T-cell malignancies have been reported with Ticardis. In the fourth quarter of last year, we presented 26 abstracts at the American Society of Hematology meeting in December, showing that Yaskarta and Takardas continue to generate some of the longest follow-up and most robust data sets for cell therapies with the potential to transform patient lives. Also at ASH, our partner, Arcelix, presented impressive updated data from the Phase I trial evaluating a needle cell in 38 patients with relapsed or refractory multiple myeloma. At a median follow-up of 26.5 months, median progression-free survival was not yet reached, despite 70% of patients having one or more high-risk prognosis factors. Given its potentially differentiated safety profile, with notably no delayed neurotoxicity to date, including Parkinsonism, NitoCell has the potential to become the best-in-class BCMA CAR T. We look forward to sharing an update from the pivotal Phase 2 IMAGINE 1 study and initiating an earlier line multiple myeloma trial later this year. In terms of manufacturing, while KITE is already the clear leader, we're pleased to highlight that the FDA approved our updated process that reduces the turnaround time for Yaskarta in the U.S. from 16 days down to 14 days. This further extends our leadership in cell therapy, and we continue to identify additional opportunities to reliably bring these much needed therapies to more patients as quickly as possible. Beyond manufacturing, we have eight ongoing cell therapy trials, of which four are evaluating new indications, and four are exploring earlier lines of therapy. As we formally wrap up 2023, on slide 23, I would like to acknowledge the work of our clinical teams who executed on our ambitious and broad portfolio that extends far beyond the list shown, including the advancement of eight new assets into the clinic, the delivery of 15 late-breaking oral presentations at major clinical congresses, and the initiation of three new Phase III programs. For 2024, our targeted milestones laid out on slide 24 include an update on Aceno-3 and first-line PD-L1 negative metastatic triple negative breast cancer, an update on Tropix-04 assessing overall survival in second-line metastatic or locally advanced bladder cancer, and an update on our Phase III Purpose 1 trial assessing lenacapavir and HIV prevention, as previously highlighted. We are also looking forward to the start of phase three trials for Tredelvi in endometrial cancer and the Artistry trials, evaluating lenacapivir and bactegravir oral combination for HIV treatment. Our commitment to develop innovative new therapeutic options is unchanged, and we are confident that we will make progress on that commitment in 2024. And now I hand the call over to Andy.
spk07: Thank you, Murdad, and good afternoon, everyone. Starting on slide 26, We closed the year with total product sales of $26.9 billion at the top end of our guidance range due to a strong contribution from Veclury. For the full year, total product sales excluding Veclury grew 7% driven by growth in both HIV and oncology. HIV increased 6% year over year driven by Bictarvy, which grew 14% from 2022 to $11.8 billion. and oncology grew to 2.9 billion dollars for the full year an increase of 792 million dollars or 37 percent from 2022. altogether total product sales excluding vectory were 24.7 billion dollars modestly below the lower end of our full year guidance range largely due to quarterly pricing variability in hiv in the fourth quarter importantly HIV volumes were in line with our expectations, and we are confident in our full-year revenue growth expectations for HIV in 2024. Vecluri revenue of $2.2 billion exceeded our guidance of approximately $1.9 billion and reflected higher hospitalization rates in the latter part of 2023. Compared to 2022, full-year Vecluri revenue declined as expected and represented a headwind of more than $1.7 billion to total product sales. This was largely offset by almost $1.7 billion in growth from our base business, resulting in roughly flat total product sales year over year. On slide 27, our non-GAAP results were largely as expected, including gross margin and operating expenses, notably R&D, which showed discipline moderation as we progressed through 2023. Non-GAAP EPS was $6.72. and within our guidance range, despite the incremental 10 cents of acquired IPR&D associated with the RCELEX and Compugen partnerships that we announced following our guidance revision in November of 2023. A quick note that our gap results were impacted by some restructuring expenses, primarily related to our manufacturing strategy and our activities at KITE. As we discussed in the later part of 2023, we have been taking steps to evolve our business model and expense structure to set us up for a strong 2024. As a result, our GAAP results reflect approximately $500 million of associated expenses in 2023, or 40 cents per share, and contributed to GAAP EPS of $4.40 for the full year. Moving to our fourth quarter results, starting on slide 28. Total product sales, excluding VEC LURie, were $6.3 billion. Including VEC LURie, total product sales of $7.1 billion were down 4% from the same quarter in 2022. As expected, that glory sales decreased year over year due to lower rates of COVID-19 related hospitalizations. On slide 29, you can see that on a non-GAAP basis, product gross margin was 86%, down 66 basis points from the prior year. R&D expenses were $1.5 billion, down 6% year over year. Acquired IP R&D was $347 million, reflecting payments related to our collaborations with Arcelix, Assembly Biosciences, and Compugen, and our Zinthera acquisition. SG&A was $1.6 billion, down 21% year-over-year, primarily related to the 2022 charge for the termination of the Everest collaboration that did not repeat in 2023. Excluding this 2022 charge, non-GAAP SG&A was down 1%. Operating margin was 39%. up from 37% in the fourth quarter of 2022, and effective tax rate in the fourth quarter was 17% flat compared to the prior year. Overall, our non-GAAP diluted earnings per share was $1.72 in the fourth quarter compared to $1.67 in the fourth quarter of 2022. I'll move now to slide 30 and our guidance, which assumes a generally stable macro environment, including FX at current rates. For the full year 2024, we expect total product sales in the range of $27.1 to $27.5 billion. We expect total product sales, excluding Vecluri, in the range of $25.8 to $26.2 billion, representing growth of 4% to 6% for our base business year over year. Within total product sales, and as Joanna discussed, we expect HIV revenue to grow approximately 4%. And we expect Vecluri sales of approximately $1.3 billion, although, as always, we caution you that Vecluri sales remain highly variable depending on hospitalization rates. We do not expect to update our Vecluri guidance until our third quarter earnings call, absent a very clear trend in COVID-19 infections. Moving to the rest of the P&L, and on a non-GAAP basis, we expect product gross margin to range between 85% and 86%. modestly lower than the 86.1% reported in 2023 due to the growing contribution from our oncology portfolio. We expect R&D to grow by a low to mid single digit percentage compared to 2023, highlighting the substantial moderation in expense growth as we approach a steadier state of active phase three programs. We expect acquired IPR&D to be approximately $350 million. Consistent with our approach in 2023, We will highlight incremental acquired IPR&D expenses as we announce new transactions and update our guidance each quarter. And we expect SG&A to decline by a mid-single digit percentage compared to 2023. Excluding the $525 million legal settlement in 2023, we expect SG&A to grow in the low to mid-single digit percentage range compared to SG&A of $5.5 billion in 2023, excluding this settlement. As a result, we expect our operating income for 2024 to be between $11.2 and $11.7 billion. We expect our effective tax rate to be approximately 19%. And finally, we expect our non-GAAP, non-diluted EPS to be between $6.85 and $7.25 per share for the full year, and GAAP diluted EPS to be between $5.15 and $5.55. As a reminder, for the first quarter of 2024, we expect HIV to decline sequentially in the 10% to 12% range from Q4 2023, similar to what we saw in the first quarter of 2023, and cell therapy to be flat to slightly up from Q4 of 2023. Moving to capital allocation on slide 31, our priorities have not changed. In 2023, we returned $4.8 billion to our shareholders. This included $3.8 billion in dividend payments and $1 billion in share repurchases. Fourth quarter share repurchases were $150 million. For 2024, we announced today a 2.7% increase in our quarterly cash dividend to 77 cents per share, and we remain committed to growing our dividend over time in line with our earnings growth. You can also expect to see continued investments in our business both internally and externally, through select partnerships and business development transactions. Finally, we will continue to utilize share repurchases to offset equity dilution, as well as additional repurchases on an opportunistic basis. With that, I'll invite the operator to begin the Q&A.
spk05: Of course, Andrew. We will now begin the question and answer session. In the interest of time, we ask that everyone limit one question. If you ask a question, please press star followed by 1, keypad. If you would like to answer that question, press star followed by 2. Again, if you ask a question, press star 1. As a reminder, if you are using a speakerphone... Sorry about that, team. As a reminder, if you are using a speakerphone, Please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question comes from the line of Tyler Van Buren with TD Cowen. Your line is now open.
spk02: Hey, guys. Good afternoon. Regarding the 2024 product sales guidance, I understand you guys are guiding to a near 900 million sales drop-off year-over-year for VicLurie, but the guidance Ex-VecLurie looks to be 5% year-over-year growth at the midpoint versus 7% for this year. So what do you view as some of the levers to Ex-VecLurie product sales guidance in 24 where we could see upside?
spk14: Thanks, Tyler. Welcome.
spk07: Let's have Andy start, please. Thanks. Hey, Tyler. It's Andy. Thanks for the question. You're absolutely right. Our product sales guidance for products excluding VecLurie implies 4% to 6% growth year-over-year. Again, continuing the trend of strong growth that you've seen over the last two years. I'd also highlight that it implies a substantial moderation of our operating expense growth, which is an important piece of the puzzle that we spent a lot of time talking about. To your question specifically on product growth, the growth drivers for 2024 are the same as the growth drivers last year. You continue to see strong growth in our HIV business, as you see in the quarter. You really need to focus on the full year for HIV to see the growth trend. And we saw another year of very strong growth across our HIV business for the full year in 23. We expect the same thing in 24. And you heard on the call that we were expecting at least 4% growth for the HIV business next year. And then, of course, the cell therapy business and Tredelvi are expected to continue to grow as well. So those are the key growth drivers. We look forward to updating you
spk05: throughout the year but we're excited about about the setup as we move into 2024. victoria thank you so much of course thank you so much for your question our next question comes from the line of dalvin richter with goldman sachs your line is now open
spk03: Good afternoon. Thanks for taking my question. On business development, you have noted the potential for a $5 to $6 billion deal in oncology or INI. Where are you seeing the greatest opportunity to leverage your current clinical and commercial infrastructure? Thank you.
spk14: Great. Thanks, Talveen. This is Dan. Maybe I'll start and then ask others to add. I appreciate the question. I think just to reinforce our M&A strategy, I mean, nothing has changed from a business development perspective. And particularly, that's against the context of the background of nearly doubling our clinical trials underway over the past four years, multiple late-stage results. As you know, we're expecting more than 20 results still this year. And against the backdrop of no significant patent expirations, in our business until early parts of the next decade. So I think we'll continue to be opportunistic about pursuing business development in the three areas that we are focused on, which is obviously virology, oncology, and inflammation. We'll be driven by the science. We continue to articulate that, you know, building our late research, early development pipeline is probably one of our biggest focuses. And we'll continue to look at later stage deals as they fit into our portfolio and our range. It might also be important to note that we are back to pre-immunomatics levels now relative to our leverage ratios. And so we're comfortable with our ability to put capital to work. But nothing has changed. And we feel we have everything within Gilead right now to achieve our ambitions over the second half of this decade.
spk04: Victoria, may we have our next question, please?
spk05: Of course. The next question comes from the line of Carter Gold with Barclays. Your line is now open.
spk12: Hi, this is Leon. Hi, this is Leon Wang on for Carter. Thanks for taking my question. So at this point, what conviction do you have a needle cell will differentiate on neural talks or parkinsonians ism versus your competitors and. If the lack of neural talks data recapitulate later this year would that be the risking in your view and how important would that be in the market, thank you.
spk14: Thank you so we've got Cindy pretty here thanks.
spk01: Thank you, thank you for the question, I think, with the need to sell data. We expect to complete the enrollment of our imagine one study this year, where we would have been 100 patients worth of data and obviously we're going to continue to look for. safety signals neurotoxic you suggested, but to date, we have not observed any your second part of that question was do we see that as a differentiator and I would definitely see that as a differentiator in the marketplace, if we were to come. forward with a differentiated safety profile. I think the other component to remind you of is we also believe it's possible to have a differentiated efficacy profile. And today, based on the D domain and our transduction efficiency, we're able to use half the dose that we're seeing with our competitors, and that could play both with safety and efficacy. Thank you.
spk00: Great. Victoria, are you ready for our next question, please?
spk05: Of course. Our next question comes from the line of Terrence Flynn with Morgan Stanley. Your line is now open.
spk13: Thanks so much for taking the question. We're just wondering if you could speak to your confidence level in Tredelvi and the frontline non-small cell lung trial setting here, given the Evoque 01 data, and if you're considering any potential changes to that frontline trial as a result. Thank you.
spk16: Hi, Terrence. This is Murdad. You know, I think when we have looked at the data so far, and we're looking forward to sharing it with everyone as quickly as we can, probably one of the most important things in that data set that confirmed where we were before is that we have not seen a difference in response rates between squamous cell carcinoma and non-squamous cell carcinoma. I think that was a bit of an overhang in the fall. Dave Kuntz, And, as we had mentioned earlier, we have not seen that to date, and that has been bolstered by the results of the vocal one, so we do think that that. Dave Kuntz, increases our confidence that we don't need to think about. Dave Kuntz, Look at that now there are other analyses, we need to do to make sure that there are other there are other predictors of response or not and we'll be doing that and we'll be sharing that over time, but right now. Our overall confidence in Tridel V, broadly speaking, remains very high. We have three approvals, and we have a broad development program against which we are executing really well. We continue to have additional trials that we'll read out this year in phase three, specifically the TROFEO4 study that will be looking at the bladder cancer confirmation study. with hopefully an OS signal. That study could actually give us beyond confirmatory trial in the U.S. It allows us to open conversations with regulators outside the U.S. And then we have promised an update on Aceno-3 in breast cancer, which we also think will broaden that. And then we now have a number of trials going on in a variety of indications, including ones we've mentioned in, for example, endometrial cancer. What we've seen in VOCO 1, and we're looking forward to sharing with you, really maintains our level of enthusiasm about Tredelby's long-term potential from an efficacy and safety standpoint across the board, and we have no plans to change at VOCO 3 at this time.
spk05: Our next question comes from the line of... Yes, ma'am. Our next question comes from the line of Omer Rafat with Evercore. Your line is now open.
spk09: Hi, guys. Thanks for taking my question. Look, it's very well understood for folks in biopharma community that no one can truly understand the full safety profile of any new drug based on phase one data. But this point has a lot of implications for your TAF litigation, obviously. So my question is, in a scenario where the Supreme Court takes up your petition and Would that potentially be a venue where you could prove the level of evidence that's actually needed to make a decision on exception to duty and the type of decisions to make?
spk14: I think Andy's going to take this one.
spk07: Hi, Amir. Yeah, thanks for the question. Yes, of course. I mean, in front of the Supreme Court, just like the appellate court, we'll be able to present the facts and our arguments as you'd expect. If you look at some of the briefing documents in the appellate court, I think they spell that out. very clearly in terms of what happened over time with the development of TAF and what we knew at different points in time. And that would be available, as you'd expect, not only to the appellate court, but to the Supreme Court. And of course, those same facts would be presented at any trial if we ever get to that point. One other update on the TAF litigation. Again, Umar, nothing's changed from our perspective. We continue to have a lot of confidence. The one update I can provide is that the one of the very first trial in the federal court has been dismissed as of yesterday, I believe. So it now looks like, and again, this is consistent, as you know, with thousands of other cases. I think it's now over 5,300 cases that have been dismissed by the courts, over 4,300 in the California state courts, and over 1,000 in the federal courts before they get to trial. So the first bellwether trial in the federal courts, Umar, would now be in November instead of April. So we'll keep you up to date. And thanks for your question.
spk05: Our next question comes from Olivia Breyer with Cantor Fitzgerald. Your line is now open.
spk04: Hey, good afternoon. Thank you for the question. What were some of the dynamics that happened with Yescarta this quarter? And how should we be thinking about growth for 2024 from your cell therapy franchise, just in light of the sequentially down quarter in 4Q. Thanks.
spk01: Thanks a lot, Olivia, for the question. This is Cindy. You know, we continue to be the leaders in cell therapy, and I think the piece that Johanna mentioned is that we are looking at how do we expand beyond the existing ATCs. So the dynamics that we observed this quarter were capacity constraints within the existing ATCs that we have. We saw a little bit of in-class and out-of-class competition. And in parallel, we have been continuing to work on expanding our ATCs. So today we have over 400 ATCs globally. We are moving out of urban centers and those academic centers into the community to meet patients where they are. As Andy suggested, that bringing up those ATCs in the community is going to be really important part of our future strategy, but it does take a little bit longer than bringing an academic center up. So we expect to be flat to slightly up in quarter one, and you'll start to see that return to growth in the second half of the year.
spk05: Our next question comes from the line of Jeff Meacham with Bank of America. Your line is now open.
spk06: Great. Thank you. You have another one on cell therapy, but more on the profitability. This is a franchise that's almost $2 billion in sales. You guys have improved the turnaround time. You've reached scale. You've treated a ton of patients. What can you tell us about the progress that you've made to making this a profitable franchise? I'm just thinking not for the current products, but also looking out five years plus. Thank you.
spk07: Hey, Jeff. It's Andy. Thanks for the question. It's a great question. You're absolutely right. The cell therapy business has made tremendous progress over the last five or six years and evidenced most recently by the faster turnaround time in manufacturing that we talked about in our prepared remarks going from 16 days to 14 days. And again, it's just the beginning from our perspective of what we can continue to do with this business. So while we don't provide specific um guidance we've had we have said when we when we announced the kite transaction that we expected to be profitable breakeven are profitable and accretive by by the end of year four we got there shortly after that um all of the metrics that we look at on the business have improved over time we've continued to make significant progress on our manufacturing efficiency manufacturing costs despite the fact that we've opened three global manufacturing centers and each time you do that when you move Paul Cecala, The commercial manufacturing it impacts your your gross margin so i'm really proud of what the team has done and same thing on the operating costs, you see in the in the fourth quarter we announced some restructuring charges Jeff that hit our gap. Paul Cecala, Our gap results part of that was a restructuring at kite city and her team looked at at the structure and made changes to the structure that we think will continue to drive growth and efficiency in the business over the long run so. Maybe the last thing I'd say is that when we look at the business, this is a business that we have line of sight to biologics margins and profitability. We're really growing the business, Jeff, as you know, for long-term sustainability and growth and less near-term profitability, but it's certainly exciting that the business is doing as well as it is.
spk01: I think the only thing I would add to Andy's comment is beyond the three manufacturing facilities, we also have our own viral vector facility. Given the fact that Viral Vector has had some supply challenges, that's something that we are not suffering from, so we own the sort of end-to-end cost of goods for our products.
spk04: And we have our next question, please, Victoria.
spk05: Of course. Our next question comes from the line of Michael Yee with Jefferies. Your line is now open.
spk15: Hey, guys. Thank you for the question. We had an HIV question. There were some comments around the dynamics of the channel mix as it relates to HIV pricing. And I was wondering if you could just remind us about what the driver of the benefit was in 22 and 23 and how that changed as we go into 24 and why that's difficult comps. Is that a change in mix between commercial and Medicaid swapping? Or maybe just explain that. That would help us understand what's going on there for 24. Thank you.
spk10: JoAnne Hanrahan, Sure, Michael hi it's Joanna, let me take that one so so what you're referring to is actually we saw some pricing favorability in Q4 of 22 in the first half of 2023. JoAnne Hanrahan, That pricing favorability was mainly driven by actually just the inflation being so high, and therefore. JoAnne Hanrahan, You know, some of our rebates are actually based on that inflation rate and so therefore there was actually upside during those quarters, we knew that that was not going to repeat itself, so we had. kind of shared with you, I think, from Q3 on that this was going to normalize. And so that was kind of what happened in the first half of 2023. As we think about the second half of 2023, and mainly the fourth quarter, what we did see there is very strong demand, and that continued throughout the whole year. But we had some fluctuations, some quarterly variabilities, mainly due to channel mix. and more government channels resulting in lower average realized price because of higher rebates. And so you really have to look at it on a full year basis. And so that's why it's so important. You know that HIV performance will always have some quarterly variabilities, and we always need to look at the full year to really get the full picture of what's going on. HIV for the full year of 2023 grew 6%, with nearly a billion dollars in revenue, growth, driven by big Harvey, obviously growing at 14% and at 48% share with 3% share growth in that year outpacing all competitors. And so we're really proud of the demand driven results that we've seen in 2023. And as we think about 2024, and our predictions for 24, we believe that, you know, our expectations is going to be in line with HIV treatment, which is still about two to three points. Leah Wilson, Norcal PTAC, he or she, layer on top of that, the demand growth from the Harvey and discovery for prep and that's why we're expecting that a 4% growth in HIV so that gives you the full picture of what's going on and what happened in the past, so we don't expect. Leah Wilson, Norcal PTAC, he or she, That on a yearly basis, but on a quarterly basis, we do expect that variability and I would expect that that will continue as we move forward.
spk05: Leah Wilson, Norcal PTAC, he or she, Our next question comes from line of Chris shot with JP Morgan your line is now open.
spk08: Andy Miller- Great thanks so much for the question can just talk about the digit program and what drove the decision to step up your investments here. Andy Miller- And maybe as part of that can you elaborate a little bit more on the decision to emphasize the pdl one high population is in favor of the the all commerce study sorry any color that would be appreciated, thank you.
spk07: Andy Miller- hey Chris it's Andy maybe i'll start on the digit program and the revised agreement with arcus that we announced last week. And then Murgad can answer the second part of your question. You know, it's relatively simple. If you step back, you've heard us say this before, but I'd reiterate that we value the partnership that we have with Arcus and the programs that their team has developed. And the recent updates to your question to the partnership really allow both companies to more efficiently deploy our teams and capital. We also focused on streamlining decision-making, and the additional capital allows us to expand the overall clinical study footprint. a number of things that both companies accomplished through the amendment. It does reinforce our support and belief in their programs broadly, not just TIGIT. There's a lot to be excited about there that you'll see play out over the coming years.
spk16: Excuse me. This is Murdad. I think you're referring to the ARC-10 study. And as you may recall, we started that study together with Arcus back in 2021 outside the U.S. with a chemo comparator arm. And at the time, there was really limited access to PD-1, PD-L1 inhibitors outside the U.S. And so we subsequently updated that study March of last year to include PD-L1 inhibitors as the standard of care was evolving. It took us time to get this all going. And while that was happening, we had a number of competitors launch similar trials. in the space with their TIDGES antibodies. So as a result of all that, the enrollment for the ARC-10 trial wasn't as robust as we had hoped for and as it had been. And STAR-121, which is the all-comers study, was recruiting very well. And so we decided to really prioritize our efforts for that all-comers population where we think we could be first or second in class. And it was really a prioritization to ensure that we could stay ahead and keep moving the molecules forward as quickly as possible.
spk05: Our next question comes from the line of Brian Abrams with RBC Capital Markets. Your line is now open.
spk11: Hi, good afternoon. Thanks so much for taking my question. I realize this is pending KOL and regulatory discussions, but I was wondering if you could frame the potential next steps for the PD-L1 poor responders. Do you think this is a filable population for Tredelby and Second Line Lung, or might you also consider running another study in that population? And along those lines, I'm curious what you're expecting to see from the updated Evoque O2 data this year and how that might shape your overall plans for Tredelby and Lung. Thanks.
spk16: Sure, this is Murdad again, Brian. So maybe I'll take the second part first. On Evoco2, as you can imagine, we showed last year ORR
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