Q4 2022 Gilead Sciences Inc Earnings 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.
I would like to ask a question. Please press star one on your telephone keypad.
I would now like to pass the conference over to our host Jackie Roth. Please go ahead.
Thank you operator, and good afternoon, everyone.
After market close today, we issued a press release with earnings results for the fourth quarter and full year 2020 to.
The press release slides and supplemental data are available on the investors section of our website at Gilead Dot com.
The speakers on today's call will be our chairman and Chief Executive Officer, Daniel O'day, Our Chief Commercial Officer, Johanna Mercier, our Chief Medical Officer, Murdock Heartbeat, and our Chief Financial Officer, Andrew Dickinson.
After that we'll open the call to Q&A with the team will be joined by Christi Shaw Chief Executive Officer of Kate.
Before we get started let me remind you that we will be making forward looking statements, including those related to gilead business financial condition and results of operations plans and expectations with respect to products product candidates corporate strategy business and operation 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.
The GAAP to non-GAAP reconciliations are provided in the earnings press release, and our supplemental 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 have the opportunity to connect with many of you a few weeks ago in San Francisco and I am 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 in 2015 when growth was driven by the peak of HCV sales.
Full year 2022 sales a big target grew 20% year over year to $10 4 billion exceeding 10 billion for the first time.
Excluding <unk> 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. So <unk> received its first approval in the U S for heavily treatment experienced adults with multi drug resistant HIV infection.
This follows the European approval in the third quarter.
So I think it's 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 some anchor and to advancing our portfolio of long acting options.
We are anticipating as another potential approval any day now with the upcoming <unk> date for <unk> in pretreated HR positive <unk> negative metastatic breast cancer.
We also expect to hear from European regulators later this year.
In the meantime, <unk> 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 you Scott on most recently approved in Japan for a second line relapsed refractory large b cell lymphoma.
My Dad will talk you through our pipeline update some key milestones in a few moments.
For now ill 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 <unk> for a long acting HIV treatment programs.
The new phase III <unk> study for a novel oral COVID-19 nucleoside.
And the five phase III 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.
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 MBR.
With that I'll hand over to Joana 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.
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 decorate $6 3 billion up 9% year over year or 12%, excluding the impact of FX and the loss of exclusivity of Truvada and <unk> with solid growth in each of our core franchises and growth across all geographies once again.
Led by HIV and oncology.
Quarter over quarter sales grew 5% driven by HIV, <unk> and cell therapy, partially offset by <unk>.
For the full year total product sales, excluding decorate were $23 1 billion up 8% year over year or 11%, excluding the impact of FX and the Truvada LOE driven by HIV and oncology.
As expected full year that core sales were down meaningfully in 2022 compared to 2021.
That said that <unk> performance has been more sustainable than we previously expected and it's clear that it continues to play an essential role for hot like patient treated for COVID-19.
In 2022 victory delivered $3 9 billion, including $1 billion in the fourth quarter.
Overall full year total product sales of 27 billion with flat compared to 2021 as growth in our base business was offset by the decline in decorate them.
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.
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 the tardy. 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 one 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 at 2% to 3%.
Moving to prevention, the U S market with 18% year over year, and 3% sequentially in the fourth quarter of 2022.
Collecting growing awareness.
<unk> sales for the fourth quarter were $537 million up 13% year over year and 7% sequentially.
Notably despite generics and other entrant Samantha discovery 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 attack IP settlement last year Discovery's positioning in the growing prep market has only strengthened overall.
Overall this provides a strong foundation as we look to the potential launch of <unk> for prep.
A true long acting every six months regimen in the middle part of the decade.
Moving to the target on slide nine.
Sales for the quarter was $2 9 billion up 15% year over year, primarily driven by higher demand as well as favorable pricing dynamics.
Set 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 have seen the car they continue to gain market share in the fourth quarter was no exception getting more than three percentage point in share year over year.
This continued momentum is a testament to the <unk> differentiated clinical profile reinforced by the long term five year data, we presented last year.
Notably in the U S.
Europe and other major market <unk> remains the number one regimen for new starts in addition to its number one position in treatments, which is across most of the major markets, including the U S.
At the end of 2022, they were almost 1 million people managing their HIV with victory worldwide.
Taken altogether. This is Matt <unk> for the first time to achieve full year sales of over $10 billion in 2022.
Looking ahead, we're confident that <unk> will remain a leading medicine for the treatment of HIV in the U S Europe and other major market 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.
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 draw down to occur in Q1, albeit at more modest levels compared to prior year.
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 'twenty, two with driven by shift 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 prices 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 to cure to that end. We're excited about the recent approval for Sun linker in U S and Europe for heavily treatment experienced with Multidrug resistant HIV infection.
This first indication represents only 1% to 2% of people living with HIV.
Huge unmet medical need.
These individuals have cycled through multiple anti retroviral regimen and until now have had very few if any effective options left available.
So <unk> is now approved in the U S UK and European market and we are working as quickly as possible with regulators and reimbursement bodies to make some money available in many more countries.
We believe that first launch upon linker represents a key milestone for gilead and looking forward in the treatment and potential prevention of HIV with some linker a true long acting regimen is a reality.
As awareness and familiarity of something like a every six months subcutaneous administration grow among healthcare providers community groups and people living with an at risk of HIV.
We believe some anchor is well positioned for the future.
Turning to <unk> on slide 10.
Sales for the fourth quarter were $439 million up 12% year over year, reflecting timing of department of corrections or DLC purchases and favorable pricing dynamics in the U S.
Quarter over quarter, HCV 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 dosing 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 in HDD for the fourth quarter with $255 million as shown on slide 11.
Sales were down 4% year over year, and down 3% sequentially, primarily due to lower than Lady demand and pricing dynamics outside of the U S.
Moving to that Larry on Slide 12.
The fourth quarter were $1 billion.
Full year totaling $3 9 billion.
It is clear that the pandemic has evolved <unk> role in the treatment of COVID-19 has remained unchanged as a key part of the standard of care for hospitalized patients.
In fact that clearly is still the only antiviral approved in this setting and in the U S that credit continues to be as noted 50% of hospitalized patients who are being treated for COVID-19.
We're excited to continue to work on our oil COVID-19, nucleoside, which mehrdad will discuss shortly.
Moving to oncology and beginning with <unk> on slide 13 sales of $195 million in the fourth quarter grew 65% year over year and 8% sequentially.
For the full year <unk> sales were $680 million up 79% year over year.
As we continue to broaden access to <unk> around the world. We're encouraged by the growing demand in existing market.
<unk> is now reimbursed across the major European markets and in the U S demand was up 13% quarter over quarter, our growth rate almost doubled from the prior quarter, reflecting the solid contribution of our expanded field force and growing awareness.
We're also excited by the expected decision from the FDA later, this month, which could expand tw potentially clinically meaningful benefit into the pretreated HR positive <unk> negative metastatic breast cancer setting.
We estimate this represents at least 6000 addressable patients in the U S and our U S. Field Force has just wrapped up the launch meeting.
Energized for the upcoming approval.
The opportunity for <unk> to benefit patients with pretreated HR positive <unk> negative metastatic disease is supported by the recent Mtc in category one preferred recommendation for <unk> based on the tropics <unk> data.
Additionally, the European Medicines agency recently validated our marketing authorization application fortunate lb and HR positive <unk> negative and we look forward to a decision later this year.
Now on to slide 14, and on behalf of Christiana <unk> 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 I guess, Garda and large b cell lymphoma, notably in the U S.
Growing physician familiarity with just got a data and tight industry, leading manufacturing continue to be key growth drivers.
<unk> 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, our PCL in U S. But also continued uptake in third line <unk> in both the U S and across the European market.
<unk> 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 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 Youre starting to card is at the leading cell therapies of choice globally.
More patients are getting access to <unk> industry, leading reliable manufacturing capabilities and the teams expanding footprint of authorized treatment centers around the world.
And just last week UK National Institute for Health and care excellence or nice recommended guest startup for routine use in third line large b cell lymphoma.
This makes you started the first car T available for commissioning in England.
Approvals and reimbursement into additional indications that are currently available in the U S. Other market is expected to continue over the next year.
You started with recently approved for second line <unk> 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 it's still early days and we'll continue to work with our partner Daiichi Sankyo to make <unk> available to approximately 7000 patients in the second line plus setting.
We will begin manufacturing supply for the Japanese market through our Alpha <unk>, California facility.
And with that I'll hand, the call over to <unk> for an update on our pipeline for that.
Thanks, Joanna I am pleased to be starting 2023 with all the momentum in 2022 behind us with.
With the positive data readouts for <unk> and on the new amount.
And the recent approvals from <unk>. The team is really excited to progress our programs in 2023 and beyond.
Starting with <unk> on slide 16, and as I just mentioned when the catheter you received its first U S. FDA approval for people living with multi drug resistant HIV in combination with other anti retrovirals.
Marketed as some linker Linda caveat here is the first and only twice yearly subcutaneous HIV treatment, bringing 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 than a couple of year based treatment and prevention programs.
For HIV treatment. We currently have 10 partner agents for Linda Cavalier in various stages of development, including two new integrates inhibitors or entities.
In the <unk> space we.
We expect to share data this year from the phase <unk> proof of concept study for <unk> and two broadly neutralizing antibodies were bina directed at HIV.
And in prep, our clinical development of <unk> as monotherapy for HIV prevention continues to progress with two trials underway and two additional trials expected to achieve at Pi in the second half of 2023.
Moving to slide 17, we continue to progress our novel oral nucleoside for COVID-19, GFS by two four points.
Treatments, such as Gerry I think Larry and vaccinations have improved the outlook for patients with COVID-19, but theres 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 III <unk> 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 III <unk> trial will evaluate standard risk patients, which includes people aged 12 and older with no CVC defined risk factors.
We expect this trial to enroll its first patient in the U S. In the first quarter and will share progress when we can which depends in part on the prevalence of COVID-19 year study sites.
Moving to oncology on slide 18, and starting with <unk>, we continue to build on the momentum of our tropics <unk> data and.
And we announced the European medicines agency's validation of our marketing authorization application for pretreated HR positive <unk> negative metastatic breast cancer in early January .
As Joanna noted, we expect a regulatory decision of our SPL EE in the U S. Later this month and the decision in Europe in the latter part of the year.
<unk> has already changed the standard of care for many patients with metastatic CNBC 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 <unk> negative metastatic breast cancer patients.
Moreover, recently presented data demonstrated for <unk>, PFS and OS benefit was consistent across a range of tumor trop two expression levels.
This late breaking post hoc analysis presented at the San Antonio breast cancer Symposium was consistent with <unk> data in metastatic triple negative breast cancer, where baseline trop two 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 <unk> seven trial with our partner ARCUS in December as presented at the ESCO plenary session.
<unk> seven is a randomized phase II proof of concept study that enrolled 150 patients the largest dataset and anti tissue studies released to date with more than 100 patients across the two dumb containing arms.
We're pleased to see both dawn containing arms demonstrated clinically meaningful differentiation.
<unk> Zim monotherapy across all efficacy measures evaluated clearly establishing the addition of Domino mab improve the clinical responses to anti PD one therapy in this population.
We're also encouraged by the consistency of the safety data and Madame containing treatment arms, which showed no unexpected safety signals.
This is an ongoing trial and we look forward to sharing updated data at <unk> 2023.
While these efficacy and safety data will mature over time. This fourth interim analysis fully supports our joint guns and clinical development program and the importance of interrupting the tissue pathway.
Based on the totality of the data seen to date.
Very confident to them with an FC trimer design has the potential to be differentiated compared to other anti tangent molecules in this space.
The ongoing phase III trials are done attitude anti PD, one treatment 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 III trials.
Moving to the growing lab or anti CD 47 therapeutics 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 enhance study in first line high risk Mds.
I am 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'll 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 Christiana Mackay team I'm pleased to share details of another strong quarter of clinical progress in our cell therapy programs.
At Ash <unk> had more than 25 data presentations further demonstrating the transformative impact of cell therapies, including three year follow up data from Zuma funds, showing that 52% of patients with indolent lymphomas treated with <unk> continue to respond.
Following the compelling Zuma 12 data on <unk> in frontline <unk> shared at Ash in 2021.
We expect to achieve FTR enter phase III Zuma 23 trial in frontline high risk <unk> in the first half of the year.
We are also progressing our phase III Zuma 24 outpatient study in second line <unk> 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 Es garden's Jakarta's. We're 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 our Silex for the late stage clinical product candidate car T. BBB CMA, which is currently being evaluated for the treatment of multiple myeloma if.
If approved together with our industry, leading manufacturing capabilities. We believe we can reliably and consistently deliver much needed therapy to patients.
Additionally, we announced the pending acquisition of community Therapeutics, which adds an armored car T platform and rapid manufacturing technology to kite.
Yes, Alex transaction closed earlier this week and community is expected to close later this quarter.
Both highlight <unk> continued leadership in cell therapy, and our commitment to building, a robust and exciting pipeline and cell therapies.
Wrapping up on Slide 22, you are sharing the key pipeline milestones that we expect in 2023.
As you can see spans Spi data readouts updates and regulatory approvals across oncology and neurology.
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 a 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 Dan and good afternoon, everyone.
Gilead closed out the year with a strong fourth quarter driven by VIX Harvey the glory in oncology.
For the full year, our sales excluding <unk> grew 8%, 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 LOE.
HIV grew 8% year over year, driven by continued strong performance of the RV, which grew 20% from 2021 to $10 4 billion.
Retirement 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 <unk> grew 9% year over year, despite an approximately $130 million headwind from FX.
If we exclude FX in addition to the impact of HIV Eloise.
Total underlying sales growth for the fourth quarter was 12% compared with the prior year.
Moving to slide 25.
<unk> was down as expected year over year, although it grew 8% on a sequential basis from the third quarter highlighting the veterinary will continue to play an important role even as COVID-19 progresses intuit's 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, 2022, or $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 collaborations and the license amendment with Jones and lower than prior year due to the $625 million charge related to the exercise of the option rates for rguest 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 Trudeau League collaborations with Everest medicines.
This $406 million charge includes the $280 million that we agreed to pay <unk> to acquire the development and commercial rights to <unk> in China and other Asian territories. In addition to some other termination related expenses.
Excluding this adverse 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 at risk charge and up year over year <unk>.
Excluding the average 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 in the fourth quarter of 2021.
Of note the Everest contract termination impacted non-GAAP diluted EPS by <unk> 25, 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 back Larry total product sales were $23 1 billion.
Up 8% compared to 2021, primarily driven by VIX Harvey and oncology.
Excluding around $380 million of FX headwinds and the $350 million impact of the Truvada in a triple low.
Total product sales, excluding <unk> were up 11% as compared to 2021.
I touched on the main P&L impact from 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 20, as 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.
Total product sales in the range of 26% to $26 5 billion.
For total product sales, excluding <unk>, 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 that glory sales of approximately $2 billion.
As always that <unk> 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 we will continue to monitor the landscape carefully.
As a result, and similar to last year, we will update you on our veterinary 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 for later stage trials.
As a reminder, we had eight phase III trial start in 2022, and we expect to have 23 active phase III 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 seller community and milestone payments for existing collaborations.
Consistent with our approach in 2022, we will continue to share expected acquired IP R&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.
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 million 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.
$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 repurchases.
Fourth quarter share repurchases were approximately $800 million.
For 2023, we have announced today, a two 7% increase in our quarterly cash dividend to <unk> 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 ask participants to limit themselves to one question today, and then reenter the queue for any follow up.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
I'll pause here briefly ask questions are registered.
Yes.
The first question comes from the line of Tyler Van Buren with Cowen. Please proceed.
Hey, guys. Thanks, very much for the question.
Great to see yet another impressive quarter performance from the core business at.
At the mid point guidance assumes.
5% year over year growth for product sales, excluding <unk> non-GAAP EPS 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.
<unk> 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 <unk>.
You highlighted the base business is performing very well.
We had another good year with Vic Laurie, 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 <unk>. Despite the increase in expenses going forward again, a lot of our shareholders. As you know focus on non-GAAP EPS, excluding backward based on their assumptions, we expect using kind of that metric for our EP.
To grow and for that growth to accelerate over the longer run as our products continue to deliver.
With additional commercial approvals.
Spaniard indications new products entering the market et cetera. So.
Then.
I think what you're highlighting is the difficulty of looking through the impact of Vac Lori when we look at the base business. We have a lot of confidence in terms of the health of the business and the growth that's going to deliver over time, both on the topline and the Bottomline.
And I mean, we have our next question. Please.
The next question comes from the line of Geoff Meacham with Bank of America. Please proceed.
Afternoon, guys. Thanks, so much the question I'll keep it just to one.
When you look at <unk> in the U S. Just help us with maybe the expected.
Kind of loss dynamics following the recent approval in just with consideration of the hurdles with regards to payer access.
Obviously, you guys have a long history here, but wondering if that if the environment is different today versus sort of three threep and Dennis Thank you.
Thanks, Jeff for your question Joanna.
I think that we're super excited with sunlight approval.
Do you remember, though it's really for a very specific patient population, but heavily treatment experienced multi drug resistant population and so that's about 1% to 2% of people living with HIV.
That's about 5000 patients or so in.
You asked so just to give you a little bit of that.
Our perspective on it.
That one piece of huddle, so far so we just launched so its still early days.
We're excited about it and I think physicians response has been it's been very strong as well.
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 we have prevention indication as well as treatment combination so more to come on that one I think it is an incredible opportunity for us to gain awareness for some longer how to use it the reimbursement systems and as to your point about pre COVID-19 to Covid I think that actually we've really normalize 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 small revenue huge unmet medical need and an incredible opportunity for patients to have something to ensure that they don't proceed to more or like AIDS disease versus testing HIV positive.
And then maybe we have our next question. Please.
Thank you. The next question is from Michael Yee at Jefferies. Please proceed.
Oh, Hey, thanks for the question, maybe a question for Murdo.
On talk to.
The competitor Astrazeneca and Daiichi.
<unk> continues to be quite bullish and actually has a phase III lung cancer study readout.
St is quite bullish on trop two can you explain your thoughts around your differentiation I. Appreciate in your study reach out I think in 'twenty four and what we should appreciate.
How you will compete there would differentiate and maybe its safety, but maybe walk me through that and help us understand for you versus your competitor. Thank you.
Yes, Thanks, Michael This is Mary.
Youre absolutely right.
Do think that there are a couple of things that we think about when we think about differentiation in the first is that.
We've now been on the market and have several approvals under our belt with <unk> LTE and I think that that is.
An important factor for us having now been on the market.
An important indications to your point with lung.
We will be somewhat behind.
Where where our competition is we do think that.
The data will have to evolve for us and for them.
And I think so far we have been fortunate to not see ILD.
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 I.
I think our our plan is to keep going ahead with a differentiated clinical development program. So we can get into the broadest population as possible.
Thank you. The next question is from do Kim with Piper Sandler. Please proceed.
Hi, Thanks for taking my question and congrats on the quarter keeping it on <unk> I was hoping if you could provide a little more detail on.
Seven and pre chemo HR positive <unk> negative breast cancer.
<unk> later this year.
That study design will look like and how did you come to conclude that this was the next best.
Yeah.
Study for this population.
Yes, I think so it was a great thats an excellent question and I think we.
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 is an important need in a large population there and we want to make sure that we navigate that pathway carefully.
So I think as.
As we develop that program.
Protocol guests develop we will be able to share more detail over time.
And then we have our next question please.
Thank you. The next question comes from Colin Bristow with UBS. Please proceed.
Alright, thanks, guys.
Yes, yes.
Good afternoon.
And.
Some of the progress maybe one on dumping.
<unk> B.
What is it that gives you the.
E Commerce is the right when.
I think at least the animal data suggest that this may not be perfect and then as you think about the upcoming study of seven could you talk about the frequency of scans here because this has come up a point.
At least discussion with hooked up to the comparator trials <unk>. Thank you.
Sure. This is Mary again.
Excellent question. Thank you for that.
In terms of our.
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.
In that debate.
What the preclinical data.
Was showing and as you know the data.
There were conflicting preclinical data, including.
Some data that suggested maybe an etsy site may not work.
But.
As why we ran the studies the way, we did and very importantly, why we ran <unk> seven.
The objective there was really to establish whether an FC silent no would demonstrate a benefit relative to NFC.
Active molecule part of the hypothesis there is what happens in the periphery and weather depleting effector cells with the tissue could actually be harmful with an FC competent molecule relative to an <unk> <unk> molecule.
And our confidence really comes from our Orange seven data I think the arc seven data really answer that question, we clearly show benefit when added onto PD one the <unk>.
<unk> data exceed our R b.
Bar for moving forward.
And so we really think that we've answered that question.
In the clinic.
As to whether the Etsy know matters.
Thank you our next question.
Thank you. The next question is from Chris Schott with Jpmorgan. Please proceed.
Great. Thanks, so much just a question on the Covid business.
I know it's volatile.
At the same time the street doesn't seem to model much of a tail for vik, Lori or <unk> $5 to 45 at all in numbers beyond this year, while we've got pfizer's and others talking about more sustainable Copa businesses, I guess off of 2023 level. So as you mentioned your thoughts on just how you're thinking about the business longer term and.
Is this a meaningful franchise for you over time or.
Are you really thinking of us continuing to fade down beyond beyond this year. Thank you.
Yes.
Sure Chris It's Joanna.
Yeah, So definitely we've changed a little bit they are our position on this one has evolved from 2022, where we are today, obviously I think we do truly believe that does that clearing business is much more sustainable than we've ever seen before I, let alone as we think about kind of where we're going with COVID-19, including the oral that.
What I can speak to the.
The one piece that we've seen.
Is it maybe a little bit different than some of the oils that youre, referring to is one is victory been part of the 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 80% 90% of revenues in 2022 are truly reflecting the demand for that clearly in 2022, and so therefore coming into 2023, we feel very strongly that.
The core 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 a treatment of choice when they decide to treat hospitalized patients I think there is really an incredible continuing opportunity for us to ensure their victory.
It is acceptable to all these patients and so that's why we think the model is quite sustainable moving forward I would also just add that.
They had broadened over the last year and some we have a very strong body of evidence, including mortality as well as the guidelines endorsement with the NIH as well as the WHI. There. So all of those people all the pieces together actually make for a strong.
So that core position in 'twenty, three but actually and beyond and maybe I'll just pass it over to Mary Anne to talk a little bit how we're thinking about COVID-19, as a whole with the oral just two seconds I think youre right to point out the uncertainties that we all have and that we've seen with outpatient COVID-19 and.
We have a lot of confidence in the mechanism of <unk> to four five.
In.
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 high risk and 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 $5 to 45. The Oaktree study can you talk a little bit more about the assumptions you've made in powering the primary end point 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 are studying thanks.
Sure very briefly.
<unk>.
To your 0.1 is one is in the high risk population right. So I think that's that's important those are people who have.
Risk factors, whether or not in 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.
The ability to prevent things like hospitalization and in the standard risk it would be looking for things like symptom.
<unk>.
And I think again I'll, just reiterate that I think the uncertainties in terms of those factors and importantly, the underlying event rates.
<unk> is real and so we've made a number of assumptions around what that background rate will be <unk>.
And we 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 wanted to understand is that is there a scenario where you.
Unitary business growth could be better than the market growth as you gain share at this point. Thank you.
Sure.
Joanna.
And I think as we look at the HIV as a whole we're looking at about a 5% year on year growth.
And of course that mostly driven by <unk>.
Demand, mainly the Harvey and so its probably important to talk about the share there. So our total gilead share it's still in the low seventies and we've been quite state.
Stable at that level, we saw a little bit of a depth when we got the ciabatta a triple net lease and that's the only decline that we've seen there and really help steady where you see nice growth of course, it's Harvey our year on year growth target is 20% and 50 year post launch and I think that's the piece of the puzzle that is really driving the overall HIV business. In addition.
To what's going on in prep with discovery.
To your point about the market growth, we see in market grows around 2% to 3%.
Year on year, both in the U S as well as in Europe , and we've assumed that.
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 one of the main reasons why is there still an opportunity for increasing treatment rates. So from diagnosis to treatment, but also further penetration in underserved patient populations and so at this point in time.
And our nation's call. It 90, 590% 95, four testing treatment and biology, virologic suppression, where only about 70% to 75%. So if we were to get to those goals youre looking at over 350000 more patients into the system. So I think youre absolutely right I think there's a great opportunity for us to continue to grow big Harvey anti HIV business at Gilead.
Thank you. The next question is from Omar robot 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.
And don't 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 in R&D growing high single digits, I guess should we assume that given all of 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.
Adding longer term.
Hey, Omar it's Andy Thanks for the question.
Maybe a couple of things.
First I would highlight that as you would expect here we are.
<unk> full of expenses and don't expect 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.
We started on the R&D side as you know we started eight phase III trials. This year were getting as you heard start at least another five.
In 2023, so we are in an investment cycle over the longer run.
Maybe one other thing before I kind of talk about the long run to picture to your question again, when you benchmark us relative to competitors.
No historically for both SG&A and R&D, we under spent and it is partly why we didn't have the pipeline that would drive the top quartile of 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 III trials that have started will continue to continue to do BD not at the same pace or level that we have over the last four or five years as we rebuild the pipeline.
But our percent our R&D as 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 guidance 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, we will.
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 Youll really see that play through on the bottom line as well so.
Thanks for the question.
Thank you. The next question is from Olivia Brayer 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 from a gorilla Nab.
I guess the question really is could we see survival data from that enhance our 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 complete submission package. Thank you.
Hi, Olivia this is mehrdad.
Yeah, I think maybe it's good to step back and just.
Just clarify in the sense or how we are approaching interim analysis for our studies.
So the the pivotal Magro study is powered for events at the final analysis.
Of course, we run interim analyses.
As norm for the.
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 <unk>.
Events of course.
Is not the final analysis, so it really depends on how big the magnitude of improvement as an OS whether that leads to.
Stopping the study.
Non blinding of the study.
Our expectation is that we go to the final OS analysis.
Alright.
Of course, we always hope for an upside surprise that one of the.
Earlier interim analysis, 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.
Complete response rate, but.
Primarily be driven 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 Redburn. Please proceed.
Thank you.
Question.
Okay.
And the nice recommendation.
That's good from a UK perspective.
It's the case.
Recommendations are closely followed by much.
A much larger range of countries. So I just wanted to.
This does indeed have a spillover benefit.
On the U K so yes.
How important is this approval.
In the U K.
Hey, Simon it's Christine Thank you for the question.
We think it is.
You know very important because first of all it's the number of patients there's still very similar at 450, but the process by which patients get approved obviously should be much smoother and.
Really getting access to.
This recommendation really help the patients to access much more quickly and so to your point we do.
See this approval of that hopefully will have an influence on other countries.
Just like we saw with reimbursement and as we look at the reimbursement of this cargo in over 20 countries with one at a time and as as.
Certain countries are.
Starting to approve without the other countries also do the same so based on the second line Zuma seven trial as well that will be our next step two.
Continue to provide the data that I'm getting.
Putting a patient a onetime treatment.
Really help the health care system and improve patient outcomes. So yes, we're very hopeful that it could have some influence.
Thank you. The next question is from Robyn <unk> with tourists. Please proceed.
Good afternoon, and thanks for taking our question. This is nicole on for Robyn.
Are you seeing any safety signals and is set for a nimble company with two delphian pan-broil like.
What are the safety profile comparable both populations and if so what this hamper taken the first line.
Hi, Nicole this is mehrdad.
We haven't really disclosed any.
Anything on the safety of those studies.
Really just gotten underway. So I don't think we have anything to share yet we will of course be following that too to see if if anything emerges youre question is exactly the one that we want to make sure. We address as we move forward, but I don't 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 <unk> <unk> with BMO. Please proceed.
Hi, guys. Thanks for taking my taking my question one for Christie.
Annualized well above $1 billion for cell therapy product.
Talk about the recent work you've done to expand manufacturing and how you could think that think that could support further growth this year and beyond thank you.
Sure. So that was our focus and husband, 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 tools.
And if you look at Tcf are three here in California.
Adding a new site to CFO for in Amsterdam, and then <unk> five in Maryland.
We are able to leverage that footprint to grow not only in the.
The assets that we have today, but in future pipeline, especially as they look at.
Intercept we have now with our select of multiple myeloma.
Very confident about our ability to supply and the capacity that we've built and.
Today and for Tomorrow and really the next focus for US is we've had some really good gains on our margin improvement, but as we look at our operational optimization.
Of our manufacturing footprint is definitely to continue the instead of 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.
We have several levers there to pull as well so I hope you are.
A big confidence in our ability to deliver for patients from a capacity standpoint.
Thank you that concludes today's question answer session I will now turn the call over to the management team for any closing remarks.
Great. This is Dan I just wanted to a couple of things here first of all thank you all for joining and your ongoing interest and questions for Gilead as usual if we didn't get 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 is in a very different place than it.
A few years ago. Thanks to the work the team has done to transform the company, we're going into 2023, and a very strong position with our current medicines, performing well and tremendous growth potential in our newer therapies as well as those in development. So what you can expect to see next quarter on quarter execution and even <unk>.
Mr progress in greater impact in the future. Thank you very much for your time today and we look forward to speaking you again soon.
That concludes todays fourth quarter and full year 2020 to Gilead Sciences earnings Conference call. Thank you for your participation.