Gilead Sciences, Inc. (GILD) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2020 Gilead Sciences Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Mr. Douglas Maffei, Senior Director of Investor Relations. Please go ahead.

Thank you, Liz. And good afternoon everyone. Just after market closed today, we issued a press release with earnings results for the first half and second quarter 2020. The press release and detailed slides are available on the Investor Relations section of the Gilead website. The speakers on today's call will be: Daniel O'Day, Chairman and Chief Executive Officer; Johanna Mercier, Chief Commercial Officer; Merdad Parsey, Chief Medical Officer; and Andrew Dickinson, Chief Financial Officer. Also on the call and available for Q&A will be Christi Shaw, Chief Executive Officer of Kite; and Diana Brainard, SVP and Head of our Virology Therapeutic Area. Before we begin with our prepared comments, let me remind you that we will be making forward-looking statements including risks and uncertainties related to the impact of the COVID-19 pandemic on Gilead's business, financial condition and results of operations, plans and expectations with regards to products, product candidates, corporate strategy, financial projections and the use of capital and 2020 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 as well as on the Gilead website. I will now turn the call over to Dan.

Thank you, Doug, and good afternoon, everyone. I'd like to start by thanking our Gillian employees worldwide, who along with our partners, continue to go above and beyond to meet our many responsibilities at this time. Those responsibilities include advancing remdesivir, supporting work across our other medicines that are helping patients today and building our pipeline of future therapies. We'll cover each of those during today's call. I'm pleased to have the team with me here to provide an overview, and we all look forward to answering your questions. I’ll start things off with some of my perspectives. The first thing I want to comment on is the continued strength and durability of our core HIV business. We've grown market share even as we navigated the expected impact of the COVID-19 pandemic, and we're already seeing early signs of recovery from that impact in some markets. We are confident in our long-term leadership in HIV. People living with HIV depend on innovative therapies that meet their needs and Gilead is and has always been focused on meeting those needs. Like TAVI has become the gold standard in HIV treatment and we're on track with our conversion to discovery for priory treatment. The principles that have driven our HR&D growth to date still apply and will continue to drive our growth in the future. The second area I want to comment on is our role in fighting the pandemic with remdesivir. There's a growing body of clinical and real world data that continues to shape our understanding of the medicine. The data tell a consistent story of clinical benefit for patients suffering from COVID-19 across our SIMPLE studies, the NIAID data, compassionate use data, and more recently the comparative analysis that use real world data. I'd also like to highlight some details in our efforts to ensure a broad access to remdesivir in the second half of the year and beyond. As we discussed last time, we feel the full weight of our responsibilities with remdesivir and that applies to the price we set following the donation period. We price remdesivir well below the value it provides to enable access at this critical time and ensure that we continue to meet our responsibilities in the future, with further investment in remdesivir and in research that will help us to prepare for any future pandemics. The extensive clinical development work continues on remdesivir so that we can potentially extend the treatment to many more patient groups. We have begun clinical work on an inhaled solution that could be used outside of the hospital. And we'll also conduct clinical trials using the intravenous formulation in the outpatient setting, such as nursing homes. Merdad will talk more about the development program later. As you know, we've agreed to the U.S. Government requests, following discussions about the significant rise of COVID-19 infections in the United States, the U.S. patients will receive 500 million treatment courses of our supply until the end of September, when we expect to have enough remdesivir to meet real time global demand. As announced yesterday, we are pleased to reach an agreement with the European Commission where they will centrally purchase remdesivir for patients in the European Union and the UK. European Commission will be responsible for all decisions regarding allocation among member states. The remaining supply of remdesivir will be allocated to other countries with significant rates of COVID-19 infection. We will see a significant increase in supplies in October as expected. The third theme I want to touch on is the progress we're making and shaping Gilead's growth story. You may recall that we previously shared a framework outlining the three pillars that will shape Gilead's next chapter. And you'll see these in the slides on our website today as well. I've already touched on the first pillar, which is our durable core business. And Johanna will describe our achievements on this front in more detail in a moment. Pillar two is our pipeline. And we made important progress across several potentially transformational assets in a relatively short period of time with a balance of both internal innovation and acquired investigational compounds. Pillar three is our strategy to drive future growth by accessing the highest quality external innovation in order to serve more patients. The pace of our corporate development activities has not slowed down a bit during this pandemic time. I'd like to highlight the progress we made this year on executing on our immuno-oncology strategy. Our goal is to grow or immuno-oncology pipeline and our expertise both through external opportunities and by advancing our internal efforts. The range of immuno-oncology deals we've announced this year represents significant progress towards this goal. These deals bring complimentary scientific approaches and provide access to clinical and preclinical assets with a view to both mid and long-term growth. Before I hand over to the team for the detailed comments in our progress, I want to briefly mention something that we see as another key area of responsibility for the company, the work against racial injustice. We are passionately committed to using Gilead's platform for what we see as a global issue that calls on everyone to play a role. The leadership team and I have spent the past week listening carefully to black employees as they've started to share with us how they, their families and their communities experience racial injustice in various forums. Gilead is committed to both immediate and long-term action that will have a lasting impact for our employees and the communities that we serve. Let me now hand the call off to Johanna, who will walk us through some of the key details related to our business performance. Over to you Johanna.

Thanks, Dan. And good afternoon, everyone. Let me start by saying that despite the anticipated impact of the pandemic, our business is solid and remains resilient. While COVID-19 has had an impact on parts of our business, this past quarter, we're built to withstand this kind of challenge, we remain confident in the strength of our core business. No one can actually predict the progression of this pandemic, but we do see signs of recovery and partial return to normal in Europe, as well as some parts of Asia. And we're confident that this will also play out in the U.S. once the incident stabilizes. Turning out to the specifics of Q2 in the first half for business performance, starting with HIV. Our HIV franchise is strong and durable. In both treatment and prevention we have a patient focused history of innovation and believe both will continue to be important drivers for the company over the next decade. In June, we hit our stated year-end goal this conversion to TAF-based regimens on the treatment side and are now at 90% of our total portfolio. Biktarvy uptake continues to remain strong across geographies and is the number one HIV treatment regimen across the U.S., EU5 and other key global markets in those naïve and switch. For PrEP, we achieved our goal of 40% to 45% Descovy conversion with 43% at the end of June. We continue to believe that physicians and patients are benefiting from choice and are increasingly seeing Biktarvy for treatment and Descovy for PrEP as the preferred option for their patients. The quarter overall was down year-on-year, 1% and quarter-over-quarter by 3%. The impact on our HIV revenue, including Biktarvy was primarily driven by inventory dynamics. In Q2, we saw a reversal of the pandemic related stocking that happened in March during the onset of COVID across U.S. and Europe. Also on the treatment side as expected, we're seeing reduced switches due to the decline in patient visits and physicians not wanting to initiate new therapies during the pandemic. We're also seeing unfavorable shift in payer mix from commercial to government segments. Despite this, our overall demand remained robust with both the overall Gilead’s portfolio and Biktarvy gaining share quarter-over-quarter and year-on-year. The pandemic impacted PrEP demand as expected, and we saw reduced initiations and therapy discontinuations due to fewer people seeing their health care providers and social dynamics. We're starting to see gradual recovery across our markets, including in the U.S., where we saw improving PrEP churns in June. Sound Biktarvy uptake and Descovy for PrEP conversion during the quarter underscores the confidence we have in our core HIV business, as we expect to recover from the pandemic over the remainder of the year and going into 2021. If we look at our HIV business comparing the first half of revenues this year versus 2019, we see the robust underlying business with 6% growth. The half year view normalizes the inventory dynamic associated with the pandemic. So now, if we turn into HBV, our HBV business, which is more like an acute business was down 47% from Q2 in 2019 and down 39% from Q1 this year. As we discussed during the Q1 call reduced or delayed physician visits naturally decrease both diagnosis and patient starts. U.S. HBV starts for down 42% quarter-over-quarter. However, overall US HBV share has held strong at about 60% across segments, which is up 11 points from Q2 to 2019. Similarly, we are seeing strong and consistent share in Europe as well. As other markets start to reopen, similar to what we saw in June and July across Europe, it's likely we will see many patients return throughout the rest of the year and into 2021. As an example of this in Italy, which was heavily impacted by COVID earlier this year, we saw recovery in June as more patients, especially the higher risk patients, started to return to their physicians and begin treatment. Before I close, just let me highlight for you a range of commercial opportunities on the horizon that make us also excited to be part of the Gilead team. In the near term we're pleased with the significant volume growth we're seeing in China, despite the impact of COVID as we received foreign RDL approvals at the end of 2019. This also served as a basis for expanding HBV business, which we expect to hit one billion globally, by the end of 2022. We're preparing to launch filgotinib in RA in the coming months and are excited about the recent CHMP positive opinion. As we look to the mid-to-long-term, we're accelerating our efforts to build our portfolio and expertise in immuno-oncology. We see strong potential for magrolimab, where we recently highlighted key data at ASCO. Magrolimab could be a very important therapy for MDS patients. And lastly, on HIV and lenacapavir, we believe that long-acting will play a role in the future HIV market and see the potential for this compound to best meet patient needs. Merdad will share more on the clinical progress on lenacapavir in a moment. So let me end where I started. Our core business is durable, the fundamental demand drivers of our HIV treatment and prevention businesses remain real, and we're optimistic heading into the second half of the year. We have an incredible core portfolio driven by HIV, and we're building a compelling set of opportunities as we continue on our journey. And lastly, I just want to thank all 12,000 of our colleagues who have demonstrated that they can continue to deliver for patients who need our medicines, both in our base business and more recently with remdesivir. It's the first time in my career, I've seen a company go from an investigational compound to a launch product serving hundreds of thousands of patients in a matter of months, but it just reinforces for me, Gilead history and commitment to patient focused innovation. I'm very proud to be part of this team. Merdad, turned it over to you.

Thanks, Johanna, and good afternoon, everyone. I'm excited to be here and share with you some of the perspectives on our pipeline that continues to both progress and to grow despite these challenging times. As you've seen, our pipeline expansion continued during this period driven by the strategy that Dan referenced earlier. Of course remdesivir is an important part of this story and while managing the added responsibility of working as diligently as possible on remdesivir, we're also able to make great strides across the rest of the pipeline. Let me share some of those highlights with you. We look at a pipeline for three key things. We'd like to see that the level of diversification across the different therapeutic areas is good. The balance across the phases of development and the quality of the assets we have in development along with our associated risk. That's where I'd like to turn now. We continue to build in each of our therapeutic areas as reflected in other exciting set of clinical data readouts and presentations at scientific meetings during this quarter. This includes data that further validate our belief in some of our key assets including the magrolimab, lenacapavir and of course remdesivir. Let me share a few specific highlights in each of our strategic areas. In HIV, we continue to make progress on the next chapter of our commitment to people living with HIV by working on a long acting option. Lenacapavir, our investigational capsid inhibitor continues to show promise as a potential agent, both for long acting treatment and for prevention. The Phase II, III study that has continued to enroll during the pandemic, and we look forward to data from this trial for highly treatment-experienced people with HIV, who often have few, if any other options. People living with HIV tell us that the most desirable long-acting regimens are either a weekly oral or in every three to six months subcutaneous injection, preferably that can be self administered. The profile lenacapavir gives it the potential to achieve both of these options, and for the potential to be a key therapeutic component for both treatment and prevention. Now turning to remdesivir. A lot of the data have been generated over the past six months that all inform us about the profile of remdesivir. As Dan pointed out, the thing that stands out as a consistency across these data, and I like to take a step back and highlight a few key pieces of the story. One piece is that we see the recovery time for patients in the hospital is short. Another is at the five-day course of treatment is appropriate for those patients. And finally the drug can be [indiscernible]. We've now published data that demonstrate a benefit and mortality compared with standard of care using a comparative analysis of real world data. As you know, there was a trend towards benefit and mortality at day 14 and ID study. And we now wait the final day 28 data from that trial as well. We also continue to pursue other ways to expand the utility of remdesivir, including new formulations and exploring how combinations could be more effective. We'll begin our Phase I study on an inhaled version of remdesivir that uses commercially available nebulizers. Beyond that, we're working on the feasibility of a dry powder formulation for inhalation and a subcutaneous formulation. We're also supporting several clinical trials exploring potential combinations. In each of those studies, remdesivir is being used as a back-bone standard of care agent. We are really proud of the role, remdesivir has played in this pandemic and I couldn’t be prouder the team worked so hard. As you remainder, Diana Brainard, who leads our virology team is here with us today, and she will be happy to share additional insights during the Q&A. Moving on to filgotinib. We continue to believe that this selective JAK inhibitor has a potential to provide a new option for patients suffering from a variety of inflammatory diseases. I'd like to update you on recent discussions with regulators on rheumatoid arthritis. In Europe, we're pleased to receive the positive CHMP opinion for the treatment of adults with moderate to severe rheumatoid arthritis. The opinion includes both 100 and 200 milligram doses and indicates use is appropriate as monotherapy and in combination with methotrexate. As a reminder, anticipates a scientific recommendation to the European Commission to grant marketing authorization in Europe. We continue to have ongoing dialogue with the FDA. We've been informed that there will be an Advisory Committee meeting and the PDUFA date remains unchanged. Moving on to oncology. We made strides during the quarter, and throughout the first half of the year in advancing our pipeline and accelerating our efforts to build our portfolio and expertise in immuno-oncology with several key transactions. First, we completed the acquisition of Forty Seven that we announced during the first quarter. This brings filgotinib into a core pipeline investing compound currently being developed for [indiscernible] as well as much of the impressive 17 will now complement our internal team. We're also very excited about the Arcus partnership, which provides our ability to have tail tractions that work both for us and our partners. This partnership brings us a potentially differentiated major compound as well as investigational high PD-1 monoclonal antibody. We're also excited to work with the excellent experienced clinical team at Arcus for the development of these programs. This partnership gives the caution on everything in their pipeline and allows the Arcus team to continue to pursue groundbreaking signs. Tizona and Pionyr are deals that give us options targeting other immuno-oncology approaches. And in each of these transactions, we have the option to acquire the entire company based on clinical data. These new programs build on our existing partnerships and our internal pipeline. In cell therapy, we all congratulate Christi Shaw, our colleagues at Kite for the recent approval of Yescarta for relapsed/refractory MCL. Kite and Gilead are now the first company have multiple approved cell therapy products that will bring benefit to even more patients with difficult-to-treat cancers. The Kite team also reached a major milestone with the successful approval and launch in June of the NCCN manufacturing site with the end-to-end production that expands the ability to treat more patients. Christi is with us here today and happy to share more thoughts during the Q&A. Materials we've provided. We've shared a summary of important upcoming milestones across the pipeline. In closing, our senior R&D team continues to build with the addition of leaders in data science, clinical biomarkers, pharmacology, clinical operations, portfolio management, inflammation and oncology. All of these leaders bring added expertise to an already world-class team, and we're excited to have them join us. Let me turn the call now over to Andy.

Thanks, Merdad, and good afternoon, everyone. I'd like to cover three topics to round out our commentary before turning to Q&A. First, I'll provide a summary of our financial highlights for the quarter and the first half of 2020. Second, I will provide some additional color on the potential implications of COVID on the second half of 2020 based on updated assumptions drawn from external experts and outside thinking. Finally, I'd like to pull all this together and review our revised 2020 financial guidance. As a reminder, the earnings materials posted on our website contain additional information, including the details of our 2020 revised financial guidance. Turning now to our financial highlights. Total revenues for the second quarter were $5.1 billion with non-GAAP diluted earnings per share of $1.11. As noted in the earnings press release on a GAAP basis, we recorded a diluted loss per share of $2.66, primarily due to a $4.5 billion in-process research and development charge related to our acquisition of Forty Seven. This compares to revenue of $5.7 billion with non-GAAP diluted earnings per share of $1.72 for the same period last year. Product sales for the second quarter were $5.1 billion, down 7% sequentially and down 10% year-over-year. As anticipated, the second quarter product revenues were unfavorably impacted by COVID-19. The year-over-year quarterly decline was also impacted by approximately $160 million of favorable adjustments recorded in the second quarter of 2019 for statutory rebates, primarily to HCV and HIV prior year sales in Europe. This decline was partially offset by HIV growth driven by Biktarvy in the United States. As Johanna mentioned, the quarter-over-quarter decreases in HIV revenues was primarily driven by the reversal of the Q1 increased buying patterns due to the pandemic as well as lower U.S. PrEP demand and unfavorable U.S. payer mix. Sequentially, the decrease was partially offset by treatment growth and seasonable higher net price in the U.S. and inventory patterns. The decrease in HCV revenues sequentially and year-over-year primarily reflects lower volume due to lower diagnoses and patient starts due to the pandemic. Yescarta revenues grew sequentially and year-over-year, primarily driven by the continued patient uptake in Europe. Overall product sales for the first half of the year were $10.5 billion compared to our $10.8 billion for 2019. Excluding recent LOE products for Ranexa and Letairis, our business grew year-over-year despite the impact of the pandemic. If we compare the first half of 2020 versus the same time period in 2019, we the HIV inventory dynamics associated with COVID-19 are normalized and our first half results demonstrate strong underlying HIV demand growth, with the business up 6% over 2019. This reflects a strong and encouraging start to the year in our core HIV franchise despite the impact of COVID-19. You can find more information, including the geographic breakdown of revenues in the materials we have posted. Now turning to expenses. Non-GAAP R&D expense was $1.2 billion for the quarter, up 19% compared to the same period last year and up 18% sequentially, primarily due to our investment in remdesivir, including clinical trials and manufacturing scale-up costs. Non-GAAP SG&A expense was $1.2 billion, up 6% compared to the same period last year and up 8% sequentially, primarily due to a $97 million accrual related to a previously disclosed Department of Justice investigation. From a liquidity standpoint, we continue to be very well positioned. During the quarter, we generated $2.6 billion in cash from operations, and we ended the quarter with $21.2 billion in cash and marketable debt securities. We completed our acquisition of Forty Seven this quarter for $4.7 billion, net of cash acquired, we paid cash dividends of $856 million, and we repurchased 700,000 shares of stock for $54 million. Our strong balance sheet investment portfolio are built to withstand macroeconomic events like COVID-19, and our capital allocation priorities remain unchanged. We will continue to focus on investment to augment internal and external innovation in support of continued pipeline expansion. In addition, we intend to support and grow our dividend over time, provided that any dividend increase is, of course, subject to approval from our Board. Finally, as it relates to repurchase of shares in 2020, we're on track relative to the directional guidance we provided in our fourth quarter 2019 and year-end earnings call in February. Turning now to the COVID-19 impact on our revised guidance. Importantly, as you heard earlier in the call, the fundamentals and durability of our long-term outlook remains very strong. We expect that our core business will gradually recover starting in Q3, following peak pandemic impact on underlying treatment initiations and switch dynamics that we observed in the second quarter. We continue to expect minimal impact on our HIV treatment business over time with maintenance of high market share. In HCV, we expect patient starts to regain momentum in the third quarter and beyond. In addition, since our first quarter earnings call, we have established global pricing for remdesivir, and we have refined our expectation for remdesivir for the year. As you would expect, there are still many uncertainties concerning the shape and duration of the recovery in the second half of the year as well as the availability and uptake of remdesivir. With that as context, let me summarize the details of our revised full year guidance. Our revised top line revenue range, including expected sales of remdesivir in 2020 is US$23 billion to US$25 billion. We're increasing our 2020 R&D and SG&A expense expectations. Our guidance on expected product gross margin and effective tax rate for 2020 remained unchanged. Our updated operating income range is $10.7 billion to $13 billion. And finally, our updated non-GAAP EPS range is $6.25 to $7.65. I'd like to highlight a few additional points that will give you more color on the assumptions that drove this updated guidance. On the expense side, R&D and SG&A guidance increase to reflect expected expenses for remdesivir, Forty Seven and the litigation accrual that I mentioned earlier. On remdesivir, as we've previously stated, we expect to manufacture 2 million or more treatment courses cumulatively in 2020. Our revenue guidance reflects that we expect to sell 1 million to 1.5 million treatment courses of remdesivir this year. We expect that remdesivir demand will be skewed towards the U.S. in the third quarter and that the proportion of ex-U.S. sales will increase in the fourth quarter and beyond. That said, the progression of the pandemic, the global economic backdrop our supply expectations, the potential uptake of remdesivir in related matters continue to be dynamic and uncertain. We expect to learn more over the coming months, and we'll update you on our latest thinking on our Q3 earnings call. Before I hand the call off for Q&A, I'd like to express my gratitude as well to our 12,000 Gilead employees globally. Without their spirit, dedication and resilience, nothing we strive to achieve for patients would be possible. Now I'd like to open the call for questions. Liz?

[Operator Instructions] Our first question comes from Tyler Van Buren with Piper Sandler. Your line is now open.

Hey, guys. Thanks for taking the question. I guess with respect to the HCV and HIV share increases that you saw during the pandemic, you talked about coming out of the pandemic stronger. So could you just provide a little bit more color on that?

Sure, Tyler. I’ll turn right away to Johanna.

Okay. Thanks, Tyler. Yes. So for example, in HIV, when you think about Biktarvy and Descovy, which is our two lead brands both for treatment and prevention, Biktarvy grew share. So it's been growing here year-on-year but even quarter-over-quarter. So we grew share to 33% in Q2 for Biktarvy. And then when you think about on a very large basis, you can appreciate, so that's about a 1% share increase. And then when you think about Descovy, we were – we closed the quarter Q1 at about 37% and in the PrEP market and we ended up at the end of June at 43%. So I do think that despite some of the dynamics because of COVID-19 and some of the decrease in patient visits and screening, I still do think that that the brands are solid because of their portfolio, because of what they offer for patients. And one of the things, both of those brands are actually brands that in COVID-19 environment are actually probably the best choice for patients because if you think about Biktarvy and you think about no monitoring, no HLA testing, et cetera, those are really the rapid start with Biktarvy is critical for patients. And I think that, that's also helping to support Biktarvy throughout this transition with the pandemic.

And just as a quick follow-up. With respect to the Biktarvy share gains, are those share gains or switches? Are they different during the pandemic as they were prior to the pandemic? Are they coming from – is the regimens that they're taking share change at all?

Yes, the sourcing of business is actually about the same. The only difference I would say is our – the switch in treatment is obviously a little bit slower than what we've seen in the past just because physicians don't want to switch there's actually guidelines that suggest no switching during the pandemic from drug to drug. So it's more the naive patient population that's feeding Biktarvy right now versus the switch population and older compounds are keeping share. So since Gilead has about 75% within HIV, basically what you are seeing is some of our older brands are keeping higher share versus then switching over to newer compounds like Biktarvy.

Great. Thanks for taking the questions.

Thanks, Tyler. Next question please.

Our next question comes from comes from Geoffrey Porges with SVB Leerink. Your line is now open.

Thank you very much. So, maybe a couple of questions on remdesivir. Andy, you indicated, I think you're going to sell 1 million to 1.5 million courses, but it sounds as though you're supplying 0.5 million courses just in Q3. So could you give us a sense of what your upside capacity is given the capacity initiatives that you have in place for the year? And secondly, how you see the demand beyond those 500,000 courses in Q3 are you on an allocated basis already in Q4? Or is there some uncertainty about the demand? And then could you just give us a sense of how you've incorporated that into your guidance? There must be there's a huge range in your operating income. So I presume that's being driven by remdesivir. But could you kind of give us more color on that?

Yes. Maybe I’ll start with one final point and ask Johanna. Oh, go ahead, Dan. I'm sorry.

Perfect. No, that’s great. Thank you.

Maybe I’ll ask Johanna to comment on the upside of the supply and the demand in Q3 and Q4. The – there is a wide range, and it is driven by our remdesivir expectations. So Johanna mentioned we're learning more week by week. We just started commercializing recently. So we do expect that we'll be able to narrow our thinking and give you an update on the – in the third quarter, Geoff, as you would expect. Johanna, do you want to touch base on the supply and demand issue?

Sure. Yes. Sure. So maybe just add to what Andy was saying for Q4 specifically. I think the uncertainties are multiple, and it's not just our supply actually is less of an uncertainty because I think we have a pretty good idea, and the ramp-up has been impressive. The team has done incredible job ramping up, and you really see that ramp up through in Q4. We feel that – and I think Dan mentioned this – we feel that by early October, we should be in a place, assuming somewhat, I don't know if stable is the right word, but some stability within this pandemic globally across the numbers, we should be in a situation where global supply meets global demand, and that's a great place to be in. We can't wait because it's been challenging thus far. The – in Q4, the uncertainties are more around the pandemic itself and not really understanding does it stabilize, does it come to an all-time low, like we've seen in Europe? We really don't know. And so that's why it's a little bit tougher to manage on that front. As mentioned before from a supply standpoint by the end of December of this year, we should be in a position to have cumulatively of over 2 million treatment courses. And some of those, obviously were used during the donation and some are being used in Q3. So the balance of that will be in play for Q4, and we're just working with all the different governments, not just the U.S. but governments around the world to better understand what they think their real-time need is, and that's really our focus right now is the real-time need.

Okay. Thanks very much.

Geoff, and we'll update you and everybody else in quarter three, obviously. So this is our best estimate at this stage.

Okay. Thank you.

Thank you.

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

Hey. Thanks. Good afternoon. Following up on remdesivir, two questions. One is maybe you can make a comment about thinking about the actual demand and sales that you've actually done versus actually utilization. We've done some math around actual utilization, and it sounds like a lot of this could actually be a former stockpiling. So maybe you could just comment on that type of dynamic. That would help us think about future use? And then the second is just looking forward even a little bit, you've made some comments about injectable and inhaled. Is this just a PK question? What do you have to look for in Phase I data? And what are the challenges? And would you have this data and know this by, say, fourth quarter? Thanks.

Sure. I’ll start, and then Johanna, you add and then we'll go to Merdad the injectable. So first of all, Michael, I think really, the vast majority of the remdesivir that we have today is being used. The allocation process with the U.S. government has gotten better over time, and they really are allocating basically at least twice a month, sometimes more frequently to where the hotspots are in the United States, and that's the vast majority of the supply. So we think there's probably very little demand that is not being utilized at this stage. Of course, it's not completely efficient, and there are some pockets where you might have some hospitals that have more remdesivir than patients. But right now, given the tremendous human need in the United States, in particular, and a variety of other countries we're working with, we're really just working on the real-time demand right now. So that's being utilized. Johanna, do you have anything else you want to add to that.

Yes. Maybe, Dan, just to add to that, Michael, I would just add the fact that it's also based on incidents in epidemiology. Everything we are doing, working with the U.S. government, working with ex-U.S. governments as well, governments around the world, it's really based on the incidents. And what we've seen so far is that because of the way we're managing it with the HHS, a lot – some hospitals have actually said, "no, thank you. Give it to somebody who needs it. We don't need it right now." So I do think that people are coming together to work through this, understanding that there is a shortage of supply and understanding that it really needs to go to patients in need, and the worst thing that could ever happen is products sitting idle somewhere. So we're being very, very careful to make sure that doesn't happen anywhere in the world.

I think the earliest is October, Michael, that we would start to see actual demand and utilization perhaps be different and perhaps the opportunity for stockpiling, but not before October. Merdad, over to you on Michael’s question.

Yes. Yes. So what I'd say is, as I mentioned, we're working on both being inhaled in the subcu. The inhaled ahead and, as I mentioned, in Phase I right now in the dose escalation phase. Our – the hypothesis here is that the virus in many patients, especially early is primarily in the one. And so the question is for a patient, can we treat an outpatient with an inhaled or [indiscernible] or potentially even an inpatient. With inhaled version get where it needs to be a narrowing in the lung and whether that would have a benefit for those patients. So that's the extent we're going to be running with the inhaled version. As far as subcutaneous, we'll continue to work on that. That currently is not in the clinic. And as I mentioned, we're looking at feasibility and other parameters of bringing that online.

Thank you.

Michael. Good, thanks.

Our next question comes from Terence Flynn with Goldman Sachs. Your line is now open.

Hi, thanks for taking the question and thank you for all the work on the COVID front. I was wondering, first, just on the financials, if you could try to quantify the impact from COVID on a dollar basis that you saw in the quarter? And then I was wondering, as you think about capsid, obviously, important long-term opportunity for you guys. Just conceptually, are you focused on finding a partner for that internally to continue to dominate the market in terms of share? Or are you open to looking for an external partner? And as a result, splitting the economics on the future market? Thank you.

Great. So why don’t Andy you take the financials, and we'll have Diana take the capsid question.

Yes. Thanks, Dan. And hi, Terence. Thanks for the question. As you know, we don't provide specific – we didn't provide a specific guidance in terms of the COVID impact. I would say, at a high level, it impacted our business exactly in the way that we expected, so it hit predominantly. As you heard from Johanna in the HCV treatment and HIV PrEP business, the impact was substantially less than $0.5 billion on our top-line revenue in the first half. So rather than thinking about it on a quarterly basis, Terence, I think it's easier to think about it on the first half basis as you've heard from other companies as well, given the pull forward of inventory at the end of the first quarter. Hopefully, that's helpful.

Great. And I can speak to our capsid inhibitor and our vision of our long-acting HIV franchise. And there, what I would say is we're looking at our past success, and it's really been driven by focusing on trying to meet the needs of patients and doing that agnostic to where we come up with the compounds of the regimen. And so in the past, that's been through acquisitions. It's been through partnerships, and it's, of course, been through internal discovery. And we really do have unparalleled excellence in terms of our internal discovery, and we're doing a lot of work there to try to find a partner for capsid. So we are also open and always looking externally as well with the idea that we will be successful if we create the best regimen for patients.

Thanks, Terence for the question. Okay, can we go to the next one please.

Our next question comes from Brian Abrahams with RBC Capital Market. Your line is now open.

Hi, there. Thanks very much for taking my question. Question on filgotinib. With the PDUFA upcoming and the current state of the pandemic, I'm curious, your latest thoughts on launch approach and potential for differentiation through the label or otherwise, how that shapes your commercial strategy. And then I'm also wondering if there's any reason that why the CHMP recommendations on dosing and indication. Wouldn't necessarily be illustrative of global positioning for the product? Do you think FDA and EMA are still looking at the JAK benefit risk profiles differently? Thanks.

Thanks. Maybe I can start...

Yes. Go ahead Johanna, why don’t you start and Merdad wants’ to add anything as well. But go ahead, please.

Okay. Thanks for the question. So yes, so obviously, pleased with the recent positive CHMP opinion, and we are working – we've been working diligently with the teams around the world to prepare for launch with filgotinib. We are looking at the COVID situation. And in assessing the situation, to be honest with you, maybe a couple of months back, we were thinking virtual, not virtual. But I think in light of kind of what – where we're seeing the dynamics of the market, I think virtual is the way to go. And so we're looking at how we do this and the best approach. So more to come on that front, a lot of work going on to make sure that we do this as competitively as possible. From a differentiation standpoint, it's in line with what we've talked about before. We believe in the profile of filgotinib and the differentiation that it offers. And so therefore that that's really an opportunity medically to make sure that to our medical teams, that conversation, that education happens with physicians. Merdad, do you want to comment on the regulatory piece?

I think Merdad is having a bit of an audio issue, so I'll feed in here Brian. I think it's kind of premature to anticipate exactly what's going to happen in different regulatory authorities around the world. We continue to have discussions with all regulatory authorities, obviously Europe was the first one out of the gate. We're pleased with that. And as soon as we have some additional information, we'll let you know, but difficult to speculate. Thanks.

Thank you.

Our next question comes from Alethia Young with Cantor Fitzgerald. Your line is now open.

Hey guys, thanks for taking my question. And congrats on everything that you guys have been doing here, it's incredible. I guess I just wanted you to kind of maybe talk big picture about like, of course, there's some remdesivir, which could have some earlier kind of utility beyond in the treatment cycle, but just where we are with that things as well and kind of how you think about the positioning of remdesivir, maybe perhaps over the next couple of years? Even though I know I'm asking to look at a crystal ball. Thank you.

You're a great cheerleader for us. Thank you very much Alethia. So yes obviously, I think, our general position on this is that you will always need effective therapeutics and effective vaccines to control any type of a viral outbreak of any type and certainly one in a pandemic. So I think we're firmly committed to working to expand remdesivir's impact. We’re really pleased at every piece of data in our hands or in other people's hands has been consistent, consistent about the effect in terms of reduction in hospital space, consistent around the ability to use it earlier in hospitals space and get even bigger impacts. And I think that will continue regardless of vaccination. Now our hope obviously is like you have the normal influenza that with an effective vaccine appropriately administered to as many patients as will take a vaccine around the globe that you could reduce the number of patients that ever have to enter the hospital. But, as we know, vaccines are never a hundred percent effective, they are never a hundred percent utilized, so there will always be patients that need therapeutics. And what we're excited about in terms of the potency of remdesivir is the ability to use it earlier on patients to get them out of the hospital faster. And also to make sure that the types of work we're doing now using remdesivir outside the hospital could prevent patients from ever having to go in. Of course that's all to be determined. So I think it will be hand in glove with vaccines. And obviously we're looking forward also to the work that's going on in terms of looking at antiviral, a potent antiviral that has been proven like remdesivir in patients to be used, perhaps in combination with other therapeutics to get an even stronger treatment effect. But that continues to be, I think, our view and we're hoping, and I'm really proud to be working in this industry at this stage because my colleagues around the industry, I know are doing everything possible, including the collaboration that they have with us in remdesivir to bring new therapeutics and vaccines to patients. And so we're excited about that. So thank you very much for the question.

Our next question comes from Cory Kasimov with JPMorgan. Your line is now open.

Hey guys, thanks for taking my question. And this is Matthew on for Cory. So just to go back to Biktarvy, are you able to quantify how much of the 2Q weakness was due to inventory pull through versus other factors that you mentioned? And should we expect these other factors such as a shift in payor mix and slow down in patients, which is to persist for the remainder of 2020?

Thanks. Over to you, Johanna. Thanks, Matthew.

Thanks Matthew for their questions. If I understood it, sorry you broke up a little bit, but if I understood it correctly, it was specific to the Biktarvy and the shift in what's driving it and it's really the inventory fluctuations, that's what's driving the shift from Q1 to Q2. And you can appreciate Q4 always a little bit higher, it plays out in Q1, it bleeds out in Q1, but then we saw the uptake because of COVID-19 in late March and we saw that bleed out in Q2. So it's really what's driving the Biktarvy piece. We have seen a payer mix shift in the last two quarters, where due to unemployment we're seeing a shift from commercial payers to government channels, specifically PHF and Medicaid, but at this point in time that's really not impacting or modestly impacting our business overall. So it's really inventory-driven.

Great. Thank you.

Hopefully I answered your question.

Yes.

Okay.

Our next question comes from Geoff Meacham with Bank of America. Your line is now open.

Hey guys, thanks for the question. I had a strategic one for Dan or even Andy. Dan, when you took over the narrative for Gilead was a return to growth as hep C was stabilizing. And of course, I get the headwinds from COVID, but sustainable growth has still been evasive. So the question is, do you view remdesivir as new product that anchors your long-term growth, or do you feel like you need other assets, obviously recognize that filgo and Kite are also in growth mode, but you need other assets to help drive sustainable more long-term growth. Thank you very much.

Yes, sorry about that Geoff I was chatting the way there. Let me say, it's certainly the latter to your question, Jeff. And that is that as happy as we are, that we can have an impact on patients in the COVID crisis with remdesivir. We completely understand that hopefully by the way for the world, that we'll get to a stage where the pandemic is much more predictable and remdesivir is playing a role. But not what we're relying upon for our mid-to long-term growth in the company. So we believe that rather the continued emphasis on our core business to make sure that we not only continue to lead with HIV today, but also tomorrow with the next generation of medicines combined with what we have in our internal pipeline. And then growing our overall immuno-oncology business, both Kite and outside of Kite. And I think that's what you see as we think about now outside of virology, moving into inflammation, moving more deeply into oncology, particularly outside of Kite. You are going to continue to see, I think, more of what you've seen in the first half of this year, which is an ability to both optimize our current portfolio in house and continue to do smart, targeted deals that allow us to bring transformational medicine innovation into our house at different stages of development. And obviously that goes along with different risk profiles, right? And that's, I think, where BD team under Andy's leadership has done a really good job of making sure we're doing fit-for-purpose transactions, where when we're going after first or best-in-class, there's risk associated with it. We're trying to be prudent about how much capital we deploy upfront particularly on the earlier stage assets and kind of pay for success over that period of time. And there are others where we've seen the late-stage data like Forty Seven where we feel quite confident and bullish about bringing that in and using the breadth and depth of Gilead to look at expense of life cycle management on a medicine like magrolimab that has a leading position in a competitive environment to allow us to think about multiple different indications in hematologic malignancies, and possibly also looking at solid tumors. So that type of a strategy is absolutely fundamental to grounding us and continuing to build on our mid-to long-term growth story. Andy, anything which you'd like to add from your side?

I think you said it well, that captures it.

Thanks Dan.

Thanks, Jeff.

Our next question comes from Evan Seigerman with Credit Suisse. Your line is now open.

Thank you so much for taking the question. I actually have one for Christi. I know you haven't spoken much on the call and congrats on your very recent approval of Tecartus. Can you help us better understand kind of how you view the commercial's potential for this asset? And have you seen the reversal in trends around CAR-T used this month versus say June or May? And how should we think about the trajectory over the course of the year?

Thanks for the question, making sure I'm wide awake and listening. We’re so pleased about being the first company to be able to deliver for mantle cell lymphoma patients, Tecartus that has a curative intent. And so, although it's not a huge opportunity relative to DLBCL or some of our other studies that will be coming up like second line, it really is a differentiator for us in the marketplace to continue to demonstrate our leadership. Just like with Yescarta, our manufacturing footprint, we're gearing up. We have a ready to go in seven days, authorized sites – authorized for the new product within 30 days. So we're very hopeful that all of these patients that have nothing else to keep them alive, actually have something that can help them with such great efficacy. When we look at what happened in Q2, I'd say we were maybe pleasantly surprised that more patients were treated than we thought would be, based on COVID. And I will say that with what's happening now with the states in the U.S. we continue to see slowdown versus what we saw in the Q1 in terms of registrations. So I do think we're not going to see huge uplift in Q3, and we could be a flat and I don't know if we maybe lose some growth. But right now it's too early to tell. But I'm not as optimistic about Q3 and hopefully, when we come out of this situation we’ll get better. And I'm really proud of the Kite team, because as you can imagine with all of the flights being canceled early on, and with having to figure out which ATC is to bring T cells back to where you didn't originate being able to hold T-cells where we haven't before, the team hasn't missed a beat and hasn't missed a delivery. So as I look at the whole of Kite and we look at the whole of the opportunity, it's really multiple indications in a very short period of time with mantle cell lymphoma, non-Hodgkin's, indolent Hodgkin's lymphoma by the end of this year being submitted. We have ALL being submitted and with priority review next year being approved. And we also have the big indication of second line DLBCL to be submitted next year. So as you look at that combination, I do think it gives us the best opportunity for growth and to potentially cure more patients of their cancer.

Thank you so much.

Thanks, Evan, and we're looking forward to hearing more from Christi as that Kite business develops. More to hear from you. Thanks Evan.

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

Great, good evening. Thanks for taking the question. I just want to ask a little bit more about filgotinib and MANTA. So it sounds like you've finished enrollment, I think, it's either about three months when you take the primary end point there. So I'm just wondering how the timing of getting the data from MANTA, which it sounds like it could come towards the end of this year versus the approval timeline for filgotinib. How those two work and your ability to get that data to the FDA or how that influences the application? Thanks.

Hey thanks Matt we'll turn it right over to Merdad.

Hi Matthew its Merdad. I hope everybody can hear me. Sorry I got disconnected earlier. So you are right in some regards Matthew, the patients are all enrolled. I don't – we don't anticipate that the three months is going to be the duration necessarily that will be sufficient for the regulators, in terms of looking at both onset and recovery. So while that first three months is a critical period, we think that's the blinded period, there's probably longer to be that's necessary. So we're looking at probably late in this year, early next year for us to have the data and then for us to submit it to the agency in the first half of next year. Those are the kinds of timelines we're looking at.

Okay. Thanks very much for your question.

That’s it or do you have a question, thanks, Matthew.

Yes, no, that's it. Thanks Dan.

Thanks. Next please.

Our next question comes from Robyn Karnauskas with SunTrust. Your line is now open.

Hi guys. Thank you for taking the question. First one Dan, any thoughts on what you think about the executive orders being implemented and how you might run the business if they were to do so going forward, especially on business development? And for Christi, what would you like to augment your CAR-T portfolio? It’s done a lot of deals in IO. What else do you think you might need to be competitive in the space with the biospecifics and other things moving forward? Thanks.

Yes, thanks Robyn. I mean, first of all, let me just take a big step back from the executive orders. I mean, I know that we all agree at Gilead that the current system in the U.S. needs to change. And we're leaning into that in a variety of different fronts have been now for a couple of years. What's really important is that when we look at changes in the U.S. system that is done in a way that ensures that patients are the one to benefit and at the same time that we maintain the U.S. innovation model. So, the types of things that we've been working with the different packages within the Congress and the Senate have all reflected that. And now, as we look at these executive orders, we'll be looking forward to engaging with the White House and with others to have the very principles that I just mentioned articulated and that's where we’ll go. In terms of how that impacts, how we think about the future business, I would say that we have so many healthcare systems around the world, I think, that we're working with of course the U.S. is disproportionally important to us. But our belief firmly is that if you hold the bar high enough on transformational medicine, so in other words, if you really think hard about first-in-class and best-in-class and keep the bar high regard, because remember our cycle time is so long, our capital investment is in a decade that we can't be pivoting to one or the other particular governmental action. The bottom line is that we keep that bar high enough under any system under any scenario. I think we'll do first of all, well for patients and we'll do well for shareholders as a result of that. So that's my firm belief. Christi, over to you on Robyn’s question please.

Yes. Thanks Robin. So I think in the short term, we're looking at how do we cure those patients that aren't getting the effects of CAR T cell that we'd like. Yescarta is the only CAR-T that's been able to show the longest duration of over three years with almost 50% of patients being alive and how do we help the other 50% of the patients. So as you look at some of the portfolio that Gilead is building and being able to actually combine in the future other therapies, non-cell therapies with cell therapies would be one of our strategies to build on the strengths of both of the companies together. And then as we look at the mid to longer term, we've got three studies that are in solid tumor. Have INDs Phase 1s, and that would be our biggest long-term bets in terms of being able to really penetrate the solid tumor area. And there's specific areas that are kind of the low-hanging fruit, where the science is a little bit easier and others where it's very complex and the bar is just too high compared to standard of care. So those two areas in terms of launching success today, being able to get more efficacy and lead in hematological malignancies, and then moving to solid tumor. I will tell you, in addition though that we're not keeping our eyes closed, or head in the sand, as we look at possible disruptors with allogeneic iPSC technology, NK cells and that's what you see a lot of the business development deals that we did, some of them Kite alone with cell therapy, and some of them with Gilead where we can both partake in the potential positive outcomes that could come from that. So as we look at different ways off-the-shelf that were the first movers in that arena, both internally and as we look at some of our partners externally.

Thank you.

Sure.

Thank you, Robyn. So I now that we’re kind of at time, if there is one more question, we could take that in respect for everybody's time Liz.

Our last question comes from Umer Raffat with Evercore ISI. Your line is now open.

Hi guys. Thanks for squeezing me in. I have two if I may. First Merdad, curious what the feedback is from your team on the lung exposure of remdesivir with the IV form and how many fold higher can you get with the inhaled form at the highest dose? I'd be very curious. And secondly, I know there's this Phase 2 trial coming up in the multidrug resistant patients on HIV for your capsid inhibitor. My question is if that hits, why shouldn't it form the basis for an accelerated filing, given the unmet need in multidrug resistant patients? Thank you very much.

Umer terrific. Merdad I’ll decide – you decide if you or Diana want to feed the numbers. That's great. Thanks.

Sure. Well, I'll do the lung exposure Diana, and you can talk about capsid. So we are targeting to get with inhaled version as good as it and hopefully greater exposure in the lung, than we did with the IV. We think we get obviously great exposure with the IV version and we think we can do at least that good if not better depending on how high you can go and what the lung deposition is. That's a very empiric thing we need to see how the trials go, but that's our goal. Diana, would you want to talk about the capsid?

Yes, that would be great. So Umer in terms of that study in highly treatment experienced patients, it's actually a Phase 2/3 because of the urgent unmet need in that patient population, the agency granted us breakthrough designation, and they agreed that we could move directly from Phase 1b to a registrational trial in that population. And so this study that's ongoing right now, should the results pan out, will form the basis for an application for approval in the highly treatment experienced patients with lenacapavir dosed every six months.

Thank you so much.

That concludes today's question-and-answer session. I'd like to turn the call back to Douglas Maffei for closing remarks.

Thank you, Liz. And thank you all for joining us today. We appreciate your continued interest in Gilead. And the team here looked forward to providing you with updates on our future progress.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect. Everyone, have a great day.