Gilead Sciences, Inc. (GILD) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2020 Gilead Sciences Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [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 first speaker today to Andrew Ang, Senior Director of Investor Relations. Thank you. Please go ahead.

Thank you, Dillon. And good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for the fourth quarter and full-year 2020. The press release and detailed slides are available on the Investors 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. Before we begin with our prepared remarks, 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 respect to products, product candidates, corporate strategy, financial projections and the use of capital, and 2021 financial guidance, all of which involve certain assumptions, risk 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, Andrew. And good afternoon, everyone. Thank you for joining us today. We're pleased to have this opportunity to provide an update on our progress and answer your questions. I'll begin by offering brief remarks and then hand off to the team to go into more detail. Before I begin, I want to thank all those who contributed to the progress we will highlight today, both our teams across the company and our many partners and collaborators worldwide. Let me start by looking back at the fourth quarter. Our work continued across three main areas as it had throughout 2020, responding to the pandemic with our antiviral therapy, Veklury, delivering on our commitment to people with HIV, cancer, viral hepatitis, and other conditions; and thirdly, executing on our strategy. As a result of our efforts to expand and strengthen our portfolio, we're going into 2021 in a very different position to how we began 2020. Last month, we provided updated guidance for the fourth quarter and full-year 2020 to ensure that you had a clear picture coming into today's earnings announcement. This updated guidance was largely based on the significant increase in the uptake of Veklury. In the United States alone, hospitalizations quadrupled between October and January, and approximately one out of every two patients hospitalized in the US are being treated with Veklury today. We're grateful that Veklury is able to play such an important role in getting patients out of the hospital faster, five days on average based on the NIAID ACTT-1 trial, especially as many parts of the world struggle with hospital capacity. The higher uptake of Veklury along with the continued growth of our leading treatment for HIV, Biktarvy, helped to offset the ongoing impact of the pandemic on some parts of our business. Veklury and Biktarvy also helped to mitigate the expected impact of loss of exclusivity for Atripla and Truvada in October. Our efforts to build out our portfolio of medicines continued in the fourth quarter, with our agreement to acquire MYR. The acquisition, which is on track to close in the first quarter of this year, subject to regulatory clearances and other closing conditions, will bring us a first in class medicine called Hepcludex for the treatment of hepatitis D or HDV. This is the most severe form of viral hepatitis and affects some patients who are already infected with hepatitis B. Hepcludex is conditionally approved in Europe and has FDA breakthrough therapy designation as an investigational agent in the United States. The acquisition of Immunomedics closed in the fourth quarter, bringing the most significant recent addition to our pipeline, Trodelvy. Trodelvy is a foundational medicine in our cancer portfolio with significant potential across multiple tumor types. We're very pleased with how the integration with Immunomedics is going and look forward to updating you on our progress with Trodelvy. Andy, Johanna, and Merdad will share more detail on the quarter. I'd like to turn now to the year ahead. The first thing I would say is that we're moving forward with a clear path to growth. We have multiple opportunities in new therapeutic areas, especially oncology. We're very pleased with the strong and diverse oncology portfolio we have today. This portfolio consists of both marketed therapies such as Trodelvy and Tecartus and Yescarta from Kite and programs across various stages of the pipeline. There are currently 27 internal ongoing clinical stage programs for hematologic malignancies and solid tumors. We also have many promising opt-in opportunities. One of those options is for the anti-TIGIT program through our collaboration with Arcus Biosciences. Earlier this week, it was announced that we are increasing our investment in Arcus to help fund the continued progress of the promising Arcus pipeline. The foundation for our near- and long-term growth is our continued leadership in antivirals. We are confident in the longevity of our HIV business. We expect Biktarvy to continue to be a mainstay of HIV treatment long into the future. And our investigational capsid inhibitor, lenacapavir, could be a best-in-class, long-acting option for both treatment and prevention. Lenacapavir is highly potent, and importantly it’s flexible dosing profile gives us the potential to develop multiple long-acting treatment and prevention options. In 2021, we expect a number of important milestones in the areas I've just mentioned. Merdad will provide more detail on the regulatory milestones, and I will highlight a few for now within the broader context of what you can expect from us. Starting with our leadership in antivirals. We will of course be focused on the continued growth of Biktarvy and maintaining its leadership as the number one prescribed treatment for HIV in major markets. We plan to file an NDA in the US for lenacapavir in the heavily treatment-experienced population. This should be in the second half of the year. We will also continue to explore the right options for combinations. In viral hepatitis, we look forward to expanding our business in HBV and HDV by growing sales of Vemlidy in the US and Asia; and pending completion of the MYR acquisition, the anticipated filing of a BLA in the second half of the year. For Veklury, we look to realize the full potential of the therapy as the pandemic evolves. As you know, we are studying new formulations and routes of administration for Veklury as a treatment for COVID-19. With the strong antiviral business as our foundation, we are looking forward to the continued expansion of oncology as a new pillar of growth. Trodelvy, which will have its first full year on the market following approval will be a significant contributor to our growth this year. We expect to hear about conversion from accelerated to full approval in the coming weeks based on the FDA review of the ASCENT data. At the same time, we'll be pursuing the many pipeline opportunities for Trodelvy. It is currently being studied in 10 different tumor types. We expect to hear from the FDA on accelerated approval for Trodelvy in metastatic urothelial cancer in the first half of the year. And we're also anticipating a readout of the Phase III TROPiCS-02 study in hormone receptor positive, HER2 negative breast cancer in the second half. Data from the Phase III ZUMA-7 study is expected in the first half of the year for Yescarta's potential expansion into second line DLBCL. And we should see Phase I-b data from magrolimab in MDS in the second half of the year with the possibility of a regulatory submission based on these results. In addition, we'll assess opt-in opportunities throughout the year as data becomes available and continue to advance our internal programs. I want to add that we are focused on prioritizing in order to deliver on these opportunities. We now have a portfolio that allows us to be much more selective in terms of what we take forward. This means being very disciplined about investing where there is highest potential value. You've seen some of that with our decisions around filgotinib and our investment in Trodelvy. Just briefly on the enterprise level activities, we will continue to expand our talent base and deepen our expertise outside antivirals as we did in 2020. We will also maintain our strong focus on inclusion and diversity. As part of this, we are strengthening our efforts to promote racial equity. Today, we announced that Gilead has become a founding member of a coalition called OneTen. This is a group of US companies that is committed to hiring and promoting 1 million black Americans into family sustaining jobs over the next 10 years. In addition, we'll continue to advance our ESG program and targets in line with our strategy. We will update you on our progress in these areas each quarter. There's a lot of important work ahead of us in 2021. And we're very much looking forward to turning our opportunities into tangible progress that will benefit patients, communities and our shareholders. With that, I'll now pass over the call to Andy.

Thank you, Dan. And good afternoon, everyone. Our performance was strong for the fourth quarter and full-year 2020, a clear reflection of solid underlying fundamentals of our business and the increased demand we saw for Veklury, amid the COVID-19 pandemic. You will find our detailed Q4 and full-year 2020 results in the press release and materials we have posted on our website. Today, I will review our Q4 and full-year 2020 performance and provide our guidance for 2021. Turning now to the financial highlights. Total revenues for the fourth quarter of 2020 were $7.4 billion, with non-GAAP diluted earnings per share of $2.19. This compares to total revenue of $5.9 billion, with non-GAAP diluted earnings per share of $1.10 for the same period last year. Non GAAP diluted earnings per share for the quarter increased 99% year-over-year, primarily due to higher product sales, improved gross margin driven by a prior-year inventory charge and a lower tax rate. This was partially offset by increased R&D and SG&A investments, including $190 million charge recorded in the fourth quarter of 2020 related to amending our agreement with Galapagos. Product sales for the fourth quarter and full year were $7.3 billion and $24.4 billion, up 26% and 10%, respectively, compared to the same periods last year as the most recent COVID-19 surge drove uptake of Veklury. Sequentially, this increase was partially offset by the loss of exclusivity of Atripla and Truvada in the US in October. Veklury contributed $1.9 billion and $2.8 billion in sales for the fourth quarter and full year 2020, largely driven by increased utilization and COVID-19 hospitalizations in the US. For the full year excluding Veklury, product sales were down 3% due to the recent losses of exclusivity for Atripla, Truvada, Letairis and Ranexa in the US, as well as the impact of the COVID-19 pandemic on our HIV and HCV franchises. Despite the impact of the pandemic and the LOEs related to Atripla and Truvada in the US, HIV revenue grew 3% year-over-year, driven by Biktarvy and Descovy. For Q4, product sales excluding Veklury decreased 4% sequentially, primarily due to the Atripla and Truvada LOEs. Cell therapy revenues were up 34% for the fourth quarter and 33% for the year, primarily due to the continued uptake of Yescarta in Europe and the US launch of Tecartus in July. Now turning to expenses. Non-GAAP cost of goods sold was $918 million for the fourth quarter and $3.3 billion for the year, down 35% and 8% respectively compared to the same periods last year. 2020 cost of goods sold was lower primarily because of a $500 million inventory write-down charge in Q4 of 2019. Excluding this, non-GAAP product margins remain relatively flat year-over-year. Non-GAAP R&D expense for the quarter was $1.5 billion, up 31% sequentially and up 37% year-over-year, primarily driven by the $190 million charge associated with the Galapagos amendment that I mentioned earlier and approximately $70 million in milestones paid to Pioneer as well as pipeline investments in Trodelvy and magrolimab. For the full year, non-GAAP R&D expense was up 20% year-over-year, primarily due to our significant investment in Veklury. We also increased our investment in oncology programs, including Trodelvy and magrolimab. These increases in investment were partially offset by lower clinical expenses from the completion of certain inflammation programs and postponement of certain clinical trials due to the pandemic. Non-GAAP SG&A expense for the quarter was $1.5 billion, up 37% sequentially and up 25% year-over-year. The increase in the quarter was driven by the timing of marketing expenses related to Biktarvy, along with Veklury and Trodelvy commercialization efforts and higher spend on corporate grants to support philanthropic organizations. We allocated significant additional funds to nonprofit grantees in Q4 to support racial equity and social justice efforts, help our nonprofit grantees weather the pandemic and provide for our signature giving programs, including COMPASS, RADIAN and HepConnect. For the full year, non-GAAP SG&A expense increased 10% as a result of higher costs associated with the commercialization efforts for Veklury, our continued expansion in China, increased corporate grants, remdesivir donations and a $97 million charge related to a previously disclosed legal settlement. Turning to our balance sheet. During the quarter, we generated $1.9 billion of cash flow from operations, paid $858 million in dividends, and drew down a $1 billion term loan in connection with the closing of our $21 billion acquisition of Immunomedics. For the year, we returned approximately 67% of free cash flow to our shareholders, consisting of $3.4 billion in dividends and $1.6 billion in share repurchases. We also repaid $1 billion of debt on January 1 of this year. Turning to our guidance for 2021. Our 2021 non-GAAP financial guidance is summarized on slides 18 and 19 in the earnings presentation available on our website. As always, our guidance is based on our current expectations for our business in 2021 and results may vary depending upon, among other things, the impacts of the COVID-19 pandemic, which remain unpredictable. In addition, while our guidance reflects the impact of recent corporate development transactions and our planned acquisition of MYR, as well as funding for ordinary course partnering activities in 2021, our guidance does not factor in the possibility of any extraordinary business development costs or acquisitions or significant opt-ins that we may complete over the course of the coming year. With that background, we expect that product sales excluding Veklury for 2021 will be in the range of $21.7 billion to $22.1 billion. Due to the uncertainty related to pandemic, we expect Veklury revenue to be in the range of $2 billion to $3 billion, which results in total product sales range of $23.7 billion to $25.1 billion. As we've discussed over the past quarters, Veklury in many ways acts as a hedge against the potential impacts of the continued COVID-19 pandemic. This guidance reflects anticipated revenue growth of approximately 9% to 10%, excluding LOEs and Veklury, driven by growth from Biktarvy, Trodelvy, Vemlidy and our cell therapy franchise. And while there remains uncertainty with the pandemic, we are making certain assumptions regarding the recovery and underlying market dynamics starting in the second quarter of 2021. As COVID-19 vaccinations accelerate, any delay with the vaccine rollouts or any significant reacceleration of the global pandemic could once again adversely impact our business. As a reminder, looking ahead to Q1, we anticipate total product sales excluding Veklury will decline by low single digit percentage, similar to what we've seen over the past three years. This is expected to be driven by customary US seasonal inventory patterns and buying patterns of public payers that negatively affect our payer mix in the first quarter. In addition, unlike prior years, Q1 of 2021 will also be impacted by the recent loss of exclusivity of Atripla and Truvada in the United States. Despite this anticipated sequential decline in Q1 total product sales, we remain very confident in the health of our business as reflected in our guidance for the coming year. Turning to our expectations for our product gross margins in 2021. Our non-GAAP product gross margins are expected to be in the range of 87% to 88% in 2021, consistent with our historic range. With respect to our operating expenses in 2021, we expect that both non-GAAP R&D and non-GAAP SG&A expenses will see a flat to low single digit percentage decline through disciplined expense management, with flexibility to continue investing in our R&D pipeline and other strategic opportunities going forward. This guidance includes the impact of our planned acquisition of MYR, as well as our allocation of approximately $350 million for future investments and ordinary course R&D collaborations. In addition, our SG&A guidance reflects the expected impact in 2021 of our oncology build out and funding for a number of time-limited corporate initiatives related to information technology and data analytics. Our non-GAAP operating income is expected to be in the range of $11.5 billion to $12.9 billion in 2021. And our non GAAP effective tax rate for the year is expected to be approximately 21%, which is higher than 2020, primarily due to a decrease in tax credits and settlements with tax authorities that reduced our 2020 tax rate. Non-GAAP diluted EPS is expected to be in the range of $6.75 per share to $7.45 per share, driven by increased operational efficiencies as compared to 2020 and partially offset by the higher non-GAAP effective tax rate, along with greater projected interest expense and lower projected interest income as compared to 2020. Our balance sheet remains robust and our capital allocation priorities are unchanged. We remain focused on continuing to prioritize investment in our business and R&D pipeline, and maintaining a rigorous focus on disciplined expense management. Finally, we continue to be committed to growing our dividend over time. And we are pleased to announce earlier today that we have increased our dividend by 4.4% for 2021. Additionally, as we disclosed a few weeks ago, we plan to repay at least $4 billion of debt this year, including the $1 billion of debt we repaid at the beginning of this year. We also expect to repurchase shares to offset dilution from equity compensation plans. I'll now turn the call over to Johanna.

Thanks, Andy. And good afternoon, everyone. I'll begin by taking you through some of the market dynamics we saw in the fourth quarter as we continue to navigate the COVID-19 pandemic and the impact that it's had on our business. As we entered the quarter in the US and around the world, the number of COVID-19 cases surged. This had two significant effects on our business. Recovery was dampened by our Hep C and HIV medications as people delayed visits to their health care providers. And the number of hospitalizations of patients with COVID-19 dramatically increased, leading to significant uptake of Veklury. Driven by Veklury, we had robust growth in Q4, with a 13% increase in total product sales compared to the prior quarter. Excluding Veklury revenues, our business declined 4% amid the pandemic and loss of exclusivity for Atripla and Truvada in the US. Overall, while we expect the pandemic to continue to cause near term uncertainty, we're confident in the strong underlying trends, which I'll highlight for you this afternoon, starting with HIV. We saw 3% growth in sales across our HIV franchise in 2020 compared with the prior year, despite the Atripla and Truvada LOE. Biktarvy continued to stand out in the HIV treatment market, growing 10% sequentially and 53% year-over-year. Biktarvy remains the number one prescribed regimen across key global markets, and in the US, where one in two new patients start on Biktarvy. In PrEP, we ended the year with a 46% US market share for Descovy, exceeding our goal of 40% to 45%. As expected, we saw generic competitor enter the market in Q4, impacting Truvada revenues as we work to maintain strong commercial assets for Descovy. Going forward, we expect demand for PrEP to recover as the pandemic subsides, and we will stay competitive growing the business with the market. The generic competition and the surge in the pandemic led to a decline in Q4 HIV revenues of 6% sequentially and 7% year-over-year. In addition, in line with historical trends, we saw seasonal inventory build in Q4, which we expect to bleed out into Q1 of this year. We're well positioned and confident in our leadership in HIV today and in the future. Biktarvy will continue to be a key growth driver as the go-to single tablet regimen for HIV treatment with patent protection extending to 2033 in the US, as well as the European Union. We remain enthusiastic about the prospects of growing our leadership as we advance our long acting antiviral lenacapavir. Success in the long acting market will depend on having a product candidate with the right profile for patients. We believe lenacapavir has the potential to be that product. And Merdad will share more detail about its profile in his remarks. Turning to Trodelvy, as Dan mentioned, we completed our acquisition of Immunomedics in October. During the quarter, Trodelvy recorded $64 million in sales, with $49 million of that revenue recognized by Gilead following the close of the acquisition, for a full year totaling $137 million in revenue. I'm impressed with the progress the teams have made launching the medication amid the pandemic. In its first eight months, Trodelvy has become the clear number one therapy in third line metastatic triple negative breast cancer. The breath of Trodelvy adoption and recognition of the product continues to grow. And we're now seeing unaided Trodelvy awareness of about 90% among physicians and academic institutions. Our ambition is to achieve similar awareness numbers with community providers, which will be driven by the anticipated full FDA approval of Trodelvy for metastatic triple negative breast cancer and publication of the previously presented ASCENT data in the first half of 2021. We're also on track to complete the European filing in the first quarter of this year. Specific to hepatitis, the COVID-19 surge impacted the recovery we saw in Q3 across our HDV franchise. Our HDV business showed 9% sequential decline impacted by the pandemic and timing of purchases in markets outside of the US. We continue to maintain anywhere between 50% and 60% market share across our core market, which we believe sets us well for recovery. In HBV, we expect to continue to grow our business and anticipate sales exceeding $1 billion by 2022, driven by the US and Asia market. We're looking forward to closing the MYR acquisition which will bring Hepcludex to Gilead The medicine is a first in class and potentially best in class treatment for hepatitis D, or HDD, an orphan disease that has been historically under diagnosed and for which there were no approved treatment options prior to Hepcludex. HDD is the most severe form of viral hepatitis, and is associated with poor long term survival rates. We believe our experience in hepatitis and the operational synergies with respect to Gilead's existing field force in HPV will allow us to reach patients with HDD. Hepcludex already has conditional approval in Europe and remains an investigational agent in the US. Pending the close of the deal, we anticipate filing for US approval in the second half of this year. In closing, I just want to share a few remarks about Veklury. As Dan noted, Veklury remains an important treatment option for hospitalized patients with COVID-19. We're seeing utilization rates of 50% to 60% among eligible patients in the US and are very proud of the role we played in helping patients during this challenging time. As we've seen over the past year, predicting the trajectory of the pandemic has proven difficult, to say the least. We anticipate demand will continue to fluctuate as COVID-19 cases rise and fall. While we're encouraged by the progress that our industry has made with the introduction of vaccines, we expect Veklury will remain a critical tool for patients and physicians well into the future. And now, I'd like to turn the call over to Merdad.

Thanks, Johanna. And good afternoon, everyone. I'm pleased to share with you some updates on our pipeline as we made tremendous progress in 2020, expanding and diversifying our portfolio across our therapeutic areas. We enter 2021 with a larger, more balanced clinical pipeline that gives us the opportunity to advance important new therapies aimed at addressing significant unmet medical needs now and in the future. Through acquisitions, partnerships, and by advancing internal candidates, we grew our portfolio of projects by 50% last year, and I look forward to sharing more about that with you today. I'll start with oncology. In 2020, we significantly enhanced our oncology portfolio that now has 27 internal clinical stage oncology programs aimed at patients with the greatest unmet medical needs. At the center of our oncology portfolio is, of course, Trodelvy. As Dan and Joanna mentioned, we anticipate several key clinical milestones this year that will help us broaden Trodelvy's views and understand which patients are most likely to benefit. With the accelerated approval for third line, metastatic, triple negative breast cancer in hand, we look forward to the anticipated full approval of Trodelvy for patients with metastatic third line triple negative breast cancers supported by the confirmatory Phase III ASCENT study. You'll recall that these are really strong data. Despite having received a median of four prior anti-cancer regimens, patients treated with Trodelvy showed a statistically significant and clinically meaningful improvement in overall survival, with a median survival of 12.1 months compared with 6.7 months for chemotherapy and a hazard ratio of 0.48. These data had been accepted for publication and we anticipate publication of these results in a peer-reviewed journal early this year. These data have set Trodelvy on the path to becoming the new standard of care for patients with third line metastatic triple negative breast cancer. Additional data have demonstrated that Trodelvy has a potential to transform care for people with metastatic urothelial carcinoma, the most common form of bladder cancer. We've submitted an application for accelerated approval to the FDA and anticipate a decision in the first half of this year. Next, we're looking to further expand Trodelvy for patients with hormone receptor positive HER2 negative breast cancer, which accounts for approximately 70% to 75% of all forms of breast cancer. And those study results are expected in the second half of the year. Beyond breast and bladder cancers, we're working quickly to explore other tumors with the goal of establishing the breadth of Trodelvy's activity. We'll continue to evaluate the role of HER2 expression in tumors along the way. One of the trials we're leveraging is a TROPiCS-03 basket study where we continue to enroll patients We plan to provide an update on this study, particularly non-small cell lung cancer, in the second half of this year. We are proceeding at risk with plans to start a randomized study in lung cancer in the second half of the year as well, pending for TROPICS-03 data. We expect to begin a substantial number of new studies with Trodelvy this year, adding to the four internal and 13 ongoing investigator-sponsored studies. Now moving on to magrolimab, we're rapidly advancing this program with the goal of helping patients with hematologic malignancies and exploring the role of CD-47 inhibition in the treatment of solid tumors. The first solid tumor studies are set to begin as early as this year. We expect results from the Phase Ib study in MDS later this year, which will inform our ongoing discussions with the FDA. Pending these data, we could potentially file for accelerated approval. In addition, we've begun enrolling patients in the Phase III ENHANCE study intended to support full approval and to confirm the Phase Ib data. Moving to Kite, we're very pleased with the progress of our colleagues at Kite that has been made with the company's cell therapy medicines, bringing Yescarta and Tecartus to new diseases and to patients earlier in their treatment. In addition to the second line DLBCL data that Dan mentioned that are expected in the first half of this year, we filed for approval to expand the use of Yescarta to patients with indolent NHL. If approved, this would be the first CAR T therapy for patients with this form of lymphoma. We're also excited about the emerging data from our partnerships, including Arcus anti-TIGIT and CD-73 inhibitor programs, as well as our collaborations with Pioneer and Tizona to name a few. Taken in total, these agreements in both oncology and other therapeutic areas allow us to expand the breadth of our portfolio with access to cutting edge research programs in a way that manages the risk of our internal portfolio. We've intentionally constructed a pipeline with a large number of programs in Phase I and fewer derisk programs in Phases II and III, with the goal of creating a long-term sustainable productive pipeline to fuel our future. Turning the HIV, I want to echo Johanna's comments about the impact once a week Biktarvy has for people living with HIV. At the same time, we recognize some individuals prefer less frequent long-acting regiments. We are excited about the potential of long-acting antivirals and believe that our capsid inhibitor, lenacapavir, has a number of attributes that have important possibilities for both treatment and prevention. Beginning with treatment, people living with HIV tell us that either a weekly oral regimen or a subcutaneous injection every three to six months are preferred regimens. As we look at how we'll combine lenacapavir with other agents, the potential dosing flexibility of lenacapavir offers possibilities to explore in clinical research, both oral and subcutaneous administration. We expect to identify an internally developed agent or an external partner for lenacapavir to move into combination trials over the next 12 to 18 months. This will complement our first lenacapavir FDA filing expected in the second half of this year for use in heavily treatment experienced individuals with HIV. Turning to prevention, we also believe there are many people for whom subcutaneous injection possibly as infrequently as once every six months could provide a significant advantage. I'm pleased to share that we'll begin Phase III studies this year with lenacapavir as monotherapy for the prevention of HIV. We're planning two Phase III studies. The first will be in cisgender men, transgender women and men, and gender non-binary people who have sex with men. That will begin in the first half of 2021. The second is in adolescent girls and young women, and that'll begin in the second half of 2021. Finally, I want to close with some commentary on Veklury and our ongoing commitment to patients amid the COVID-19 pandemic. Like so many others, we're encouraged to see the progress with the approval of the first vaccines and induction of other therapeutics. Veklury continues to be a critical tool for patients and physicians in the fight against COVID-19. Clinical data from the randomized, double-blind, placebo-controlled NIAID ACTT-1 trial has established the efficacy and safety of remdesivir. The Gilead-sponsored simple studies and real world patient and physician experience continue to support the critical role of Veklury as a standard of care in the treatment of hospitalized patients with COVID-19. Veklury is the only antiviral medicine that has been approved or granted temporary authorization for the treatment of COVID-19 in approximately 50 countries worldwide. We welcome the addition of new medicines that are helping to ease the burden and we'll continue to work to understand how best to use Veklury and how to advance the use of Veklury in additional settings and formulations, with the goal of treating additional patients who may benefit. As Dan shared with you, you can expect to hear from us often as we look ahead toward a number of exciting milestones. A growing pipeline means we hope to have more data to share and more news about regulatory filings. We're focused on delivering important transformative therapies to improve care for people with serious illnesses, and I look forward to discussing the expansion of Trodelvy, magrolimab data, the lenacapavir milestones and the initiation of key Phase III trials over the course of the year. Now, I'd like to open the call for questions. Operator?

[Operator Instructions]. Our first question comes from the line of Michael Yee from Jefferies.

Congrats on a great year. My question is maybe for Andy or Dan. When you think about the various uncertainties about growth that I think has been a bit of a controversy for Gilead and a little bit muddied for Veklury recently, do you think about 2021 as a growth year into 2022? And put another way, do you think that this is a trough period and you're very confident about growth off this year? Thank you so much.

I'll start and then add Andy to provide a bit. Look, I think you heard us at JP Morgan. I think we reiterate our confidence that the next chapter of Gilead is here and that we are very confident in our ability to grow the business in the top and bottom line, excluding Veklury. It doesn't belie – our confidence in Veklury exists, but of course – and we're seeing it track, obviously, very well with hospitalizations. But we also want to have, and we want you to have confidence in our ability to grow the underlying business, excluding Veklury. So, yes, we're committed to that. Yeah, I think you see that in the guidance that we delivered here today for 2021. And we're committed – and that's despite the fact that we are offsetting significant amount of generic erosion with Atripla and Truvada. So, obviously, as we head into 2022 and beyond, we don't have that headwind as well. So, I would pass it over to Andy for some additional comments as well from your side, Andy.

The simple answer to your question is yes. I think that we do see this as a really important year where we said at JP Morgan, picking up on Dan's points, we expect to grow in the short term, the medium term, and the long run from here, and we think we have all the puzzle pieces together that will allow us to do that. Our guidance, and you see in some of the pages that we tried to help people think through the core business and the materials that we posted, and I would emphasize and focus people on the 9% to 10% growth in the core business excluding the impact of the LOEs. So, we're going to grow through the LOEs, and then we think we should have some additional momentum coming out of 2021 into the subsequent years. And we also have a very capital-efficient and efficient corporate model, as you know, Michael. So, when you talk about kind of bottom-line growth, we see a lot of potential for leverage as we're driving top line growth to really expand the EPS growth over the coming years as well. So, we're excited about where we are and where we're going and look forward to updating you throughout the year.

Our next question comes from the line of Matthew Harrison from Morgan Stanley.

A two part on lenacapavir for me. One, can you talk a little bit in detail about what internal combinations you might be pursuing in terms of mechanisms and how you might be able to give us some idea around when we might see some initial data on those. And second, can you just talk about the dosing frequency that you're going to be pursuing in the monotherapy studies? Are you going to look at six months only or are you going to look at other frequencies for the PrEP study? Thanks.

I'm going to hand it over to Merdad, obviously, but just a couple of points to kind of frame this. I think there are two points I want to make. One is, Gilead has prided itself on making sure we really understand what patients need out there every step of the way for the past couple of decades, which led us obviously to the robustness around Biktarvy as really the standard of care in the treatment setting and Descovy. And we also pursue a philosophy of having an anchor molecule. And what we're really excited about with capsid is this presents the opportunity for a true anchor molecule for long acting that meets patients' needs, the types of needs that we think are really going to move, potentially move some of the patients from a very convenient one from once a day to a less frequent dosing. So, I remind you that we've got lots of options with lenacapavir. And I'll turn it over to Merdad to go through some of those. Over to you, Merdad.

To your point, we haven't talked too much about it. Look, we have a number of internal assets that we can combine with lenacapavir, given that lenacapavir is a capsid inhibitor and gives us a lot of flexibility to look for what the second component could be there. So, ranging from things like bictegravir and TAF to other things in our pipeline , we believe those can all internally form part of a combination regimen going forward. We would anticipate that we'll start doing Phase I studies this year, and then data will follow from that in terms of which combination partner we would choose. On the second part of your question whether we would look only at six months, I would say it's important to think about lenacapavir both having oral and subcutaneous approaches. So, on the oral side, we think we can dose orally about once a week. And so, that could form one regimen that we would approach to go for a once-weekly oral regimen. For subcu, it'll partly depend on what the combination molecule would be and what dosing interval we can get with that. We'd certainly like to target six months, but if necessary, we can go to every three months or something like that, so it'll really depend on what the partner is. The key issue here is that we have a lot of flexibility with lenacapavir, and it gives us a lot of options to sort of see how we can work, and that's where we're going to go. And the last thing I'd say is for PrEP, the studies I mentioned, the ones that are getting started are going to be every six months. So, that is the regimen we're using for PrEP.

Our next question comes from the line of Alethia Young from Cantor.

Congrats on everything that you've done over the past 12 months. I kind of wanted to stay with lenacapavir a little bit. And it seems like there's a robust backbone potential. And I guess I want to get your perspective on the potential opportunity to grow the market from where you are since you could possibly use it in both treatment and prevention or do you kind of see it more like an opportunity for switches? And if so, like, what drugs do you think Biktarvy switches are a potentially likely thing? Thanks.

Johanna and her team have done a lot of work on it. So, I'll let her start and see if anybody else in the team wants to add. Over to you, Johanna.

I think the way we're looking at it, and I'll start with actually the first filing, right, which is heavily treatment experienced, which is expected to file towards the end of this year. I think that one for us was really an opportunity to go into the market, fast opportunity to get physician experience with lenacapavir and kind of create that foundation for lena. I would split up the question between treatment and PrEP. I think in treatment, the expectation is the market will continue to grow at the 2%, 3% that we've been seeing year-over-year. And so, I think it'll be little bit of a switch from oral to long acting within the treatment. I think the real opportunity for expansion with long acting will be in the prevention market. We've said before that we've only scratched the surface at about 20%, 25% of the total market today in prevention with Truvada and Descovy. I think the opportunity really is to expand that market with long actings that would make it much more flexible for folks, people at risk of HIV. And so, I think that's a true expansion strategy, but more intervention than in treatment.

Our next question comes from the line of Brian Abrahams from RBC Capital Markets.

Congrats on all the progress. I'm interested in learning more about the upside and use you might expect in Yescarta with the DLBCL second line readout. And I guess I'm curious, how much of any current hurdles are related to complexity of administration and pandemic versus the labeled indication and available data. And when you do get the ZUMA-7 data, what are some of the pushes and pulls with respect to efficacy and safety that would guide how you'd look at the future growth opportunity in CAR T? Thanks.

We're very enthusiastic about the potential for Yescarta and obviously the second line readout. And Christi is on the line. So, I'll let her break down the different pieces of that for you between COVID and non-COVID some of the dynamics. So, over to you, Christi.

Overall, from a cell therapy performance, we grew 33% year-over-year. As you look at Yescarta, it's growing externally, outside the US, in what we call ACE, which is Europe, Canada and Australia. Also in the US, Tecartus is growing significantly above our expectations. The dynamic in the US for Yescarta is a couple fold. As we saw with our other CAR T therapies on the market, the class overall has declined from 23% to 20%, which is significant in Q4. And the reason for that is referrals are down because of COVID, obviously, and that's driving the majority of it and also a lack of ICU beds. The lack of ICU beds does disproportionately affect Yescarta because majority of our sales are in the inpatient sites. So, as we look at what specifically, not just COVID overall, but you dig down to under what is COVID, you have the referral aspect when the community physicians aren't seeing patients, patients aren't going into the offices and then you also have, at the ATC, the issue of ICU bed capacity, and where else can you treat those patients? So, overall, the biggest driver is the class share decline. And secondarily is a little bit of the product sales baseline, the ICU beds.

Our next question comes from the line of Geoffrey Porges from SVB Leerink.

Just have some slightly housekeeping questions. First, Andy, could just give us a sense of what your share count guidance is for 2021? Secondly, Merdad, could you tell us whether you're seeing any remdesivir resistant variants emerging and indeed whether remdesivir is active against these variants that have been identified already? And then lastly, perhaps Dan could tell us why shouldn't we look at the buy-in to Arcus as a positive indicator for your expectations for one of the upcoming readouts? Why would you have done that if you weren't positively inclined to those events?

Andy, why don't you start. Merdad and I'll bring us home.

On the share count, we're assuming a flat share count year-over-year. So, to be clear, the EPS guidance is not being driven by share buybacks or share counts. Our base assumption is that we will just do repurchases to offset employee stock issuance over the year. We maintain, obviously, the flexibility to opportunistically repurchase more shares if we conclude over the year that that's a good use of our capital. But right now, the base case is that we will just repurchase shares to offset employee share issuance.

Just to follow up on your question on resistance, as you know, most of the variants that have popped up are in the spike protein. And that's been the source of the problem, which is why people are talking about sort of the vaccine issues and potentially the monoclonal antibodies because they're directed at the spike. But remdesivir targets the RNA polymerase. So, for the RNA polymerase, we haven't seen so far mutants that would impact the efficacy of remdesivir at least when we're looking at the sequences. So far, knock wood, we haven't seen anything.

Can I just follow-up? Have you sequenced any individuals who've failed remdesivir to see if there's any resistance in the virus?

We have not to my knowledge.

And, Geoff, just bringing us home, I think you asked a bit of a double negative question. Let me put it into a positive. I think you can read into our continued investment in Arcus as us viewing the entirety of their portfolio as attractive, right? Not any one asset. But I'll just mention a couple. Of course, in the TIGIT space, there are potentially two different mechanisms, as you know, both an FC and a non-FC receptor. There's a variety of adenosine programs. There's the PERIOD-1. And there's a variety of earlier stage programs. So I think you're absolutely right to see that additional investment as an additional confidence in the science and frankly the people at Arcus. And we're very, very pleased with the way we're cooperating and collaborating. Couldn't be more seamless. And the opportunity I think to think of [technical difficulty]/ I was just going to emphasize, in addition to the Arcus portfolio, the combination potential with our other agents, we're really excited about the potential to think about two, possibly three drug combinations between what we have within our Gilead portfolio today, the Arcus portfolio and other options that we have now and in the future.

Our next question comes from the line of Robyn Karnauskas from Truist.

Two ones. One on Arcus and ARC-7, obviously, if the triple works, that's game changing. You're one of the few companies that has the triple. And I was just thinking about the amount of trials you might want to begin at that point. So like, talk to me a little bit about how you're thinking about margins and maintaining margins with so many trials that you might want to begin and the robustness of that. And then also talk to me about, do you have a perspective on the likelihood of the combination, a triple combination working versus the doublet because other people have the doublet. So, I'm just getting your perspective on the confidence you have, and then also on thinking about all these trials that you may want to begin, and if you can maintain some sort of – give us some sense of margins and R&D expense going in the out years. Thanks.

It's Andy. Let me start with – we lost Dave again. Sorry. Let me start with the margin question. So, we're not providing longer term guidance, but we have flexibility in the way that we structured the deals as you know. So, until we opt in, the R&D expense is borne by Arcus, as with many of our partnerships. Obviously, we're planning for success and looking at our R&D expense in the future and making sure that we have the flexibility in our capital structure and otherwise to push these programs forward if the data supports it. And we have a lot of leverage in our models. So we, again, have very strong margins. At a high level, Robyn, what I'd say is we don't expect that any of the opt-ins unless we're really opting into all of the programs across the board that we have options on would fundamentally change our margin profile. And if they did, obviously, that would be in the short term, potentially a good problem to have. So, we're really comfortable with the structure that we have, where we are with our margins today, where we see them going. We like our R&D load today in terms of the amount of scale we've added to our R&D programs and our spend levels. You see that we're going to work very hard to manage our expenses thoughtfully with our team. So, from our vantage point, we're in a good spot. Let me hand it over to Merdad on the clinical question.

It's a great observation. And I think one of the things we really appreciate about the team at Arcus is they're really focused on two things, with the TIGIT asset. In particular, one is to, to try to be as fast as possible, taking the appropriate kinds of risks to make sure that we are really in the hunt. And I think what's exciting there is a possibility to be potentially second to market with that asset. And secondly, to look at combinations within the portfolio to look for evidence of even better activity that could really position us uniquely out there. So, getting back to the earlier question about Arcus and our relationship, they're a very impressive group and have been doing great work. So, we're excited to see how those data play out.

Next question comes from the line of Cory Kasimov from JPMorgan.

I was wondering if you could talk a little bit more about the latest trends you're seeing in the PrEP market today and how we should be thinking about that? Really thinking about Descovy going forward in the face of Truvada generics, especially given that it wasn't in your more granular sales guidance slide either up as a like a headwind or a tailwind?

As I mentioned, earlier, this year has been actually quite stable. So, what we've seen is really, with Truvada LOE, what we've seen is a little bit of mix within Truvada between branded and generic. But we haven't seen that impacted Descovy at all. On the contrary, it stayed strong at that level of share. And we expect that to continue to basically be anywhere between 40% and 45% or so throughout the year. Having said that, we did see a little bit of a decline quarter over quarter, about 6% or so. And that was largely due to the contracting to maintain some commercial access. So, the one difference has been much more around – because it's TAP, because it's in prevention, it's highly commercially – commercial payers. And so therefore, we're really quite focused on just making sure that people at risk have access to Descovy in light of its strong profile and safety profile that it offers. And so, we've definitely seen erosion with Truvada, strong erosion in Q4. And that will continue as we think about coming quarters this year. But really, from a Descovy standpoint, the expectation is that we continue to maintain strong commercial access. And obviously, that might mean a little bit more contracting. So, a little bit more discount on that front. But one that's important for us to make sure that people living at risk have access to Descovy as we continue forward. So, hopefully, that kind of addresses your question on PrEP market.

Our next question comes from the line of Umer Raffat from Evercore.

I have two, if I may. First, perhaps on Trodelvy, I know there's the HR positive Phase III coming up in breast. And my question was that originally the protocol allowed for an interim ORR analysis to support an accelerated approval. I'm curious if that still happening in the first half. And secondly, curious what the observations are to date from the inhaled remdesivir's Phase Ib in early COVID. And I'm mostly wondering, given the ongoing pandemic as well as given all the Phase III safety data, what if the Phase Ib data form the basis for a potential EUA along with the safety data that exists? Thank you very much.

So, on Trodelvy, you're right that there was a planned ORR. But we don't think that the ORR evaluation, the interim analysis was actually going to form substantive enough data to get an approval in HR positive. So what we did is we looked initially at the study as part of the evaluation together with the team in Immunomedics. We resized the study to power it appropriately for overall survival. And at the end of the year, we'll read out PFS, which we think has a much better opportunity for reading out and giving us a fileable endpoint. So, I think that was really the – our conclusion was essentially that the ORR was only just going to cost us alphabet, not really get us something that we could file with. And we have not unblinded any data. It was not based on anything other than wanting to get to the PFS. So, on the inhaled remdesivir, it's going well. That study is moving through Phase I and has moved move forward nicely. And, no, the Phase I study is probably not adequate – not probably, it's not adequate for approval. When you move from parenteral to an inhaled approach, it's effectively moving it to a drug device combination approach. And so, all the issues there – a PK bridge is usually when you can show that the exposure is the same, but since the exposure will be very different systemically, it will be – primarily, the exposure will be in the lung. You can't do a bridging for PK. So, it ends up being a clinical efficacy question as opposed to just a PK question. So, the studies are designed to – will be designed to go forward with evidence of clinical efficacy for approval.

Our next question comes from the line of Terence Flynn from Goldman Sachs.

I was just wondering if you can comment at all about breadth of prescribing with Trodelvy, what you're currently seeing out there, how you expect that to change over the course of the year. And then the randomized lung cancer trial that you mentioned, Merdad, would that be a Phase II or Phase III trial? And then just one for Andy on the expense cadence in 2021, what that looks like if you were to exclude kind of underlying remdesivir spend? Thank you.

I think we're really pleased to see the evolution of Trodelvy, right? It's only eight months in, so they haven't had a full year yet. And what we're seeing in 2020 is very encouraging. As of last October, more than one out of four patients were initiated on Trodelvy in third line metastatic triple negative breast cancer. What we also are seeing is, in December, when physicians were actually asked to report their own prescribing, so a little bit of an ATU type approach, they were suggesting somewhere north of 40% of their third line metastatic triple negative breast cancer patients were receiving Trodelvy. And so, we're seeing a nice uptake. I think we have an opportunity to continue that uptake as we think about expanding not only in the academic centers, but also with our community providers. And I think that's the opportunity as we think in the next little while. And I think that'll be driven mostly with the fact that we'll be able to promote the overall survival data soon with the FDA approval, the full approval for the ASCENT data and the publication. So, all of those things will be important inflection points for us as we move forward. But we're very excited as we see positions and really getting physician feedback around making sure that they can get through their second line options pretty quickly to get to third line and we have very strong payer support as well in reimbursement. So there's been no barriers on that front either. So good shape so far. I'll turn it over to Merdad on the lung cancer question.

Just to be clear, maybe I'll just say both. So, the study I was referencing that will read out for PFS is a hormone receptor positive, HER2 negative study. That is a Phase III study. For lung cancer, right now, it's a Phase I study, the TROPiCS-03 studies, a Phase I basket trial. And pending those data, we would – our plan is that we would open a Phase III trial in lung cancer in the second half of the year.

Terrence, on your last question, we haven't provided specific expense guidance on any of our products. As you know, what we've said on remdesivir is that there still will be a meaningful amount of expenses in 2021, as you'd expect, but the expense load is lower than it was in 2020. And we're not providing more specific guidance, but it's real. It's important. We continue to see the significant potential for the product for patients. So, we're continuing to invest appropriately. And it is baked into our guidance, but it's a reduction year-over-year.

Our last question comes from the line of Phil Nadeau from Cowen and Company.

Congrats on the progress. Just two follow up questions for me. First for Johanna on Descovy. You suggested that maybe there's a little price compression because of renegotiations with commercial plans with the availability of Truvada generic. As we're doing our modeling, should we expect another round of negotiations after more generics enter in Q2 and could that impact price in the second half of 2021? Merdad, a question for you on Trodelvy. Just to follow up on that Phase III lung cancer study. I believe this is the first time we've heard you're kind of committing to moving forward there. What gave rise to that? Is the data you're seeing from the basket study or something you saw at World Lung. And what do you need to see from TROPiCS-03 in order to stick with that plan? Thank you.

So exactly what you described. I think we're going to be very choiceful. And obviously, it needs to make sense. But there could be continued pressures. I think we've seen many of them. And we've been managing it as best we can to make sure that people living at risk do have access to Descovy as it really is quite differentiated. I think as you think about your model for 2021, there's two pieces. One is, as you know, the market in prevention was quite depressed because of the pandemic. And we started to see us coming out of it in Q3. But of course, in Q4, with a surge of cases in hospitalization, we saw that dampening again. Assuming that we come back to some new normal this year, we should see that market pick up again. So between the market pickup, as well as some continued smaller price contractions, I think those two things will balance each other out quite nicely.

And then on the Trodelvy, so the way we're thinking about it is that – Phil, is that, as you know, the disclosed data from Immunomedics on lung have been promising. Because of the competitive situation right now with other molecules in lung, our own interest in lung, and the fact that we'll see additional data from tropics three, we are planning at risk to do a Phase III study. Now, that will depend entirely on how the data read out and the strength of the data. We may need to or want to adapt from there. But we want to be aggressive and make sure that we don't lose any advantage that we may have. So, we're just being aggressive based on our conviction on the molecule and MOA.

And it just leaves me to just say a few things at the end. I know I speak on behalf of the entire leadership team that we are clearly behind this next chapter of growth in Gilead. And it's here. And it's a variety of things. Of course, it's a clear path to growth in a sustainable and diverse portfolio. It's also the fact that we have a stable dividend that we're committed to growing over time with an industry leading dividend yield, consistently strong cash flow, robust balance sheet. So, we're entering 2021 with confidence on this clear path to growth. And I think you'll see us deliver on our new opportunities in oncology and sustain our leadership in HIV. And we look forward to updating you every quarter on our progress throughout 2021. So, thank you all for joining. I'll let Andrew have the last word here. But I also want to make sure we thank all the colleagues at Gilead and our partners that made all this possible. So, Andrew, over to you.

Thank you to them. And thank you all for joining us today. We appreciate your continued interest in Gilead and the team here looks forward to providing you with the updates on our future progress. Thanks again.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.