Gilead Sciences, Inc. (GILD) Q1 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Gilead Sciences First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Jacquie Ross, Vice President Investor Relations. Please go ahead.

Thank you, Liz, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the first quarter of 2021. The press release, slides, and supplementary data are available on the investors section of our website at gilead.com. The speakers on today’s call will be our Chairman and Chief Executive Officer, Daniel O'Day, our Chief Commercial Officer, Johanna Mercier, our Chief Medical Officer, Merdad Parsey, and our Chief Financial Officer, Andrew Dickinson. After that, we’ll open up the call to Q&A, where the team will be joined by Christi Shaw, the Chief Executive Officer of Kite. Before we get started, let me remind you that we will be making forward‐looking statements, including those related to the impact of the COVID‐19 pandemic on Gilead’s business, financial condition and results of operations; our plans and expectations with respect to products, product candidates, corporate strategy, financial projections and the use of capital; and our 2021 financial guidance, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward‐looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward‐looking statements. Non‐GAAP financial measures will be used to help you understand the company’s underlying business performance. The GAAP to non‐GAAP reconciliations are provided in the earnings press release, in our supplementary data sheet, as well as on the Gilead website. I will now turn the call over to Dan.

Thank you, Jacquie, and good afternoon, everyone. We appreciate you taking the time to join us today. Before I hand over to the team to go into the details of our commercial, pipeline and financial results, I wanted to share our overall assessment of Gilead’s first quarter. 2021 is a pivotal year for Gilead, and as you can see on Slide 4, we are off to a solid start. Our first quarter total product sales were in‐line with our internal expectations. While our core business was more impacted by COVID‐19 than we anticipated, this was offset by higher Veklury sales. In the United States, one in two hospitalized patients are receiving Veklury, and worldwide Veklury continues to play a key role as a standard of care treatment for patients who are hospitalized with COVID‐19. Given the desperate situation in India, Gilead has been working with the Indian government, health authorities and our voluntary licensees to increase supply of remdesivir and provide donated medicine. As the trajectory of the pandemic evolves globally, we will continue to invest in multiple clinical studies of Veklury, including alternative formulations. Earlier this month, we received two FDA approvals for Trodelvy. The full approval for metastatic triple negative breast cancer extended the label to second‐line plus patients. This means, Trodelvy could help many more patients, as there are more than double the number of patients in this category as there are in the third line setting. We also received accelerated approval in second‐line plus metastatic urothelial cancer. In March, we announced a new partnership to combine investigational lenacapavir with Merck’s investigational islatravir for long‐acting HIV treatment, accelerating the path to the next wave of therapies. While many people living with HIV may prefer a daily regimen like Biktarvy, we believe that broadening their options to include weekly oral therapies and infrequent injections every three months or longer addresses a significant patient need, and sets up strong, sustainable HIV leadership into the late 2030s. Long‐acting formulations, such as lenacapavir as monotherapy, are also likely to unlock further PrEP usage and reach many more people at risk of HIV. We are also pleased with our progress in advancing lenacapavir in both treatment and prevention settings as part of our internal clinical development. This past quarter, we reported compelling long-acting efficacy data for lenacapavir in heavily treatment‐experienced people with multi‐drug resistant HIV. We are fully confident that lenacapavir will be the foundation for our long-acting HIV treatment and prevention portfolio. And while we advance lenacapavir, Biktarvy usage continues to grow, with one in two people living with HIV starting their treatment on Biktarvy in the U.S. In addition, Biktarvy is capturing one in two switches, and approximately, half of those are switching from a regimen that includes a non‐Gilead agent. In addition to securing regulatory approvals in oncology, we have already achieved several other pipeline milestones, including EMA validation of the Trodelvy MAA for metastatic triple‐negative breast cancer and submission of the supplemental biologics license application to FDA for Tecartus in relapse or refractory ALL. Building on the work we did last year, we continue with the disciplined prioritization of our pipeline across Gilead. To share one example, Kite completed an optimization exercise this past quarter, to ensure that resources are focused on the most promising opportunities to make a difference for patients. Finally, we're looking forward to a full-year of clinical news flow for Gilead. Our pipeline list for 2021 includes over 20 milestones across therapeutic areas. While they are all important steps in Gilead's journey to serve more patients and diversify our business, Slide 5 lists the most significant items, so you can track our progress more clearly. These include the Phase 3 TROPiCS-02 PFS readout for Trodelvy in hormone receptor positive HER2-negative metastatic breast cancer; Yescarta's Phase 3 ZUMA-7 readout for second-line DLBCL, which could result in an sBLA submission later this year; the Phase 3 readout for Hepcludex that could lead to BLA filing; ARC-2 Domvanalimab Phase 2 or seven interim readout in non-small cell lung cancer, which could inform an opt-in decision; Magrolimab's Phase 1b data readout in MDS, which could lead to a submission for accelerated approval later this year; and potential Phase 2 initiation of lenacapavir and islatravir as a long-acting oral HIV treatment in the second-half of 2021. Our aspirations for patients are bold and our pipeline offers diversity across indications and risk profiles. While execution will continue to be a focus, these milestones give us a great deal of optimism about the future and our ability to deliver therapies that make a meaningful difference for patients. Before I hand off, I want to take a moment to thank Dr. Bill Lee, who is retiring from his role as Executive Vice President of Research after 30 years at Gilead. On behalf of all of us, I want to offer my sincere gratitude to Bill for his outstanding contributions that have helped to benefit millions of patients around the world. I would also like to welcome Dr. Flavius Martin, who joined Gilead as the new EVP of Research on April 12. Flavius has an impressive track record in overseeing industry-leading research and advancing new therapeutic candidates. With that, I'll invite Johanna to update you on our commercial operations in the first quarter.

Thanks, Dan, and good afternoon, everyone. Starting on Slide 7, it was a solid quarter of execution for the commercial team with total product revenue of $6.3 billion, up 16% from the first quarter of last year. This was in line with our internal expectations as Veklury sales offset a more substantial pandemic-related impact on our core business than we had anticipated. Excluding Veklury, total product revenue was $4.9 billion, reflecting inventory and pricing seasonality the anticipated HIV loss of exclusivity in the U.S., and ongoing pandemic-related dynamics in HIV and HCV. Moving to HIV on Slide 8. Revenue was down sequentially as expected, primarily due to seasonal trends. As a reminder, two things happen every year to our HIV business that contribute to a sequential decline from Q4 to Q1. First, the channel builds inventory in the fourth quarter then draws it down in Q1. In the first quarter of 2021, this inventory impact contributed an estimated $410 million to the sequential decline. Second, we've realized lower net HIV prices in the first quarter, due to items such as increased co-pay support and Part D discounts, which tend to normalize throughout the rest of the year. This quarter, we had two additional impacts. A year-over-year decline of $335 million in Truvada NHFR revenue associated with LOEs in the US. And a difficult comparison in the first quarter of 2020 given the pandemic-related HIV stocking we saw in March of 2020, as well as the impact of the pandemic on HIV market demand. Our focus is on share-driven by demand. Overall, three and four people living with HIV initiate or switch to Gilead products, highlighting the strength in demand for our life-changing medicines. While the pandemic dampened market size and switched volumes, we maintain share in line with prior quarters across our total HIV portfolio despite generic erosion. In terms of product lines, Biktarvy was up 8% year-over-year, but down sequentially as expected driven by seasonal inventory and pricing dynamics. Despite the pandemic impact on the new starts and switch volume in HIV, demand fundamental for Biktarvy remains strong, with five share point growth compared to the same time last year and two share point growth just in the last quarter in the United States. As Dan mentioned earlier, one out of two people living with HIV initiating or switching therapy is prescribed Biktarvy. Further, nearly half of Biktarvy switches come from incremental sources. Descovy revenue was down sequentially and year-over-year largely driven by seasonal inventory and pricing dynamics. Although, PrEP volume continues to be impacted by the pandemic, Descovy share remains stable around 45% and positions us well as the PrEP market recovers post‐pandemic. Moving to Slide 9, HCV first quarter revenue was $510 million. We continue to maintain a leading share of about 60% in the US and 50% in Europe. Despite COVID continuing to impact patient starts, we did see a very modest sequential improvement overall in patient volume, although it remains depressed versus pre‐COVID levels. HCV also benefited from a pricing adjustment in France. As shown on Slide 10, in Q1, HBV and HDV sales totaled $220 million with HBV sales of $214 million, growing 15% year‐over‐year, driven by strong Vemlidy demand, most notably in China and in the US. We continue to expect the HBV franchise sales to reach $1 billion by full year 2022. With the completion of the MYR acquisition during the first quarter, our portfolio now includes Hepcludex. There are currently no available treatments for HDV, making Hepcludex, which has received conditional approval by the EMA, a first‐in‐class treatment. This innovative drug blocks viral entry into liver cells. We are targeting a BLA submission later this year, and are excited by the opportunity to make Hepcludex more broadly available and address the unmet need for people who are infected with HDV. Moving to Slide 11, Trodelvy delivered $72 million in its first full quarter as part of the Gilead portfolio. In a span of just three weeks this month, Trodelvy received FDA full approval for second‐line plus metastatic triple negative breast cancer, received accelerated approval in second‐line plus metastatic urothelial cancer, and had its ASCENT Phase III data published in The New England Journal of Medicine just a week ago. We can now leverage treatment efficacy data from the full trial population in our discussions with physicians, and build even greater confidence to consider this potentially transformative therapy. This more than doubles the patient population, extending our reach to 6,000 second line metastatic TNBC patients in the US, in addition to over 4,000 patients in the third‐line plus population. Given the poor prognosis and difficulty in treating both second and third line metastatic TNBC patients, Trodelvy could extend median overall survival by almost a year while also nearly tripling the median progression free survival compared to chemotherapy. Outside the US, we submitted the TNBC Marketing Authorization Application based on the ASCENT Phase III clinical study for an accelerated review process. We look forward to continuing discussions with the European Medicines Agency and anticipate approval as early as December of this year. Additionally, Trodelvy is under review for TNBC in the UK, Canada, Switzerland, and Australia as part of Project Orbis. On Slide 12, Christi is on the call to answer your questions shortly, but you can see that our Cell Therapy business had a strong quarter, with revenue of $191 million, up 36% from the same quarter last year, driven by growing adoption of Yescarta in Europe, with our industry‐leading four‐year 44% overall survival. The recent approval for Yescarta in follicular lymphoma will broaden our addressable patient population and support our ongoing growth. Tecartus continues to see strong launch demand as physicians and patients adopt the first and only cell therapy approved for relapsed or refractory mantle cell lymphoma. Moving to Veklury on Slide 13, first quarter revenue was $1.5 billion, with demand tracking hospitalization rates. Although we saw lower hospitalization rates and increasing vaccination rates in certain parts of the world, overall progress was more gradual than expected over the first quarter and as such, we are now assuming a slower pandemic‐recovery for the second quarter. As the pace of recovery builds momentum in the second half of the year, this should contribute to a modest recovery in patient starts for our HCV and HIV franchises. We will continue to play our part to support broader access for eligible patients in need of remdesivir. We are working with our voluntary licensees to accelerate production capacity for India, while also donating 450,000 vials of Veklury to help patients as the supply of licensed generics increases. Our thoughts are with those who continue to tackle the worst of this pandemic. With that, I’ll hand the call over to Merdad.

Thank you, Johanna. As both Dan and Johanna mentioned, we are off to a solid start in a catalyst heavy 2021, and my comments today will focus on the nearer‐term events and changes to our pipeline. A comprehensive update on our broader pipeline is included in the appendix of the slide deck available on our IR website. I’ll start with our virology pipeline. We remain as focused as ever on driving innovation in HIV therapies, and there are no changes to the expected timelines associated with our lenacapavir programs. In HIV prevention, we are activating sites for our first Phase III study for lenacapavir as monotherapy for the prevention of HIV and will begin screening patients later this quarter. This study will focus on preventing infection in cisgender men, transgender women and men, and gender non‐binary people who have sex with men. In the second half of 2021, we plan to initiate a study looking at lenacapavir for the prevention of HIV infections in adolescent girls and young women. In treatment, we presented additional data from Phase II/III CAPELLA trial for lenacapavir at CROI and we continue to expect our first lenacapavir filing for use with other anti-retrovirals and heavily treatment experienced individuals in the second half of this year. We anticipate data later this year from the Phase 2 CALIBRATE study in the treatment-naive population to support a virologically suppressed indication. And we plan to launch a Phase 2 trial for a long-acting oral treatment combination of Gilead's lenacapavir and Merck's islatravir in the second half of this year. Both medicines have shown long half-lives and high potency at low doses. As such, we believe that the lenacapavir plus islatravir combination is promising and we're excited by our new partnership and working with our colleagues at Merck to bring the maximum benefit possible to people living with HIV. Based on our commitment to HIV, we continue to work towards a potential cure. We have several early-stage programs evaluating combinations to understand the biology and identify path for this important mission. Leveraging our internal expertise as well as external partnerships, including Aelix and Gritstone. On Slide 16, moving on to the oncology pipeline, which has over 20 internal clinical stage programs, including many built around Trodelvy. We're excited to have received full FDA approval of Trodelvy in second-line plus metastatic triple-negative breast cancer based on the confirmatory Phase 3 ASCENT trial data. In the US alone this indication expands upon the accelerated approval for third line metastatic triple negative breast cancer to now include second-line patients, who've had at least one prior treatment for metastatic disease. Trodelvy has the potential to significantly improve overall survival and progression-free survival outcomes for patients. In the US, there's a population of 10,000 patients who may benefit from Trodelvy. We also received FDA accelerated approval for second-line metastatic urothelial carcinoma based on positive data from the Phase 2 TROPHY study. With almost one-third of patients responding to treatment and the 7.2-month median duration of response, Trodelvy offers a much-needed new treatment option for the many patients with metastatic urothelial cancer, whose disease continues to progress despite receiving available first and second-line treatment. In the US alone, we estimate there are roughly 8,000 addressable patients. 2021 will continue to be an exciting year for Trodelvy, and there have been no changes to the 2021 timelines we shared previously. We submitted the MAA to the EMA for Trodelvy in second-line plus metastatic TNBC in March, and it's now under accelerated review. We continue to target EU approval in the second half of this year. Later this year, we anticipate a Phase 3 TROPiCS‐02 progression free survival readout for hormone receptor positive HER2-negative metastatic breast cancer. Pending data, we'll evaluate and determine the appropriate next steps from a regulatory standpoint. We estimate there are roughly 17,000 patients in the US who could benefit from Trodelvy in this setting. We're now actively recruiting additional patients for the Phase 2 TROPiCS-03 basket study in solid tumors to expand eligibility to patients regardless of TROPiCS-02 expression. We've already decided to initiate a Phase 3 trial in non-small cell lung cancer in the second half of this year, and we'll share updates on additional plan studies later this year. Moving on to cell therapy on Slide 17. With FDA's accelerated approval of the Yescarta for patients with third-line plus follicular lymphoma in March, we now have added a third indication for the Kite portfolio. ZUMA-5 study data showed the 91% of patients responded to a single infusion with an estimated 74% of patients in continued remission at 18 months. We're working towards making this option available to patients outside the US and continue to target an MAA filing in the next several months. There are no changes to the expected timelines for the ZUMA-7 study assessing Yescarta for the second-line diffuse large B-cell lymphoma or DLBCL patients. We expect to announce the top-line Phase 3 outcome later this quarter, followed by sBLA and MAA submissions in the second half of the year. Additionally, the FDA has approved the inclusion of the ZUMA-1 Cohort 4s updated safety data into Yescarta's label for third-line DLBCL. Cohort 4 demonstrated that early use of corticosteroids and/or tocilizumab led to reductions in cytokine release syndrome or neurological events. Moving on to Tecartus, we submitted our sBLA for relapsed or refractory adult B-cell precursor, acute lymphocytic leukemia or ALL just after the end of the first quarter. If approved, Tecartus would add a much-needed treatment option for patients 18 and older. We plan to share the ZUMA-3 data at ASCO this summer and we continue to enroll patients for ZUMA-4 to evaluate Tecartus for ALL in the pediatric population. Consistent with our ongoing diligence across both Gilead and Kite, we will continue to focus and streamline the Kite portfolio to align with our key strategic priorities and expertise in hematologic malignancies, specifically lymphoma and leukemia. Moving on to Slide 18. In addition to the previously mentioned milestones for virology Trodelvy and Kite, we have several other notable upcoming events. First, I want to take a moment to highlight magrolimab's progress and outlook in myelodysplastic syndrome and acute myeloid leukemia. In MDS, we expect to see Phase 1b data in the second half of this year, pending results those data could lead to a BLA submission before the end of the year. If approved, magrolimab will be the first-in-class macrophage checkpoint inhibitor targeting CD47 and Gilead's first run frontline oncology indication. There's a significant unmet need for MDS with no new treatments approved in 14 years, despite 15,000 new patients diagnosed each year in the US alone. We're also exploring pivotal studies in frontline AML. Additionally, we continue to evaluate multiple solid tumor indications for magrolimab most recently initiating a Phase Ib/II second-line plus solid tumor basket study and a randomized Phase II study for head and neck cancer in combination with chemotherapy and Merck's KEYTRUDA. Second in Virology, we're thrilled to officially add Hepcludex into our portfolio and look forward to Phase III data readout later this quarter with the potential for a BLA filing in the second half of the year. As for potential opt-in programs Arcus' ARC-7 non-small cell lung cancer study is expected to evaluate an interim data in the second quarter. We and the Arcus team have indicated that the interim analysis is targeting an ORR of 50% or greater and a clear separation in ORR from the Zimberelimab monotherapy arm when compared to the Domvanalimab plus Zimberelimab combination arm. Last on Slide 19, you can see our robust and diversified pipeline across oncology virology and inflammation. In addition to the readouts on the previous slide we have multiple collaboration programs that we're monitoring closely including Arcus' eight -- ARC-8 study in pancreatic ductal adenocarcinoma and ARC-6 study for castration-resistant prostate cancer expect -- both of which expect initial readouts later this year. And the Galapagos 623 Toledo proof-of-concept trials across psoriasis, ulcerative colitis and RA are expected to have readouts later this year. In closing, we're pleased to see how our portfolio has grown from about 30 clinical stage programs two years ago to 47 today, while maintaining our focus on disciplined management of R&D expenses. We've also gone from six molecules approved filed or in registrational studies to 15. Our teams have worked tirelessly to continuously evaluate and accelerate priority programs. We're thrilled to see how our portfolio is developing. And we look forward to accelerating innovation to help transform patient care. With that I'd like to hand the call over to Andy.

Thank you Merdad and good afternoon everyone. As you can see we are building momentum in our clinical pipeline and we expect to have plenty of data to share as we move through the rest of 2021. Moving to Slide 21. The first quarter was a good start to the year with total product sales in line with our internal expectations overall as modestly higher Veklury sales offset a slower pandemic-related recovery than we had anticipated. In addition to pandemic impacts, our HIV business reflected the inventory seasonality we typically see in the first quarter. Total product sales were $6.3 billion up 16% year-over-year driven primarily by Veklury. The first quarter reflects continued growth from Biktarvy, our first full quarter of Trodelvy sales and strong growth in HBV as well as cell therapy. This growth was offset by ongoing COVID-related softness across our business in addition to the Truvada and Atripla LOEs. As also indicated by Johanna, there is the difficult comparison to the first quarter of 2020 given the pandemic-related HIV stocking observed last year. As a result total product sales excluding Veklury were $4.9 billion down 11% year-over-year. Non-GAAP product gross margin was 86.5%, 60 basis points lower year-over-year primarily associated with product mix and a small inventory charge partially offset by favorable royalty adjustments. Non-GAAP R&D was $1 billion, up 4% year-over-year primarily driven by investment in new pipeline products including Trodelvy and magrolimab offset by timing of certain clinical studies and lower Veklury-related expenses. Non-GAAP SG&A was also $1 billion, down 4% from Q1 2020 due to timing of grants and sales and marketing activities. This was partially offset by higher commercialization investments associated with Veklury, Trodelvy cell therapy and HBV and HIV in China. Moving to tax. We realized a lower rate of 18% for the quarter due to recognition of favorable settlements with tax authorities. Overall our non-GAAP diluted earnings per share were $2.08 in the first quarter of 2021 compared to $1.68 for the same period last year. The year-over-year improvement was primarily due to Veklury revenues, flat operating expenses and a lower tax rate offset in part by lower interest income. You can see on Slide 22 that there is no change to our full year non-GAAP guidance. While the pandemic remains unpredictable and as we realized a more substantial impact to our core business in the first quarter than we had anticipated, we are nonetheless encouraged by the lower hospitalization rates and increased vaccinations. We have modified our assumptions on the timing of pandemic recovery to allow a more gradual improvement starting in the second quarter. We continue to expect total product sales excluding Veklury of $21.7 billion to $22.1 billion. We continue to expect full year non-GAAP R&D and SG&A expenses each to be flat to down low single-digit percentages year-over-year. Given our first quarter results, you can see our R&D expenses are somewhat back-end loaded in 2021 based on the timing of clinical activities which include the anticipated initiation of the solid tumor study with magrolimab advancing internal long-acting combinations with lenacapavir for the treatment of HIV and other pipeline activities. Our work with Merck on a long-acting treatment regimen for people living with HIV is also underway and will ramp-up during 2021, although, we are able to absorb this program into our current R&D expense guidance. In SG&A, we are ramping up sales and marketing to support efforts such as the ongoing and expected launches of Trodelvy in the U.S. for bladder cancer and in Europe for triple-negative breast cancer. Additionally, we expect to start seeing higher travel and other costs scale-up in the second half of the year, as social distancing restrictions lighten-up in some geographies. Despite the lighter expenses in the first quarter, we're leaving our operating expense guidance unchanged, as we expect to catch up on this to some extent later in the year. And for now, retain the flexibility to manage the timing of clinical and commercial investments. We continue to expect our non-GAAP tax-rate to be 21% for the year. While we are carefully monitoring the discussions on a higher corporate tax-rate here in the United States, we believe any impact is more likely in 2022 and beyond, although, of course, a more immediate change could alter our current-tax guidance. Finally, with no changes to our revenue or operating expense guidance we continue to expect non-GAAP diluted EPS of $6.75 to $7.45 for the year. We have updated our GAAP diluted EPS guidance and now expect to be in the range of $4.75 to $5.45, down from $5.25 to $5.95, reflecting fair value losses for our equity holdings in the first quarter, donation expenses and other pre-tax charges including upfront payments related to collaboration. On Slide 23, you can see that we remain diligent in our capital allocation priorities. Already this year, we have repaid $1.25 billion in debt. And we're on track to pay down at least $4 billion in total by the end of the year. We have also returned $1.2 billion to shareholders, through dividends and repurchase of shares. To close, we remain committed to delivering for patients and for shareholders, as we look to invest in our business and R&D pipeline, while paying close attention to our expenses. With that, I'll hand the call back to Dan for a few closing comments. Dan?

Thanks Andy. And before we open-up for questions, I'd like to thank the broadly Gilead team, who accomplished a great deal in the first quarter, setting the stage I think for quite an exciting year reaching catalysts across our clinical portfolio. Of course, Gilead would not be the company it is today without the vision of John Martin, Gilead's Chief Executive Officer for 20 years, who passed away in March. Under his leadership, Gilead transformed the treatment of HIV and viral hepatitis and became a global organization, firmly rooted in its commitment to science and to patients. That commitment will be a constant, as we work to take John's legacy forward in Gilead's next chapter. With that, I'll invite the operator to begin the Q&A.

[Operator Instructions] Our first question comes from Brian Abrahams with RBC Capital Markets.

Hi. Thanks so much for taking my question. It looks like you're seeing steady growth in adoption of Trodelvy. So I'm just wondering, how should we think about the potential for a near-term inflection and update, now that you'd have full approval in triple-negative, the publication out and label expansion into urothelial? And I'm curious, are you starting to see some pull through. And where do you stand with respect to community physician awareness? How important is that as well for adoption? Thanks.

Thanks, Brian. Johanna, please.

Sure. Thanks, Brian, for the question. And we're really excited with the recent news that we got with Trodelvy. It's really going to help us gain momentum, exactly what you said. We have strong awareness in academic centers above 80%. We haven't been able to break through. We're only at about 50% or so in the community. And as you well know, if three quarters of the patients sit in the community, that's an incredible opportunity for us to make sure that we make sure the messages come across. We haven't been in a position in the past to promote overall survival, in light of the fact that we just had that conditional approval. And so now, with the full approval not only do we get to double the patient population that Trodelvy can actually help, but actually we also get to promote the overall survival, which is the only agent with overall survival in this setting. So I think it's really going to help us ramp-up. And the focus is still going to be despite the urothelial bladder indication. We -- the focus is really going to be more like a 90-10, 90% on second-line plus, triple-negative breast cancer and then 10% from a promotional standpoint on urothelial cancer. We believe that that's going to work well, because there's a high overlap. There's about 70% of physicians that overlap from bladder cancer and also treat TNBC. So we're going to be in good shape to ramp this up. This is really the opportunity for Trodelvy right now for this year.

Our next question comes from Phil Nadeau with Cowen and Company.

Merdad, I had a two-part question for you. You highlighted a couple of oncology events happening in the second-half of the year, namely the magrolimab Phase Ib data and Trodelvy data in the ER-positive HER2-negative breast cancer. On magrolimab, can you give us some sense of what data needs to be produced to support a filing? And on Trodelvy, there's been a fair amount of breast cancer data recently. Has anything that you've seen questioned the powering assumptions behind the revised design of the TROPiCS-02 trial? Thanks.

Thanks, Phil. Great questions. In terms of magro, in terms of what we think we need to see. Look, I think, the challenge there is, obviously, that we're looking at external comparisons. So we believe that it's really around the strength of the data and its consistency with what we've seen already in that setting with magrolimab. I think, our assumption is, as long as we are consistent with the data that has emerged that will give us really good grounds to go and approach regulators to discuss a potential filing. So we're, I would say, reasonably confident there and our expectation is, as long as things continue to go the way they have been, we'll be fine. In terms of the breast cancer data for Trodelvy. Yes, I think, in terms of our confidence, I think, we remain confident that we're really well powered in that study to show benefit, in particular, in PFS, as well as OS in that trial. So I don't think we've seen anything emerge that shakes our confidence around that.

Our next question comes from Louise Pearson with Redburn.

Hi. Thanks for taking my question. On Yescarta, I was just wondering, could you find the incremental effort that would be required on your side to access the second-line DLBCL population should see the 7 readout positively? Just thinking in terms of any overlap there might be in the sort of centers where these patients are treated? And kind of, on a related note, has there been much COVID impact on the cell therapy franchise, Germany seems to have performed pretty robustly? Thank you.

Thanks, Louise. Over to you, Christi.

Thank you. So I'll take the last one first maybe, which is the COVID impact. We did see COVID impact and slowing of our ramp-up that we started doing well Q1 of last year and there was a slowdown in Q3, Q4. We've seen that rebound in Q1. We do believe that that has to do with less COVID impact, especially in the U.S., Europe, in spite of the COVID impact, continued to grow over those quarters. Germany and Italy, being the exceptions, where the COVID impact has been greater on our business there. Overall, though, we're very pleased with what we're seeing from quarter four to quarter one of this year, significant growth and coming off a couple of down quarters for Yescarta, both the U.S. and the – and Europe up quarter-over-quarter now with Yescarta. And on the second-line DLBCL question. So the good news is, the APCs are already set up, just like with Yescarta's we're able to launch quickly. So moving up to the second-line doubles the market opportunity, doubles the number of patients that we can serve. We also have community reps in the field already, both in Europe and in the U.S. So this referral pattern will continue to be something that we work on. But the belief, or my belief is, that as we look at patients in the third-line plus, those are typically patients that are going for palliative care and quality of life and short-term quantity of life is being managed whereas with ZUMA-7 in the second-line versus stem cell transplant, physicians and patients are still looking for a cure. So if the study is positive, we're looking at replacing stem cell transplant as a standard of care in second-line for curative potential. Remember, stem cell only cures 20% of the patients that are sent there.

Thanks, Christi

Our next question comes from Geoff Meacham with Bank of America.

Afternoon, guys. Thanks so much for the question. I wanted to ask one on Biktarvy. The adoption has been hugely successful and really for quite some time. So the question is, where do you see share maximizing in the U.S.? And what are the bigger growth opportunities? And then in the EU, what has been the primary headwind to greater share? Thank you.

Thanks, Geoff. Over to you, Johanna, please.

Yes. Thanks, Geoff, for the question. Yes, we're really quite pleased with Biktarvy's performance. It just continues. And obviously, there's been some ins and out because of dynamics around us from a market standpoint, because of COVID and inventory, but the share growth 8% year-over-year, as well as the fact that we continue to grow share and even 2 points in the last quarter. We also grew 2 points not only in the U.S., but we also grew just under 2 points in Europe and about 5 points year-over-year as well. So we are seeing solid growth in Europe and we are seeing, in other markets as well, like, Japan and Canada, we're number one with Biktarvy. So I think that, as the data continues to show the benefits of the profile that Biktarvy offers for patients. I think there's no stopping us, Geoff. I think we need to continue to grow this business and we are well poised to get out of this COVID-19 pandemic and hopefully the markets reset. The market already has reset in the naive patient population. We're almost back to pre-COVID levels, which is great, and that's where Biktarvy truly differentiates itself. And in the switch business, we're not there yet. We're about 30% under pre-COVID levels. But again, with a share of close to 50%, also well poised for that to come back on track. So, I think, we continue to expand and continue to gain share over older agents, because of the benefits that Biktarvy offers, not just in the U.S., but really around the world.

Thank you.

Our next question comes from Michael Yee with Jefferies.

Hi, thank you. And I appreciate the question. Going back to Trodelvy and the TROPiCS-02 study I think it's fantastic. You guys upsized that and overpowered it. I guess I had two questions. One was, can you describe sort of what input went into your powering assumptions for that? And then also, do you guys have a view that higher CDK4/6 matters given that that's pretty much standard of care nowadays and that's certainly evolved over the last few years as you think about the study? Thank you.

Thanks, Michael. I'll take that. So two -- yes great questions. In terms of assumptions, I think, what's safe to say is we've been fairly conservative on our inputs to the assumptions in terms of looking at what the standard of care PFS looks like and using sort of that as our approach. And I'd say actually that's fairly our general approach. I think we try to take a fairly conservative approach in terms of designing our trials and balance what I would sort of a statistically significant benefit with a clinically meaningful benefit. And I think that that's -- we keep both of those in mind when we're powering our studies to make sure that we are -- we're hitting not only statistical significance, but looking for clinical significance. In terms of prior CDK4/6, I mean it's obviously something that's come up a fair bit appropriately. I think, people are looking at some data -- there are a number of hypotheses that are going around what it could be there. We're trying to take a very data-driven approach on this. And I guess, I would say a couple of things. One is that, in our hands and what we've seen so far from the prior studies, where we looked at those people who had gotten prior to CDK4/6 compared with standard of care, Trodelvy continues to bring benefit to those patients. And as a big caveat that's a fairly small number of people in that from us when we look at it, but I think we're comfortable that that continues to be the case. And secondly, we are going to look at the data from the upcoming trial and we will look at that that group of patients as a subgroup analysis to see if there is a difference in terms of how they respond compared to the overall population of patients that are going to be enrolled in that. So, we'll make sure that we segregate those patients out to make sure we learn from that.

Our next question comes from Terence Flynn with Goldman Sachs.

Hi. Thanks for taking the question. I guess maybe two-part for me. You mentioned a more gradual recovery now in the second quarter, but you maintained your guidance component. So just wanted to understand that a little bit more that you baked in more of a cushion there when you initially gave the guidance? And then on the PrEP side, how are you thinking about the recovery there in the second half of the year? Thank you.

Okay. Thanks. And so, Andy, why don't you start? And Johanna might want to add to the PrEP.

Yes. Hi Terence. Thanks for the question. You're right. At the beginning of the year, we recognize that 2021 was likely to be more dynamic than prior years. And when we put together our guidance for the year, we looked at a range of scenarios. We're well within the range of scenarios in the first quarter. We're off to a good start. The mix was a little bit different than we expected with the additional pandemic-related headwinds that you heard about. But to be clear, when we think both about our total product revenues including Veklury, but also our base case revenues -- our base product revenues excluding Veklury, we're very comfortable with where we are and we're on target for the year. We'll provide another update of course in the middle of the year, but that's how you should think about it at a high level Terence.

And on the PrEP market -- yes Johanna.

Yes. Thanks, Dan. So, on the PrEP market, as I mentioned Descovy share is holding at about 45%, 46% in the first quarter. So we're quite pleased with that. We've obviously been working closely with payers to make sure that patients and providers had choice in their prevention approach. The market is still dampened because of this pandemic as you can appreciate with the social dynamics that we are all living with. Although, we have seen some uptake in the last month or so, we'll see how that plays out. But again I think it's going to be in line with what Andy said which is going to be a bit of a gradual recovery for the PrEP market. But I think, we're very well poised to make sure that once that market gets back to pre-COVID levels, I think we'll be in very good shape in light of our -- holding our share at this level.

Thanks, Johanna.

Our next question comes from Robyn Karnauskas with Truist.

Hi guys, thanks for taking my question. My kids are just sitting in the background there and excited about your earnings call.

We love it.

Very excited. They are very, very excited. I have a -- I just want to thank you for your outreach for India. I have a question about your guidance of $2 billion to $3 billion for Veklury. How do we think about this? I mean it doesn't feel like this is going to go on longer outside the United States than we expect. But obviously some places are cheaper than others. Can you give us some estimates on how do you think of -- general trends on pricing and thanks for what you're doing over there? And then this is a very simple question. You talked a lot upfront about cell therapy. There's still -- there is also off-the-shelf iPSCs. We talked about that a lot. Can you give us any sense if you're interested in augmenting our portfolio with one of those because those are different technologies? And again, my kids basing.

I appreciate your kids loving us. That's terrific. And thank you for acknowledging the efforts of the company for so many countries out there that are streaking with this. Can I ask Johanna to cover the Veklury question and then Christi to cover the cell therapy?

Absolutely. Thanks, Robyn for your question and comment. I think what we've seen with Veklury is a really directly proportional effect with hospitalization rates. And it's kind of what we've been saying for the last couple of quarters and we're seeing it. Yes. I mean you could literally draw the line with the hospitalizations both in the US as well as outside of the US. Where we've seen sales as in the first quarter and I think that's going to continue although to a lesser degree we've seen hospitalizations really come down in the month of March and kind of hold steady unfortunately. And hopefully, they'll keep coming down as months go by and vaccination rates increase. But what we have seen is sales are really coming out in the US, of course, also within our European region as well as Asia. There's a lot of markets in Asia that are also taking full advantage of the benefits of Veklury for their patients their appropriate patients. And so we believe, we've always said that, we think the tail is longer. I know nobody wants to hear that but I think we think the tail is longer than anybody thought originally. And I think that's what we're seeing as we go into Q2 and it will be a gradual recovery. So we do believe that Veklury still will have an important role to play within the next couple of quarters and potentially beyond into 2022. As for some of these -- for example India or other countries that are served by our voluntary licenses. Obviously, those are royalty-free during the pandemic and that is something at a much lower price level. So our price for Veklury hasn't moved. It's well below the value of Veklury for the developed countries. For the developing rolled up it's obviously quite different. With that Christi?

Yes. Thanks, Robyn. Thanks for the question. So you heard a little bit in the beginning from both Merdad and Johanna and maybe Dan that we recently took a really hard look at our portfolio review. A few things are evolving or transforming if you will. Kite had such a success story in bringing the first potential cure for lymphoma. We've transformed now to a company that has multiple brands, franchise basically three indications now and with a couple more to come in the next year. As we look at that, we know a lot more now about how to affect leukemia and lymphoma in this area. So really taking a focus on making sure that we double down on our life cycle management improving the risk-benefit profile of what we have, trying to get patients with combination therapies for et cetera, to ensure we increase the efficacy. That's really our main focus on our core. We are also looking at disrupting what we have today whether it's iPSC, Allo. We do believe eventually the market will be and we'll be trying to drive that way too towards a lower cost off-the-shelf more convenient for patients' treatments. But today unfortunately from what we've seen at the recent congresses and publications and study results, it's a bit further out than we had anticipated just 12 to 18 months ago. So we really need to focus on improving autologous where we have it today, disrupting ourselves in the future. And lastly to your question beyond iPSC -- your question was iPSC, but even beyond that as we look at solid tumor, we really are the partner of choice with our successful manufacturing process, our ability to deliver reliably in a short period of time. We are looking at transformations, really good transformations where we have proof-of-concept in solid tumors where the market will be the largest in the long-term.

Our next question comes from Matthew Harrison with Morgan Stanley.

Great. Good afternoon. Thanks for taking the question. A question on Galapagos and I guess there are two parts here. First part is, you've got these upcoming Toledo readouts. Merdad, maybe you could just comment on what you're potentially looking to see from those readouts given that the duration of those trials is fairly short. So maybe what you would view as sort of a positive outcome. And then I guess, second question is a more sort of broader strategic question here. But if you don't see something that's positive out of those how do you think about the longer-term relationship there? And given that you're the largest shareholder what might you consider in terms of that relationship? Thanks very much.

Great. You want to start Merdad and then I'll follow.

Yes, sure. It's a great question. And I think you -- Matthew you mentioned, I think look where we are now with the Toledo programs is looking for evidence of tolerability and proof-of-concept, proof of principle for that pathway in multiple indications. And I would describe these early small studies as a place to demonstrate that and look to see where the biggest impact could be. I think it's an early part of the longer journey ranging from -- is there a particular indication that we want to pursue further to confirm and expand on the signal to -- do we have the right molecule for that. So I think we view these together with Galapagos, I believe, we view these as sort of, very early in the story of the Toledo program. So we'll be looking to see what those data look like in the near-term. Dan, do you want add.

Sure. So maybe just to you Matthew to just give a little bit of context of people that may not be completely familiar with our relationship with Galapagos. So, of course, there was the filgotinib relationship, but then there was a separate relationship that we went into. As you know, a couple of years ago now. And that was really based on the research platform. And I would say that nothing has really changed in relation to that. I mean one of the reasons to do that was to diversify our approaches from a discovery research perspective across if you like the Gilead Group. I listened hard to the scientists at that time. I continue to listen hard to the scientists today. They think they have a very discriminated platform for screening compounds for first-in-class. And I'll remind you that's really the approach first-in-class which of course comes with some risks some of which we've seen in the later-stage programs. And, of course, Toledo is the most advanced now of those programs. But having said that there are many others within their discovery platform that we continue to be intrigued about. I think it's an important part of our overall inflammation strategy, albeit, at an earlier stage for Gilead. But when we think about our strategic approach that really focuses on immunology and virology as our core scientific skills, we have now obviously leaders in virology built up a really significant presence in oncology with inflammatory disorders really, kind of, the next step and the next stage of our platform where Galapagos presents, I think, one aspect of that but a very important aspect in terms of first-in-class approach. So we continue to be working very closely with our partners at Galapagos to determine what the next screens are and what the next targets are in the concept of our -- the entirety of our inflammation strategy. So thanks, Matt.

Our next question comes from Ronny Gal with Bernstein.

Yes. Just a question on Descovy. The 22% down on the year-over-year. I was wondering if you can unpack those for us. So how much of that was inventory COVID impact in price. So when it comes to price do you think this is a like a one-year giveaway? Or should we expect that kind of a pricing decline every year going forward at least when it comes to the back-class compounds?

Ronny, just at the very end what did you say?

Yes, please.

Are we expecting the price declines this year to be a repeating events every year? Or is this essentially expected to be a onetime decline as to Truvada generic center.

Got you. Okay. Joanna, you got it.

Yes. Thank you. So thanks for that. I didn't hear the last part of that question originally. Yes. So for Descovy the year-over-year, obviously, it does have to do with higher payer discounts. And that was to ensure that patients and providers had choice. And make sure that we didn't have any step at it. And now we do have some step at it for some plan. But for most plans access is very open to make sure that our patients and providers choose which therapeutics is best for them for prevention. And so I think that we will continue to be smart and we will continue to be disciplined in the way that we look at those discussions with our payers, but we're also looking at data that's been pretty clear that shows that if you basically put a step at it you don't actually get the patient on a Truvada generic you actually just lose your patient. And I think as we think about ending the epidemic prevention is a big piece of that. And so that's why choice is so important and that we keep people at risk of HIV making sure that we keep those folks on the medicines that they're on without creating any access restrictions. And so if that's what we need to do moving forward to ensure that that might impact the price as we go. Our intent is obviously to keep the balance between what we do from a payer standpoint, but also what we do from a share standpoint. And that's why we're proud of the fact that we've been able to manage the payer dynamics and actually hold and even grow share in the last quarter.

Our last question comes from Hartaj Singh with Oppenheimer.

Great. Thank you for the question. And I just want to also echo what Robyn said. I think people forget we donated almost one million vials of Remdesivir last year around this time which very few companies have done. Just a quick question on your partnership with Merck. What's the logic behind Gilead I guess leading the US development for the oral and then Merck on the injectable? What was the thinking that went into sort of the parameters of that and then also the cost-sharing and the revenue sharing assumptions? Any color on that would really help. Thank you for the question.

Thanks, Hartaj and believe me it means a lot for you to comment on that for all the colleagues at Gilead who I think feel very strongly about the intrinsic work we do for patients and donations is just one piece of that it's part of our DNA. Andy, I think you're going to answer the question.

Sure. Hartaj, thank you for the question. Look it was relatively simple. You have two outstanding organizations that are deeply experienced at formulation and drug development. Gilead obviously is one of the leading companies globally in terms of coformulating orals. For a single tablet regimen especially in the HIV arena and it made sense I think to both companies that have us take the lead there. And at the same time we recognize that to keep both programs moving forward quickly, it probably made the most sense to have Merck also lead a program and the injectable formulation program is one that was in their sweet spot. So this is a win-win. Both companies will be involved in both programs. And we think by doing that we're going to be able to advance these programs more quickly than we could individually. As far as the cost sharing, we took on more of the cost-sharing, because we have more of the upside, right? So it was a relatively simple. I think we are both bringing great molecules to the collaboration. We're both very excited about what we think these combinations can do in the treatment market both in oral and the subcu injectable formulations. And we recognize that when you looked at the patent life of the two products for instance was different, the franchise that we have in HIV, the impact of these on our existing franchise. When we put it all into the mix, I think there was a clear alignment between the two companies that it made sense at certain revenue levels for Gilead to share disproportionately and more of the revenue or the profits, I should say. But in exchange for that, fairly we had to agree to take a little bit more of the R&D expense, which we are happy to do. So that should -- I think Hartaj that should answer your question.

And Hartaj, I just want to end by thanking our colleagues at Merck. It's terrific. When you get two companies to come together to put patients first to accelerate treatment options for patients in need. And we have a lot of respect for our Merck colleagues. And happy to say that already the collaboration is getting off to a very strong and rapid start. So we look forward to moving fast to make a difference for patients with different treatment options.

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

Thank you, Liz, and thank you all for joining us today. We appreciate your continued interest in Gilead and look forward to updating you on our continued progress.

This concludes today's conference call. Thank you for participating. You may now disconnect.