GILD - NASDAQ

Hello everyone and welcome to the Third Quarter 2023 Gilead Sciences' Earnings Conference Call. My name is Nadia and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Jacquie Ross, Vice President of Investor Relations to begin. Jacquie please go ahead.

Thank you and good afternoon everyone. Just after market close today, we issued a press release with earnings results for the third quarter of 2023. 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 the call to Q&A, where the team will be joined by Cindy Perettie, the Executive Vice President of Kite. Before we get started, let me remind you that we will be making forward-looking statements, including those related to Gilead's business, financial condition, and results of operations, plans and expectations with respect to products, product candidates, corporate strategy, business and operations, financial projections and the use of capital, and 2023 financial guidance, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Gilead and Gilead assumes no obligation to update any such forward-looking statements. Non-GAAP financial measures will be used to help you understand the Company's underlying business performance. The GAAP to non-GAAP reconciliations are provided in the earnings press release, in our supplemental data sheet, as well as on the Gilead website. With that I'll turn the call over to Dan.

Veklury remains an important therapeutic options for hospitalized patients with COVID-19. We recently received approvals from both the FDA and the European Commission to extend use of Veklury in patients with mild- to-severe hepatic impairment. Looking at our pipeline overall, our aggregate progress in 2023 is such that we have already completed most of the milestone events as shown on Slide 6. Our clinical pipeline now includes 27 programs in Phase 2 and 19 in Phase 3. We are looking forward to a busy period of updates from many of these studies in 2024, including those evaluating lenacapavir, Trodelvy and obeldesivir. In summary, it's been another strong quarter of commercial and clinical execution, resulting in important progress for Gilead and the people and communities we aim to serve. With that, I'll hand the call over to Johanna to cover our commercial results. Johanna?

Thank you, Johanna. The clinical highlight of our third quarter was the release of our promising Phase 2 data for Trodelvy in combination with pembrolizumab in first line metastatic non-small cell lung cancer, highlighting Trodelvy's potential to bring a much needed treatment alternative for patients. More broadly, we continue to progress our increasingly diverse pipeline of 60 ongoing clinical programs spanning virology, oncology and inflammation. Starting with our virology programs on Slide 17, we have 10 clinical programs with our long-acting capsid inhibitor lenacapavir including two Phase 3 studies underway in PrEP. I'm pleased to share that we have completed enrollment earlier than anticipated for our Phase 3 PURPOSE-1 trial evaluating lenacapavir for prevention in adolescent girls and young women. Our Phase 3 PURPOSE-2 trial insists [ph] men and trans women and men and non-binary people continues to enroll well and we could have an opportunity to share data from one or both PURPOSE trials in late 2024 ahead of schedule. We are targeting our first approval for lenacapavir in production in late 2025, potentially making lenacapavir the first six-monthly dosing regimen available for PrEP. Turning to treatment, we continue to make strong progress on evaluating nine candidate partners for lenacapavir. Of the remaining candidates, six are already in Phase 1 or 2. We expect to share updates on at least four of these in 2024, including data from our Phase 1 trial of GS-1720, our once weekly long-acting oral integration inhibitor to be combined with lenacapavir and from our Phase 2 ARTISTRY-1 trial evaluating once daily oral combination of lenacapavir and bictegravir for virologically suppressed treatment experienced people living with HIV. We plan to share results from both trials at a conference in early 2024 and we look forward to advancing these programs into the next phase of development. We're also pleased to share that enrollment for our Phase 2 program evaluating our lenacapavir plus bNAbs combination dosed every six months is progressing very well and is another program we expect to update you on next year. Putting this all together, our data continues to support our confidence that lenacapavir has the potential to transform HIV treatment and prevention globally. Turning to oncology on Slide 18. To date, Trodelvy has been delivered to more than 20,000 patients across three approved indications since our launch three years ago. Trodelvy remains the first and only marketed TROP2-directed antibody drug conjugate to achieve meaningful overall survival benefit in two of its indications. With that said, we're seeing both growing real world evidence and clinical trial data supporting not only the approach we're taking for Trodelvy's clinical development across tumor types, but also Trodelvy's unique ADC construct. In particular, trodelvy is the only ADC to have a high 7 to 8 drug to antibody ratio that's able to deliver a highly potent SN-38 payload directly into the tumor microenvironment through its hydrolyzable linker. As a result, in our studies to date, Trodelvy has shown a potentially differentiated safety profile with regards to ILD and stomatitis. We look forward to sharing more emerging Trodelvy data in 2024 as we continue to expand Trodelvy across tumor types and lines of therapy.

Although anti-TIGIT will not work in every tumor type, we're excited to see that DOM has shown encouraging efficacy and tolerability in the tumor types we have advanced into Phase 3 studies including first line non-small cell lung cancer and upper GI cancer. Turning to cell therapy on Slide 21, we are continuing to work to expand the benefits of cell therapy to even more patients with eight ongoing trials in earlier lines, new indications or new settings. We also have an extensive early stage pipeline where we are exploring allergenic CAR-Ts including healthy donor and IPSC derived cell therapies as well as natural killer and invariant natural killer T cell therapies.

Finally, and before I hand over to Andy, the teams progress on key 2023 clinical milestones is shown on Slide 22. As is expected with the diverse and large clinical portfolio, not all our programs will benefit patients the way we hope they will and the ENHANCE and ENHANCE-2 programs evaluating magrolimab have both been discontinued based on futility analyses. The ENHANCE-3 study remains under partial clinical hold in frontline unfit AML and we continue to evaluate the progress of this and other Phase 2 solid tumor trials for magrolimab. With regards to some of the remaining milestones for 2023 as referenced previously, we look forward to sharing data from ARTISTRY-1 at a medical conference in 2024. For our HIV prevention studies, we continue to expect to have our first patient in for the PURPOSE-3 and PURPOSE-4 clinical trials by the end of this year. Additionally, we remain on track to initiate our Phase 2 PALEKONA trial evaluating our potential first in class 222 inhibitor for ulcerative colitis later this year. Our 222 inhibitor represents one of our many oral agents for inflammation. Looking beyond 2023, we will share our target 2024 milestones in due course, but it's already clear that it will be a rich year for data updates for Gilead, including potential updates or regulatory filings for Obeldesivir, lenacapavir, Trodelvy and CAR-T ddBCMA. With that, I'll hand the call over to Andy. Andy?

Finally, and before I hand over to Andy, the teams progress on key 2023 clinical milestones is shown on Slide 22. As is expected with the diverse and large clinical portfolio, not all our programs will benefit patients the way we hope they will and the ENHANCE and ENHANCE-2 programs evaluating magrolimab have both been discontinued based on futility analyses. The ENHANCE-3 study remains under partial clinical hold in frontline unfit AML and we continue to evaluate the progress of this and other Phase 2 solid tumor trials for magrolimab. With regards to some of the remaining milestones for 2023 as referenced previously, we look forward to sharing data from ARTISTRY-1 at a medical conference in 2024. For our HIV prevention studies, we continue to expect to have our first patient in for the PURPOSE-3 and PURPOSE-4 clinical trials by the end of this year. Additionally, we remain on track to initiate our Phase 2 PALEKONA trial evaluating our potential first in class 222 inhibitor for ulcerative colitis later this year. Our 222 inhibitor represents one of our many oral agents for inflammation. Looking beyond 2023, we will share our target 2024 milestones in due course, but it's already clear that it will be a rich year for data updates for Gilead, including potential updates or regulatory filings for Obeldesivir, lenacapavir, Trodelvy and CAR-T ddBCMA. With that, I'll hand the call over to Andy. Andy?

Thank you, Merdad, and good afternoon, everyone. We had another solid quarter as shown on Slide 24, with total product sales excluding Veklury up 5% year-over-year, driven by growth across oncology and HIV, partially offset by lower HCV sales. Total product sales were $7 billion, flat year-over-year, with lower Veklury sales offsetting more than $300 million of growth in our base business. Our non-GAAP results are shown on Slide 25. Product gross margin was 86%, down 85 basis points from last year. R&D was $1.5 billion, up 24% year-over-year, reflecting ongoing clinical trial activities. Third quarter R&D expenses also reflected some sizable wind down costs related to the discontinuation of two Phase 3 magrolimab ENHANCE studies and faster than anticipated enrollment in our Phase 3 PURPOSE-1 and OAKTREE studies, both of which have recently completed enrollment and could accelerate timelines for data readouts in due course. Acquired IPR&D was $91 million, reflecting the Tentarix collaboration announced in August, in addition to other payments associated with ongoing partnerships. SG&A was $1.3 billion, up 7% year-over-year, primarily driven by increased commercial investments, namely in oncology. Moving to tax, our effective tax rate in the third quarter was 7% primarily reflecting a decrease in tax reserves as a result of reaching an agreement with a tax authority on certain tax position. Excluding the settlement, our non-GAAP effective tax rate would have been approximately 16%. Our non-GAAP diluted earnings per share were $2.29 compared to $1.90 for the same period last year. This was primarily driven by growth in our base business, lower tax and lower acquired IP R&D expenses compared to the third quarter of 2022 partially offset by lower Veklury sales and higher R&D and commercial investments. Moving to Slide 26, year-to-date base business revenue has grown 10% year-over-year, highlighting strong performance across virology and oncology. From an OpEx perspective, the investment we have made this year in R&D is notable with a robust and diverse clinical pipeline and with our commercial sales and marketing organization scaled to meet growing demand for our on market oncology portfolio, we continue to expect a moderation of expense growth in 2024 and beyond. Moving to Slide 27, we are updating many of our guidance ranges to reflect our year-to-date performance and our expectations for the rest of the year. Total product sales is now expected to be in the range of $26.7 billion to $26.9 billion, up from $26.3 billion to $26.7 billion previously. We are increasing total product sales excluding Veklury at the midpoint. We now expect the range to be between $24.8 billion to $25 billion, up from $24.6 billion to $25 billion previously. This range represents growth of 7% to 8% for our base business year-over-year and an increase of $650 million at the midpoint from the initial guidance we issued in February. On Veklury, based on our results year-to-date, we now expect full year Veklury sales of approximately $1.9 billion. As always, this remains highly variable and correlated with COVID related hospitalizations. Moving to the rest of the P&L, we continue to expect non-GAAP gross margin to be approximately 86%. On R&D, reflecting the accelerated enrollments and magrolimab discontinuation expenses, our full year non-GAAP R&D expense is now expected to grow approximately 15% in 2023 compared to 2022. Excluding these items, our full year R&D expense is consistent with our prior guidance in the low double digits. Reflecting the Tentarix collaboration closed in the third quarter as well as previously committed acquired IPR&D amounts and known milestone payments from existing collaborations, we now expect non-GAAP acquired IPR&D of approximately $1 billion in 2023. Similar to prior quarters, we will update expected acquired IPR&D expenses if they are incurred during the fourth quarter. We continue to expect non-GAAP SG&A expenses to increase by a high single digit percentage compared to 2022. As a reminder, this includes the one-time legal settlement accrual of $525 million in the second quarter. Excluding this, we continue to expect non-GAAP SG&A expense for 2023 to be down a low single digit percentage compared to 2022. Non-GAAP operating income is expected to be $10.5 billion to $10.8 billion as compared to $10.4 billion to $10.9 billion previously, driven by higher R&D expenses offset by higher product sales. Given certain one- time tax benefits in 2023, we now expect our non-GAAP effective tax rate to be approximately 16% for the full year. Altogether, we now expect our non-GAAP diluted EPS to be between $6.65 and $6.85 per share as compared to $6.45 and $6.80 per share previously. As shown on Slide 28, the chart highlights the continued strength of our business with higher total product sales guidance flowing into the bottom line, which together with the lower expected tax rate more than offsets the higher R&D expenses in the third quarter. On a GAAP basis, our diluted EPS is expected to be in the range of $4.55 and $4.75 per share. Moving to Slide 29, our capital allocation priorities remain focused and unchanged. In the third quarter, we returned $1.3 billion to shareholders through our dividend and repurchase of shares totaling $3.7 billion year-to-date. In the third quarter, we repaid $2.25 billion of senior notes and issued $2 billion in senior notes maturing in 2033 and 2053. Overall, the third quarter was another solid quarter of commercial and clinical execution in an extremely strong 2023 for Gilead so far. Our planning for 2024 is well underway and we've taken steps in the third quarter to continue to evolve our business model and expense structure to set us up for strong execution next year. 2023 has been a year of considerable investment, notably in R&D and we are excited to finally be at the point where many of our key programs will start reading out data. With that in mind, we are preparing for a catalyst rich 2024 and we look forward to sharing more early next year. With that, I'll invite the operator to open the Q&A.

Thank you. [Operator Instructions] Our first question today goes to Geoff Meacham of Bank of America. Geoff, please go ahead, your line is open.

Okay, great. Hi everyone. Thanks for the question. I guess this is for maybe Johanna or for Merdad. Just on lenacapavir, your competitor has highlighted some of the [derm path] (ph) and I wanted to get your perspective on what you've seen in clinical studies, really as well as the early commercial experience. I wasn't sure if you guys view that as a non-issue or something to navigate as you develop lenacapavir for PrEP or various doublets and HIV treatment. Thank you.

Sure. Hey, Geoff, this is Merdad. Thanks for the question. I would say that our DDI profile has been pretty well characterized and is in our label and laid out. As you noted lenacapavir is metabolized by CYP3A and like many other drugs in the class and we -- that's been available and labeled for quite some time. We don't anticipate any changes to our programs based on that. There are no adaptations that we are making in our clinical development program based on that. As you know, we're well on our way in our PURPOSE 1/2 lenacapavir for PrEP studies and have the approval and highly treatment experienced people and have not made any modifications based on any DDI concerns in those trials. And I'd encourage folks to take a look at the label. You can see what's laid out fairly clearly there.

Yes. And maybe just to add to what Merdad said, so we launched Sunlenca, lenacapavir for heavily treatment experience earlier this year. As per Merdad's comments, the label has no contraindication specific to what you were referring to, to opioids or ED drugs and the launch thus far is well underway and access is increasing every day across the U.S., but also other markets including Japan and Europe and we're excited to have an option for these patients that unfortunately have really no other option at this point in time. So very small market opportunity today with the potential for lenacapavir for PrEP as early as late 2025, so very excited as we continue our plans for that.

Nadia, may we have our next question, please?

Our next question goes to Michael Yee of Jefferies. Michael, please go ahead. Your line is open.

Thanks, great. And appreciate the question. Maybe from Merdad coming away from ESMO and some of the recent conferences, obviously a ton of Trop-2 data, and there's a lot of talk around the benefit, particularly in lung, for non-squamous versus squamous. And some of your competitors have modified their studies to be more focused on non-squamous. Can you maybe just talk about how you see the benefits here in the different populations and whether you would consider emphasizing or modifying to be a non-squamous as well to improve probability success? Thank you.

Thanks, Michael, for the question. Yes, look, we had a really interesting ESMO, I think, for all concerned, and I think something that we've been saying for quite some time, is that not all Trop-2 ADCs are equivalent. Right? It's really important to note that there are differences between Trodelvy and the other Trop-2 ADCs in all three components. The affinity of the antibody is two orders of magnitude better. We have a different linker and we have a different payload. That has played out in many ways along the safety spectrum, where we have different adverse event profiles of the two drugs that have clearly emerged. And it's possible now that we're starting to see divergence on the efficacy side as well. Recall that we have shared our EVOKE-02 data, which comprise both squam and non-squamous patients. We have enrolled both squamous and non-squamous patients in our trials, and as one would expect, we do stratify those patients in the studies and we’ll continue to do so. But we're very confident in our approach and with what we've seen so far, and really look forward to being able to share more data from EVOKE-01 next year.

Nadia, next question please?

Our next question goes to Daina Graybosch of Leerink Partners. Diana, please go ahead. Your line is open.

Thank you. A question about Kite. I wonder if you can talk through the specific barriers that are limiting uptake of CAR-T and the second-line large B cell lymphoma indication. And what do you think will be required to upshift the earlier line demand for cell therapy in a large B cell lymphoma, and maybe even a multiple myeloma as well?

Thank you very much for the question, Diana. I think some of the specific barriers that we're observing are more in the U.S. So I might first talk about what we're observing in Europe where we have socialized medicine. We're seeing uptake as soon as we are granted access and reimbursement. And it goes very quickly into the system, because it's a non-fragmented healthcare system. In the U.S., things look a little bit different given the fragmentation of the healthcare system. So the barriers that we're observing in the U.S. are really our ability to treat patients where they are so moving into community oncology. Today, 80% of oncology patients are seen in the community. Most of our authorized treatment centers exist in large academic hospitals. And so what we're doing for the future, and what we think is going to be very important, is that we're able to have authorized treatment centers in the community closer to patients. So that's one important piece. And we continue to open up new treatment centers in the United States. And in fact, this year we should end with somewhere around 140 treatment centers in the U.S., and that will continue to grow in 2024. I think the second piece for barriers is converting stem cell transplants. So physicians who are transplanting patients, they will have a better outcome via the data if they have CAR-T. And so we're working with transplanters on education and really making sure those patients have access to CAR-T in the earlier lines. I think those are two of the larger barriers that we're observing today. And the last piece, I would say, is the excitement with multiple myeloma therapies coming forward. You can imagine the ATCs now we're seeing both lymphoma patients as well as multiple myeloma patients, and that's causing a crunch within those authorized treatment centers. And that's why it's important in the academic medical centers that we're able to expand the number of beds, and secondly, open new authorized treatment centers that can serve both lymphoma and multiple myeloma.

Nadia, may we have our next question, please?

Our next question goes to Chris Schott of JPMorgan. Chris, please go ahead. Your line is open.

Great. Thanks so much for the question. Can you elaborate a little bit more on HIV channel mix dynamics this quarter and how you're thinking about that for 4Q and beyond? I know channel has been a bit of a tailwind over the past year or two. Seems like we're now may be starting to see some headwinds, at least sequentially. And I just was wondering how you think about that progressing from here? Thanks so much.

Sure, Chris, thanks for the question. So you're right, as expected. We've seen some of those favorable pricing dynamics that we'd seen in the last couple of quarters, including in 2022, due to the channel mix, kind of begin to normalize, and you should expect to see kind of the same play from Q3 into Q4. One of the reasons for that had to do with some of the channel – specifically around the channel mix to what you referenced, having to do with some of our government channels being less utilized, where we have higher rebates, and therefore we had pricing [favorability] (ph). We believe a lot of that had to do just stabilization post-COVID around employment rates, inflation, et cetera. So we had benefits that we saw over that probably, I would say four quarters to six quarters or so. And as we kind of shared with you in Q2, we are seeing that normalize out for the second half of this year. And I think you should expect that not only for the next quarter, but then as we go into 2024. And therefore, because of all that, we believe that our HIV sales growth is closely mirroring now more of the market and the demand growth, where we're seeing real strength, both from a market standpoint in treatment and prevention, we're seeing about two points to three points growth in the market when you look at retail and non-retail market, and then, of course, 15% growth in the PrEP market. And then from a demand standpoint, I think obviously with BIKTARVY growing at 12 points year-on-year and DESCOVY continuing to hold on to a very strong share over 40% or so in a competitive market with generics and, of course, new formulations. So more to come as we go into Q4, but hopefully that gives you a better picture of some of the mix of channels.

Thank you. Maybe I have our next caller, please.

Our next question goes to Tim Anderson of Wolfe Research. Tim, please go ahead. Your line is open.

Hi. Thanks for taking our question. This is Adam on for Tim Anderson at Wolfe Research. Also on TROP2, just in light of competitor data, can you provide some more color on just latest thoughts on the competitive dynamics within the class? For example, if Astra

Yes, good question, Adam. So I'm assuming you're referring to some of the data we saw at ESMO with data DXD. We don't believe there is material impact for now anyway, or even in the future for Trodelvy. And the reason for that really has to do with the data itself and the lines of therapy, to your point, I think we've proven very clearly with Trodelvy in second-line TNBC and beyond around the overall survival data that we've shown. And then, of course, showing OS again in HR+/HER2-, although in later lines. I think what we're seeing today in the marketplace is not only are we the leaders in TNBC, we're also leading from an IHC 0 population. And then, of course, looking at sequencing of ADCs posts in HER2, as expected in the HR+/HER2- populations, so quite pleased with our positioning and we don't believe the data that we've seen thus far is going to have a direct impact there.

Yes, I would just add that we continue to expand our programs and continue to want to generate additional data for Trodelvy. So we are very comfortable with where we are. I think our ability to interact with our caregivers and patients now having been on the market for quite some time, is really helping us make sure that we get Trodelvy to as many patients who could benefit from it as possible.

Nadia, may we have our next question, please?

Of course, our next question goes to Salveen Richter of Goldman Sachs. Salveen, please go ahead. Your line is open.

Good afternoon. Thanks for taking my question. Just a question here on the pipeline, just given two data releases that came out. So on the TIGIT gastric data that was presented today, how do we think – or how do you think about the terms, the opportunity, the competitiveness versus standard of care combos and next steps? And then with regard to the multiple myeloma for Arcellx that was presented, it looks to be tracking a Carvykti like profile in relapse refractory multiple myeloma. Could you just walk us through next steps path to market competitive positioning here? Thank you.

Sure. Maybe I'll start with TIGIT and I'll hand it off to Cindy for the multiple myeloma discussion. Yes, I think, look, we find the data that we presented today at the ASCO plenary to really be promising for continued momentum for TIGIT. The data from an ORR standpoint, and I think importantly, the landmark PFS analysis are very promising. It's early data, it's single-arm data, and I think those are all caveats that are appropriate when looking at these. But when you think about the context around what the standard of care PFS and OS are, we think there's certainly promising signals that we could do better than that. So, obviously, what we need to do next is allow these data to mature in ARC-21. And then, of course, we have the 221 study. That is our Phase 3 study, where we will be comparing to standard of care in a randomized Phase 3 trial. We think the data shown today really will help us with momentum in accruing that trial and hopefully demonstrating the promise of TIGIT added onto standard of care, a standard of care like regimen with zim and FOLFOX. We're excited about that Phase 3 outcome, and it really gives us the opportunity to be, we think ahead on that indication compared to the competition in TIGIT. And Cindy, do you want to.

Yes. Happy to. Thank you. So, this is early days, obviously, for the ddBCMA molecule. We have 38 patients worth of data. If I compare it to Carvykti, the population looks more like the LEGEND-2 population. We have 34% extramedillary disease, which is a high risk prognosis patient. And if you look at the LEGEND-2 data, they had 30%. Our overall response rate to date in those 38 patients at 22 months is 100%, and in the LEGEND-2 data is 88% at 25 months. So I do think there is a potential to differentiate on efficacy. We're seeing a differentiation as it relates to the safety profile around the Parkinson syndrome. We are not observing that in any of our patients to date. Obviously, we're going to continue to watch that as we enroll the IMAGINE 1 study and move into our next studies as well. Multiple myeloma is a large market. There is enough room in multiple myeloma to have multiple competitors. But we also feel like we will have a differentiated molecule with Arcellx. So we're looking forward to generating more data and talking to folks about it at ASH.

Thank you, Nadia. We're ready for our next question.

Our next question goes to Tyler Van Buren of TD Cowen. Tyler, please go ahead. Your line is open.

Hey, guys, thanks for the presentation. I have another question, actually on the myeloma program. So assuming that Arcellx's CAR-T ddBCMA data continue to look great at ASH, and the IMAGINE-1 trial does later next year and leads to approval, how prepared have you guys gotten on the manufacturing front in the past year? And do you expect the launch to have a similar trajectory to Yescarta in terms of supply or be significantly better.

Hey there's a number of things that we have learned over the course of the years with Yescarta and around manufacturing, all of which we're applying that knowledge to the manufacturing of the ddBCMA CAR-T. So we plan to launch that out of our facilities at Kite and expect to have a strong launch again. We will be applying Yescarta learnings. So our goal is to be significantly better than we were at the launch of Yescarta.

Thank you, Nadia. We're ready for our next question.

Thank you. Our next question goes to Brian Abrahams of RBC Capital Markets. Brian, please go ahead. Your line is open.

Hi there. Thanks for taking my question. It seems like the long acting HIV combos are moving ahead really well. I was wondering if you could talk a little bit more about the strategic role that the Lenacapavir, Bictegravir daily oral or the weekly 17/20 based combo could play in the HIV competitive landscape. Do you think these could move beyond treatment experienced patients on complex regimens into the earlier lines? Thanks.

Sure, maybe. Johanna, do you want to talk about weekly oral? And I'll do the weekly?

Sure. Thanks for the question, Brian. I think the way we're looking at lenacapavir, bictegravir in the virologically suppressed really has to do with. We've set the standard of care with Biktarvy, and the opportunity now is to ensure that if for some reason there was a reason to switch Biktarvy from a tolerability profile or anything else that they have an option to go to that has a really interesting combination. Right. When you think about a capsid inhibitor as well as an integrase inhibitor. So for us, it's really about the optionality for patients and making sure that this could offer something a little bit different in the daily oral market. And I do think that this will also be a longer term strategy for us as we think about beyond Biktarvy's LOE in 2033. So I would go there and on the weekly just to start, and then I'll kick it over to Merdad to share with you our plans there. On the weekly oral, it's clear from the patient research that we've done in treatment that we really do see benefit not only the daily oral market, but also in the oral weekly, or even potentially even a little bit longer, as we think about what patients are asking for today. So as much as we're very interested in the long actings that are every three months or every six months. We are also making sure that we meet the needs of patients and their requests as they're looking at for some really don't like any injectables or sub Q, and really looking at that weekly oral as potentially expending a little bit the time they don't think about the fact that they have HIV.

Yes, just minor things to add, I would say. We have been focusing our development on what people living with HIV and people who are looking for PrEP options have told us that they're interested in, and that's longer acting oral options and injectable options that are every three months, every six months. And that's what we've been focusing our development program on. And we want to make sure that we provide that optionality to different folks. The other thing about the [indiscernible] to Remember is remember that Lena is a new class of antiretroviral, and that provides caregivers the option to leverage that new class for the appropriate people living with HIV. So our goal as the leader in HIV is to continue to provide as many of the relevant options to people living with HIV and people looking for prevention options as we think are going to be reasonable and valuable. And remember that we think the weekly oral is important enough that we have two programs. So you mentioned 1720. Remember, we also have the program with his islatravir, lenacapavir. So we're very happy with the progress we've made, as you noted, and really on track to provide better options.

Nadia, may we have our next question, please?

Our next question goes to Terrence Flynn of Morgan Stanley. Terrence, please go ahead. Your line is open.

Thanks for taking the question. I was just wondering if you can provide any preliminary thoughts on 2024 spend or margins. Andy, thanks so much.

Hey, Terrence, thanks for the question. Happy to take that. Obviously, in late January or early February, as we customarily do, we'll provide very specific guidance in 2024. What we've said, and I would continue to reiterate, is that as you've seen, our expenses increase over the last couple of years as our portfolio has increased, and again, from our perspective, a very necessary and appropriate increase as we developed what we feel is one of the best and broadest pipelines in the industry, both in virology, oncology, across cell therapy, and at Gilead. We're finally at the level where we're spending on par with our peers, especially on the R&D side. You saw that in the third quarter. So as you think about expenses, going forward, we expect that you will see more moderate growth in expenses over time. We're doing a lot to manage our expenses, as you heard on the last couple of quarters. Maybe the best evidence of that, Terrence, is if you look at our first quarter R&D expenses, our third quarter R&D expenses are essentially flat. So you saw a little bit of a step down from the first quarter. In the second quarter, in the third quarter, we're flat. So you already see that we're kind of, as we said, we're approaching kind of the peak spend, recognizing that we have 60 different clinical programs. If I remember correctly, we have 27 programs in phase, 219 programs in Phase 3. That is very different than the Gilead of prior years that you remember. And it's part of what makes it so excited about where we're going as a company. And the final thing I'd say is you're already seeing the benefits of those investments and the commercial performance that we've talked about for the last two years. So we expect that you will continue to see those benefits in our commercial performance across the entire business, and you're going to see a moderation of expense growth. And again, we'll provide much more specific detail early next year and look forward to talking about this further. Thank you.

Nadia. Our next caller, please?

Our next question goes to Evan Seigerman of BMO Capital Markets. Evan, please go ahead. Your line is open.

Hi, guys. Thank you so much for taking my question. I want one on kind of capital allocation as a function of competitiveness in your respective markets. For example, you have a great moat in virology. How do you think about investment there, say versus oncology, where it's a more competitive marketplace and where we're seeing incremental kind of benefit over time? Maybe some thoughts there. Thank you so much.

Hey, Evan, it's Andy. I'll start. And others may want to jump in as. Look I mean, what we've said historically, and I'd reiterate, is we're always going to follow the science. So we are completely committed to virology, not just HIV, but virology broadly. You see that, for instance, with our progress with oral DESCOVY [ph] as well as other programs, we've also said in virology that a lot of what happens in virology happens in our internal research and that there are less opportunities externally to invest in. That doesn't mean that we won't continue to look for them. And we're going to continue to invest in oncology. We have a much larger oncology organization today, we've increased our internal research and development, and we're still very focused as the third pillar on inflammation. So I would remind people that we have a number of early inflammation programs, including a number in Phase 2 that we're excited about. Merdad highlighted the TROP2 program in his remarks earlier, but that's just one of the programs that we expect to build out over time. So we'll follow the science. We're going to apply capital to each of those areas. If you look back, our capital investment has risen and fallen over time in each of those areas as we've looked at different opportunities. And of course, we're going to continue to invest in cell therapy as part of oncology and more broadly. I should have highlighted that earlier. So the short summary is, we'll follow the science, but all of the areas will receive additional capital over time. Merdad, you want to add anything?

I would just add that our goal has been to diversify the portfolio. We remain committed and think one of our key competitive advantages is our track record and strength in virology. And I would agree with you, Evan, that's critical to our continued success and growth. And we also believe that having more diversity in our portfolio, whether its oncology or inflammation, is going to be really important to our long term future. So our capital allocation will happen on where the best data are, and we make those tradeoffs virtually every day.

Nadia, I think we have time for one last question, please.

Our final question goes to Joe Catanzaro of Piper Sandler. Joe, please go ahead. Your line is open.

Hi everybody. Appreciate you taking my question. I actually had one on Trodelvy within bladder cancer, and appreciate this is a smaller proportion of Trodelvy sales, but just wanted to ask about the potential impact of Padcev's EV-302 data and it moving into the front line and what you could potentially see there with Trodelvy, both maybe in the near term and longer term. Thanks.

So maybe I'll start and then throw it over to Merdad first from a clinical standpoint, what we're thinking from a commercial standpoint, with the data that we saw, I think the standard of care is going to change in first line, clearly, with that data, and we see that as a potential opportunity to actually move up Trodelvy lines of therapy. So right now in the U.S., we do have accelerated approval in the U.S., and we're seeing about 15%, 16% share in bladder cancer, but later lines of therapy. So third line plus, I think with the opportunity to have Padcev kind of move up in the first line setting with Pembro. I think it'll be interesting to see how Trodelvy kind of moves up as we've seen a lot of sequencing from ADCs here as well. So that's in the here and now and maybe Merdad, you want to comment on the clinical development?

Yes, I think it's great news for patients with the data that's come out and we think it does change the paradigm for bladder cancer. I think the other thing I would add to what Johanna said is that we were looking with interest. We don't have data on sequencing, but we're certainly hearing about sequencing and there were data that were shown at ESMO around combining Padcev and Trodelvy where the tolerability profile looked good and the responses looked good. Small study, but we think there continues to be opportunity there for us and having this clarity will help us design where we're going to go from here after our confirmatory trial in second line completes.

Thank you. That's all the questions that we have time for today. I'll now hand back to Dan for any closing comments.

Well, just want to thank the team here and all of you for joining and just maybe end with this reflection, which is Gilead. I don't think we could be more excited about as we wrap up 2023 and head into 2024, about the evolution of our commercial and clinical execution. In particular, 2024 will be a year that's full of key clinical catalysts across our portfolio, and that's really been a culmination over the past several years of investing in a robust and diversified portfolio, many of which were Phase 2 studies that led to Phase 3 studies that we'll be reading out over the course of not only next year, but the years to come. We'll provide more details on all of our 2024 clinical milestones early next year, but in the meantime, maybe just a couple to highlight in a busy year. Obviously on Trodelvy, where the clinical data increasingly highlight that all TROP2 ADCs are not alike. We'll be rolling out data across a variety of disease states in oncology, and we're excited to share data on lung cancer in the first half of 2024 and then maybe to highlight one other one. Lenacapavir will have a rich year of data on the treatment combination candidates, and we continue to target being first to market with our six month long acting PrEPs, starting with readouts next year on our Phase 3 trials and a commercial launch as early as late 2025. With that, as always, feel free to reach out to the IR team here at Gilead, if you have any questions or feedback for the team and we’ll look forward to updating you again early in the New Year. Thank you for joining.